Assignment

Chelsea29440

Ch05_Martocchio_6e.pptx

Home >Human Resource Management homework help >Assignment

Part Two: Retirement, Health Care, and Life Insurance

Chapter Five: Employer-Sponsored Health-Care Plans

5 – ‹#›

Learning Objectives

In this chapter, you will gain an understanding of:

health-care plan concepts.

federal and state laws influencing employer-sponsored health insurance practices.

health-care plan design alternatives, including fee-for-service, managed care, and consumer-driven approaches.

other health-related benefits

retiree health-care benefits.

5 – ‹#›

Overview

The chapter begins with basic definitions, followed by a review of the origins and costs of employer-sponsored plans.

Key regulations pertaining to health-care plans are considered.

Specific types of employer-sponsored plans are reviewed, such as:

fee-for-service plans, managed care plans, consumer-driven health care, and retiree health care benefits.

5 – ‹#›

Defining and Exploring Health-Care Plans

Health-care plans covers the cost of services promoting sound mental/physical health.

Employers can offer these benefits using:

Fully insured plans – contractual relationship with one or more insurance companies to provide services for employees and qualified dependents.

Self-funded plans – the employer chooses benefits to offer, pays for claims, and assumes risk.

5 – ‹#›

Defining and Exploring Health-Care Plans

Fully insured plans.

Insurance companies assume the risk for paying medical claims, and insurers administer the plan.

Understand the difference between:

Individual coverage – a person purchases health insurance outside the employment setting for themselves and their dependents.

Group coverage – an employer-sponsored health-care plan extends coverage to most or all employees.

5 – ‹#›

Exhibit 5.1

Types of Group Plans

5 – ‹#›

Defining and Exploring Health-Care Plans

Fully insured plans.

The insurance policy specifies the amount the insurer pays for medical claims.

Employers pay a premium to establish and maintain health-care plans.

How do insurers determine premiums?

Plan providers use mortality tables and morbidity tables as well as experience ratings to determine terms and premium amounts – known as underwriting.

5 – ‹#›

Defining and Exploring Health-Care Plans

Fully insured plans – determining premium

5 – ‹#›

Mortality tables

Indicate yearly probabilities of death based on such factors as age and sex

Morbidity tables

Express annual probabilities of the occurrence of health problems

Experience ratings

Specify the incident, type, and financial cost of insurance claims for groups

Defining and Exploring Health-Care Plans

Under self-funded plans, the employer offers benefits, pays claims, and assumes all the risk.

Self-funding makes sense when covering employee medical expenses is less than insurance coverage.

Another distinction applying to both fully insured and self-funded plans is:

Single coverage – covered employees receive benefits.

Family coverage offers benefits to the covered employee and qualified dependents.

5 – ‹#›

Defining and Exploring Health-Care Plans

Companies can offer health-care coverage by:

Fee-for-service plans,

Alternative managed care plans,

Consumer-driven health care.

Any can be fully insured or self-funded.

U.S. health care is a multiple-payer system

more than one party is responsible for coverage.

A single-payer system, also called universal health-care systems are

administered and regulated by the government.

5 – ‹#›

Origins of Health-Care Benefits

Predecessors appeared in the late 1800s for mining and railroad workers.

The Great Depression in the 1930s gave us:

Social Security Act of 1935,

Widespread unemployment,

Non-profit Blue Cross was established, and

For-profit companies began fee-for-service plans.

5 – ‹#›

Origins of Health-Care Plans

World War II gave us wage freezes.

Benefits expanded to promote productivity.

Welfare practices were established.

Among those were health-care plans.

In the 1960s:

Government amended the Social Security Act and established Medicare and Medicaid.

Demand exceeded supply causing inflation of health care costs.

5 – ‹#›

Origins of Health-Care Plans

In the 1970s:

ERISA protected employees’ interests.

Health Maintenance Act of 1973 (HMO Act) provided financial incentives for offering HMOs.

Health insurance was discretionary, until:

The Patient Protection and Affordable Care Act (PPACA) required employers to offer health care.

The PPACA also required individuals to have health insurance.

5 – ‹#›

Health-Care Coverage and Costs

Employees

Employer-sponsored health-care provides employees with the means to afford expensive health-care services.

In 2015, 70% of private-sector employees used some form of employer-sponsored health-care plans.

Employers

Companies stand to gain in at least two ways.

There should be less absenteeism leading to higher productivity, service quality, and morale.

Should help employee recruitment and retention.

