Benefits and Compensation
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Chapter Six
Employer-Sponsored Health Insurance Programs
135
Chapter Outline
Defining and Exploring Health Insurance Programs
Origins of Health Insurance Benefits Health Insurance Coverage and Costs Individual versus Group Insurance Coverage
Regulation of Health Insurance Programs
Federal Regulation Tax Regulations State Regulation
Fee-for-Service Plans Types of Medical Expense Benefits Features of Fee-for-Service Plans Major Medical Insurance Plans: Supplemental and Comprehensive
Managed Care Plans Health Maintenance Organizations Types of Health Maintenance Organizations Features of Health Maintenance Organizations
Preferred Provider Organizations Features of Preferred Provider Organizations
Point-of-Service Plans
Specialized Insurance Benefits Dental Insurance Vision Insurance Prescription Drug Benefits Mental Health and Substance Abuse Maternity Care
Consumer-Driven Health Care
Retiree Health Care Benefits
Summary
Learning Objectives
In this chapter, you will gather information about:
1. Health insurance concepts.
2. Origins of employer-sponsored health insurance programs.
3. Federal and state laws influencing employer-sponsored health insurance practices.
4. Differences between fee-for-service plans and managed care plans.
5. Rationale behind consumer-driven health care plans.
6. Disincentives to offering health care benefits to retirees.
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136 Part Two Retirement, Health, and Life Insurance
So, now, you have a better understanding of your retirement plan and are ready to consider the various options available to provide you with health insurance. Unfortunately, all the differ- ent acronyms involved have quickly turned it into a befuddling alphabet soup—POS, HMO, PPO, FSA. “Yikes!” you exclaim. As you read about these options, you learn that each plan has its own set of coinsurance rates and deductibles. Now, you are really confused!
DEFINING AND EXPLORING HEALTH INSURANCE PROGRAMS
Health insurance covers the costs of a variety of services that promote sound physical and mental health, including physical examinations, diagnostic testing, surgery, hospitalization, psychotherapy, dental treatments, and corrective pre- scription lenses for vision deficiencies. Employers usually enter into a contractual relationship with one or more insurance companies to provide health-related services for their employees and, if specified, employees’ dependents. The con- tractual relationship, or insurance policy, specifies the amount of money the insurance company will pay for particular services such as physical examinations. Employers pay insurance companies a negotiated amount, or premium, to estab- lish and maintain insurance policies. The term insured refers to employees covered by the insurance policy.
Companies can choose from three broad classes of health insurance programs in the United States, including fee-for-service plans, managed care plans, and point-of- service plans, the latter of which combines features of fee-for-service and managed care plans. An emerging class of health insurance programs is based on consumer- driven health care, where employees play a greater role in decisions on their health care, have better access to information to make informed decisions, and share more in the costs. We discuss these types of plans later in this chapter.
It is also important to mention that health care in the United States is classified as a multiple-payer system. In a multiple-payer system, more than one party is responsible for covering the cost of health care, including the government, employers, labor unions, employees, or individuals not currently employed (e.g., retirees, the unemployed, and employees whose employer does not pay for health care coverage). As we will discuss shortly, a variety of forces have contributed to the existence of a multiple-payer health care system in the United States. A multiple- payer system stands in contrast to a single-payer system in which the govern- ment regulates the health care system and uses taxpayer dollars to fund health care, as in Canada and some other countries. Single-payer systems are often referred to as universal health care systems because the government ensures that all its citizens have access to quality health care regardless of their ability to pay. These approaches to health care coverage have been at the heart of political and social debate for years. The debate has taken front stage since President
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Chapter 6 Employer-Sponsored Health Insurance Programs 137
Barack Obama was elected in 2008 to serve as President of the United States. On the table is talk of adopting a universal health care approach, which would essentially shift the responsibility for providing health care coverage from the employer to the federal or state governments. We take up the issues that lie at the heart of this debate in Chapter 11.
Origins of Health Insurance Benefits The predecessor to company-sponsored insurance benefits appeared in the late 1800s for mining and railroad workers. Those companies hired doctors to provide medical services to employees. The hazardous work of railroad workers, miners, and employees in other industrial businesses led to frequent illnesses and injuries, employee absences from work, and costly disruptions to these businesses. In those days, working-class employees could not readily afford to pay for medical serv- ices, so employers quickly recognized that bearing such costs would help main- tain a more productive workforce.
The Great Depression of the 1930s gave rise to employer-sponsored health insurance programs. Widespread unemployment made it impossible for most indi- viduals to afford health care. During this period, Congress proposed the Social Security Act of 1935 to address many of the social maladies caused by the adverse economic conditions, incorporating health insurance programs. However, President Franklin D. Roosevelt opposed the inclusion of health coverage under the Social Security Act. Health insurance did not become part of the Social Security Act until an amendment to the act in 1965 established the Medicare program.
