Risk Management Final Exam Study Guide Topic 10 Employee Benefits Total Compensation Cash Salary Value of Employee Benefits o Employee benefits any type of compensation other than direct wages paid to employees Types of Loss Exposures managed in an employee benefits plan o Loss of Income injury illness unemployment retirement death to EE o Medical care for employee o Loss of productivity for employer Ex Nurses in hospitals are offered child care Ex Employee Assistance Program EAP counseling for employees mental health financial Why are employee benefits so important to employers o For every 1 paid in cash salary 0 40 is paid for employee benefits on average Ranges from 0 18 0 70 0 70 usually paid by unions and government workers Pensions are what drive high costs for unions gov t Types of Employee Benefits o Medical Expenses health insurance Traditional indemnity plan expensive 1980s 95 of employers offered TIPs Today less than 5 offer TIPs Managed Care Plans HMOs POS type PPOs Consumer Driven Health Plans CDHPs High deductible health plan HDHP Specialty Coverages for narrowly defined perils Dental insurance Vision insurance Prescription drug coverage most like insurance o Loss of Income due to retirement Defined benefit plan pension Defined contribution plans most employers use 401 k and or 403 b Social Security retirement OASDI o Loss of income due to disability Occupational disabilities Worker s Compensation 1 Non occupational disabilities Sick leave 7 14 days Short term disability up to 3 months Long term disability longer than 3 months Social security disability OASDI o Loss of income due to death for your dependents Life insurance Survivor benefits under retirement plans Social security death benefits OASDI Worker s comp death benefits if you die on the job o Loss of income due to unemployment Severance package Unemployment insurance not for employees who quit get fired or retire only for those who are laid off offered by states Of people Leaving pool 10 Time collecting unemployment insurance 52 weeks 60 of income up to some cap 350 a week Creates Moral hazard At about 46 weeks lots of people find jobs and leave the pool Which benefits are required to be offered o OASDI federal Unemployment state and worker s compensation social insurance private insurers required by states Why offer benefits rather than cash o Employee earns tax benefit o Attract and retain good employees o Enhance productivity Child care Profit sharing programs Flexible leave programs 2 o Take advantage of group insurance rates economies of scale o Retire employees o Comply with regulations Eligibility vs Participation o Every benefit has certain eligibility standards conditions Ex to get health insurance you must be a full time employee and have a waiting period of 30 days ACA waiting periods must be less than 90 days and employees are considered Full Time if they work more than 30 hours week o Participation a person has satisfied eligibility conditions and engages in the benefit Ex Met all health insurance requirements now you choose to enroll or you contribute to 401 k Benefits Financing o Every benefit has a cost but who pays Non Contributory benefits employer pays entire cost Once eligibility rules satisfied employee automatically enrolled Ex Temple pays vision insurance life insurance of 18 000 Contributory benefits employer and employee share the cost optional for employee Usually employer pays more Once eligibility rules satisfied employee must enroll and make contributions Ex Temple health insurance Ragin pays 409 32 month and Temple pays 1 370 33 month Employee Pay All employee pays entire cost Voluntary benefits Ex supplemental life insurance AD D Ex Temple long term disability for 41 33 month Group Insurance individuals o Single contract between insurer and employer which covers multiple o Employer gets certificate of coverage o Covers employees their dependents and sometimes former employees o Insurer establishes one rate for the group per exposure May be a single rate and a family rate No individual underwriting and no proof of insurability Underwriting is based on the risk of the group Premium is based on broad characteristics 3 Can t exclude any individuals in a group With contributory or employee pay all financing employees may opt out Adverse selection problem Link to being insurable is simply being part of the group Topic 11 Healthcare Benefits Buyers Consumers of Healthcare Patients Employee under employer s plan Individual insured Healthcare Good Sellers Providers Doctors Hospitals Drug companies Medical Device companies Hospitals 90 is paid by third parties Physicians 75 is paid by third parties Incentives o Patient Buyer Third Party Financers Insurers Self insured employer Government Moral hazard because the user price is low Increases quantity demanded and potentially the price Insured has no incentive to act as a traditional consumer o Providers Sellers Payment system is based on fee for service FFS For every service a separate fee is paid Incentive maximize the number of services provided Regardless of insurance doctors are paid FFS Without insurance more concerned about cost and necessity Patients with insurance Providers paid FFS increased utilization of healthcare Who bears the risk of overutilization o Provider NO 4 o Patient A little bit o Insurer YES most of the risk o Employer YES Broad Categories of Healthcare Plans o Traditional Indemnity Plan 1980s 95 of healthcare plans Today less than 4 Complete freedom of choice in providers Insurer s role is to indemnify insured for covered expenses Ex 1 000 in Healthcare Insured pays out of pocket OOP Files a claim with insurer o 100 deductible and 80 20 coinsurance insurer pays 80 insured pays 20 o 900 left to pay 80 720 reimbursed by insurer At a certain level of healthcare consumption moral hazard is less of an issue Total out of pocket max max OOP once the max OOP is reached coinsurance changes from 80 20 to 100 0 With indemnity plans the insurer does not manage costs LIFE ADVICE 4 things to consider in healthcare plan o Deductible o Coinsurance o Max out of pocket o Network Managed Care Plans HMOs PPOs POSs o HMOs Health Maintenance Organization Pays for healthcare provides healthcare Structure of typical HMO Person enrolls in HMO Select primary care physician PCP from a network of doctors PCPs act as gatekeepers for referrals to specialists o Exceptions mental health OBGYN PCP is usually paid via capitation payments o Ex 1