5 – ‹#›

Health-Care Coverage and Costs

Average monthly premiums in March, 2015:

Single coverage: $390.79/employee and $496.96/union member.

Family coverage: $961.22/employee and $1,263.16/union member.

Since the 1980s, many plans extend coverage to unmarried opposite sex or same sex partners.

In 2015, 32% and 37% respectively, had access to health care benefits.

5 – ‹#›

Health-Care Coverage and Costs

Employee contributions varied considerably.

Single coverage:

overall, employees contributed 22% of the cost with

union workers contributing 13%, and

the lowest paid contributing 27%.

Family coverage:

overall, employees contributed 32% of the cost with

union workers contributing 16%, and

the lowest paid workers contributing 41%.

5 – ‹#›

Health-Care Coverage and Costs

Since 1984, costs have increased more than 450% because of:

5 – ‹#›

Longer life expectancies

Aging baby boomers

Medical advances

Tendency to treat death as unnatural

Types of Medical Expense Benefits

Hospitalization benefits defray expenses associated with treatment in hospitals.

Plans distinguish between:

Inpatient benefits cover expenses associated with overnight hospital stays.

Outpatient benefits cover hospital expenses not requiring overnight stays.

Plans describe the extent of coverage based on a schedule of benefits.

5 – ‹#›

Types of Medical Expense Benefits

Surgical benefits pay for necessary surgical procedures, not usually elective surgeries.

Plans pay expenses according to a schedule of usual, customary, and reasonable charges.

Defined as not more than the physician’s usual charge,

within the customary range of fees charged in the locality,

and reasonable based on the medical circumstances.

Patients must pay any overage expenses.

Physician benefits pay physician fees when in the hospital or when visiting the office.

5 – ‹#›

Regulation of Health-Care Plans

Federal Regulations – Main Actions

5 – ‹#›

HMOA

ERISA

ADA

PPACA

IRS

Regulation of Health-Care Plans

Health Maintenance Organization Act of 1973.

HMOs are regulated at federal and state level.

Employee Retirement Income Security Act of 1974.

Amendments include COBRA, HIPAA, and

Women’s Health and Cancer Rights Act of 1998.

The American with Disabilities Act of 1990.

EEOC oversees enforcement of the ADA.

5 – ‹#›

Regulation of Health-Care Plans

The Patient Protection and Affordable Care Act of 2010 (PPACA)

is a comprehensive law mandating health insurance coverage and sets minimum standards for insurance.

The individual mandate requires individuals have health insurance, either employer-sponsored or by purchasing coverage independently.

The employer mandate requires companies with at least 50 employees offer affordable health insurance to its full-time employees.

5 – ‹#›

Regulation of Health-Care Plans

PPACA.

Employers can avoid penalties by offering minimal coverage to full-time employees and dependents.

Covers at least 60% of expected costs.

Limits employee contributions to 9.5% of income.

Is available to at least 95% of full-time employees.

Distinguishes between health plans that existed prior to enactment and those from after the date.

Grandfathered plans and newer non-grandfathered.

5 – ‹#›

Regulation of Health-Care Plans

PPACA.

Grandfathered plans can lose status if modified by:

Changing insurance carriers for individuals.

Changing coinsurance amounts.

Increase fixed-amount copayments.

Copayments are nominal payments an individual makes as a condition of receiving services

Increase fixed-amount cost sharing.

Decrease costs paid by the employer by 5% or more.

Eliminate benefits specific to health conditions.

5 – ‹#›

Regulation of Health-Care Plans

Reducing or eliminating essential benefits can cause a grandfathered plan to lose its status.

Ambulatory patient services.

Emergency services.

Hospitalization.

Maternity and newborn care.

Pediatric services.

Mental health and substance use disorder services.

Prescription drugs.

Rehabilitation services and devices.

Laboratory services.

Preventative and wellness services and chronic disease management.

5 – ‹#›

Regulation of Health-Care Plans

Companies are known to either “pay or play.”

5 – ‹#›

$2160/year

Failing to offer coverage.

$3240/year

Failing to offer affordable coverage.

Assessed per full-time employee

Regulation of Health-Care Plans

PPACA.

In 2020, the Cadillac tax will apply to high-cost employer-sponsored health plans

Those annually costing more than $10,200 for single coverage or $27,500 for family coverage.

There has been much controversy over PPACA.

Some claim the individual mandate is unconstitutional.

U.S. Supreme Court disagreed.

A second challenge centered on the legality of tax subsidies to individuals purchasing health care.

Again, the U.S. Supreme Court upheld the law.

5 – ‹#›

Regulation of Health-Care Plans

Tax Regulations.

The IRC allows companies to take deductions for providing health plans or paying claims directly.

Rules differ for insurance plans and self-funded plans.

Companies may take deductions for their contribution to health plan premiums

as long as there is no preferential treatment to highly compensated employees.

5 – ‹#›

Regulation of Health-Care Plans

State Regulations.

Every state has laws regulating fully insured plans, overall addressing four areas of responsibility:

Extending coverage to particular services, treatments, and health conditions.

Reimbursing recognized health care providers.

Who must be covered.

Length of time coverage must be available to employees after they leave the company.

National Association of Insurance Commissioners (NAIC) addresses issues for each state.

5 – ‹#›

Health Plan Design Alternatives

The U.S. Bureau of Labor Statistics uses several criteria to distinguish between fee-for-service plans and managed care plan.

A prepaid plan pays health-care providers a fixed amount according to the number of individuals covered by the plan.

An indemnity plan reimburses either the health-care provider or the patient.

5 – ‹#›

Exhibit 5.3

How the National Compensation Survey Determines the Type of Medical Plan Employers Offer

5 – ‹#›

Fee-for-Service Plans

Fee-for-service plans pay a cash benefit either to the employee or to the health care provider.

Pay benefits on a reimbursement basis.

Participants may select any licensed physician, surgeon, or medical facility.

These plans do not rely on networks of health-care providers.

5 – ‹#›

Managed Care Plans

Managed care plans emphasize cost control by limiting choice of doctors and hospitals.

Three common forms of managed care:

Health Maintenance Organizations (HMOs),

Preferred Provider Organizations (PPOs),

And Exclusive Provider plans (EPOs),

Point-of-Service (POS) plans.

5 – ‹#›

Health Maintenance Organizations (HMOs)

Described as prepaid plans because:

Fixed periodic enrollment fees cover members

If services are with a provider in the network

And approved.

Either fully covered or requires a copayment.

Open-access HMOs also require network providers but will cover:

Emergency care outside the network.

5 – ‹#›

Exhibit 5.4

Role of Primary Care Physicians

5 – ‹#›

Types of Health Maintenance Organizations

Prepaid group practices may be:

Staff model HMOs own the medical facilities.

Group model HMOs contract with physicians and cover multiple specialties.

Network model HMOs contract with two or more independent practices and pay a capped fee.

Individual practice associations (IPAs) are partnerships of independent physicians, health professionals and group practices.

5 – ‹#›

Preferred Provider Organizations (PPOs)

A preferred provider organization (PPO),

is where a select group of providers agree to provide services to a given population at a lower level of reimbursement.

In return, the physician’s are guaranteed a minimum patient load.

An exclusive provider organization is similar to a PPO but more restrictive.

Pay on a reimbursement basis and do not require a primary care physician.

5 – ‹#›

Point-of-Service Plans

A point-of-service (POS) plan combines features of fee-for-service plans and HMOs.

Almost identical to PPOs but require a primary care physician, similar to HMOs.

Employees pay a copayment, similar to HMOs.

Employees can receive care outside the network, similar to fee-for-service plans.

5 – ‹#›

Exhibit 5.7

Health-Care Plan Types and Features Based on the U.S. Bureau of Labor Statistics Criteria

5 – ‹#›

Features of Health-Care Plans

Health-care plans share a number of common features.

5 – ‹#›

Deductible

Coinsurance

Out-of-Pocket Maximum

Preexisting Condition Clauses

Preadmission Certification

Second Surgical Opinions

Lifetime and Yearly Limits

Features of Health-Care Plans

Employees must pay for services, or meet a deductible, before the plan pays for benefits.

Coinsurance refers to the percentage paid by the insured, after meeting the deductible.

Most plans specify the maximum amount the insured must pay per calendar year.

Known as out-of-pocket maximum.

A preexisting condition is one treated previous to, and excluded from, coverage.

5 – ‹#›

Features of Health-Care Plans

Plans require preadmission certification of medical necessity for hospitalization.

Second surgical opinions reduce unnecessary surgical procedures, and costs.

Lifetime limits refers to the maximum amount a plan would cover.

Yearly limits refer to the maximum amount a plan would cover each year.

5 – ‹#›

Consumer-Driven Health Care

Battling against raising costs, employers are increasingly adopting a:

consumer-driven health-care plan (CDHP) which combines a pretax payment account with a high-deductible health plan.

High-deductable health insurance plans (HDHPs) require higher deductibles and low out-of-pocket maximums.

5 – ‹#›

Consumer-Driven Health Care

CDHPs are referred to as three-tier systems.

5 – ‹#›

The third tier covers expense amounts above the deductible.

The second tier is the coverage gap, or the difference between the money in the pretax account and the plan’s deductible amount.

The first tier is an account allowing employees to pay for services using pretax dollars.

Consumer-Driven Health Care

Medicare Prescription Drug, Improvement and Modernization Act of 2003,

Permits establishment of health savings accounts (HSAs) for employees enrolled in an HDHP.

Employers may consider two other accounts to help defray costs of medical care:

Health reimbursement arrangements (HRAs)

Only the employer is able to fund HRAs, and

Flexible spending accounts (FSAs).

5 – ‹#›

Consumer-Driven Health Care

FSAs permit employees to pay health-care costs not covered by the insurance plan.

Employees elect the amount to allocate to the plan and use the money for expenses during the year.

A noteworthy drawback is the FSA is a “use it or lose it” provision.

Employers bear some risk from offering FSAs.

Risk-of-loss rules or uniform coverage requirements means employers are obligated to make the full amount of benefits available, regardless of occurence date.

5 – ‹#›

Other Health-Care-Related Benefits

Most health-care plans cover other benefits, often using separate plans, such as:

Dental care, vision care, prescription drugs, and mental health and substance abuse care.

Sometimes, employers rely on carve-out plans which is a contract agreement to provide such special services.

Usually, HMOs and PPOs manage such plans.

5 – ‹#›

Other Health-Care-Related Benefits

Dental insurance may cover routine and necessary procedures.

5 – ‹#›

Dental fee-for-service plans

are similar to medical fee-for-service plans.

Dental service corporations

are nonprofits owned by state dental associations.

Dental maintenance organizations

or dental HMOs are most similar to HMOs.

Other Health-Care-Related Benefits

Vision insurance plans cover eye examinations, lenses, frames, and fittings.

Prescription drug plans cover the cost of drugs dispensed by a pharmacist.

Medical reimbursement plans reimburse some or all of the cost.

Prescription card programs offer prepaid benefits with nominal copayments.

Mail order prescription drug programs dispenses medications treating chronic conditions.

5 – ‹#›

Other Health-Care-Related Benefits

Two cost control features of prescription drug plans are: formularies and multiple tiers.

Formularies are lists of drugs proven appropriate and cost effective.

Multiple tiers specify copayments for specific prescriptions:

Generic,

Formulary brand-name medications, and

Non-formulary brand-name medications.

5 – ‹#›

Other Health-Care-Related Benefits

Mental health and substance abuse plans:

cover the costs of a variety of treatments but benefit amounts vary by type of disorder.

DSM-IV is used to diagnose mental disorders.

The Mental Health Parity and Addiction Equity Act of 2008 established parity requirements for mental health plans offered in conjunction with a group health plan.

5 – ‹#›

Other Health-Care-Related Benefits

Federal law does not require employers to provide maternity care benefits, but

influences how benefits are designed/implemented.

Pregnancy Discrimination Act of 1978 requires employers treat pregnancy as other disabilities.

FMLA allows 12 unpaid work weeks of leave.

Newborns’ and Mothers’ Health Protection Act of 1996 sets minimum standards for the length of hospital stays for mothers and newborns.

5 – ‹#›

Retiree Health-Care Benefits

Since the 1980s, companies encountered a strong financial disincentive to provide health insurance benefits to retired employees for two reasons.

5 – ‹#›

Substantial increases in health care and insurance costs have created financial strain on employers.

Changes in company accounting practices made offering benefits to retirees less appealing.

Retiree Health-Care Benefits

The Financial Accounting Standards Board (FASB) implemented accounted standards.

Financial Accounting Standard (FAS) 106 changed how companies recognize the costs of non-pension benefits on financial balance sheets.

FAS 132 required disclosure of value and costs of retiree health-care programs.

FAS 158 requires further transparency for other postretirement employee benefits.

5 – ‹#›

Summary

The chapter began with basic definitions, followed by a review of the origins and costs of employer-sponsored plans.

Key regulations pertaining to health-care plans were considered, both federal and state laws.

Specific types of employer-sponsored plans were reviewed, such as:

fee-for-service plans, managed care plans, consumer-driven health care, and retiree health care benefits

5 – ‹#›