The government’s choice not to offer health care benefits created opportuni- ties for private sector companies to meet the public’s need. In the 1930s, hospi- tals controlled nonprofit companies that inspired today’s Blue Cross and Blue Shield plans. At the time, Blue Cross plans allowed individuals to make monthly payments to cover the expense of possible future hospitalization. For-profit companies also formed to provide health care coverage, creating fee-for-service plans.
In the 1940s, local medical associations created nonprofit Blue Shield plans, which were prepayment plans for physician services. Also, the federal govern- ment imposed wage freezes during World War II, which did not extend to employee benefit plans. Many employers began offering health care benefits to help compete for and retain the best employees, particularly during the labor shortage when U.S. troops were overseas fighting in the war. Also, employers rec- ognized that they could promote productivity with healthier workforces. Without the assistance of employer-sponsored health insurance, employees could not afford to pay for medical services on their own. Many companies sought ways to promote productivity and morale through the implementation of welfare prac- tices. In Chapter 1, we defined welfare practices as “anything for the comfort and improvement, intellectual or social, of the employees, over and above wages paid, which is not a necessity of the industry nor required by law.”1 Health insurance programs were among these practices.
Many companies discontinued health insurance benefits soon after the govern- ment lifted the wage freeze. The withdrawal of these and other benefits created
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138 Part Two Retirement, Health, and Life Insurance
discontent among employees, who viewed benefits as an entitlement. Legal bat- tles ensued based on the claim that health protection was a fundamental right. In unionized companies, health insurance benefits became a mandatory subject of collective bargaining.
The 1950s were relatively uneventful years regarding employee benefits. In the 1960s the federal government amended the Social Security Act. Titles XVIII and XIX of the act established the Medicare and Medicaid programs, respectively (see Chapter 7). These public programs provided access to health care services for a wide segment of the U.S. population in a relatively short period. The demand for health care services rose quickly relative to the supply of health care providers, prompting inflation in the price of health care services.
Congress enacted the Employee Retirement Income Security Act of 1974 to pro- tect employee interests (see Chapter 3). By providing financial incentives to com- panies, subject to becoming federally qualified, the Health Maintenance Organization Act of 1973 (HMO Act) promoted the use of health maintenance organizations. We discuss the HMO Act later in the chapter.
Since the 1970s, substantial emphasis has been placed on managing costs, and consideration has been given to providing coverage to the uninsured (e.g., the failed national health care proposal under former President Bill Clinton). Some factors have eroded health insurance practices in companies. Unionized compa- nies set the standards for employee benefits practices. In the 1980s, unions made concessions on wages and benefits in exchange for promises of greater job secu- rity. Also, the decline in the manufacturing or goods-producing sector (e.g., auto- mobiles, steel, mining), which was traditionally highly unionized, gave way to the typically nonunion service and information sectors of the economy (e.g., health care industry, retail trade, and high-technology companies, such as software development). Further, foreign competition created pressures, forcing U.S. com- panies to reduce costs. For example, many U.S. manufacturers moved operations to foreign countries with cheaper labor and fewer legal protections for employees (e.g., People’s Republic of China, India). Notwithstanding these pressures, health insurance still is the mainstay of employee benefits programs in companies.
Health Insurance Coverage and Costs Both employees and employers place a great deal of significance on company- sponsored health insurance benefits. Of course, company-sponsored programs provide employees with the means to afford expensive health care services. Companies stand to gain from sponsoring these benefits in at least two ways, as we noted before. First, a healthier workforce should experience a lower incidence of sickness absenteeism. By keeping absenteeism in check, a company’s overall productivity and product or service quality should be higher. Second, health insurance offerings should help the recruitment and retention of employees. Not surprisingly, a large percentage of companies include health insurance programs as a feature of employee benefits programs, extending coverage to substantial numbers of employees and their dependents. At the same time, the rampant rise in health care prices is putting substantial pressure on cost-conscious companies.
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At the time of this book’s publication, the most recent comprehensive national data indicate that 71 percent of all private sector employees had access to at least one employer-sponsored health insurance program in 2008.2 Employees’ access to health insurance programs varies by their company’s size, industry group, and union presence. A higher percentage of employees in larger companies had access to employer-sponsored health insurance than employees in smaller companies.
This is also the case for employees in goods-producing companies compared to service-providing companies, and for union employees compared to nonunion employees. Exhibit 6.1 illustrates these facts in greater detail.
Health insurance premiums are quite high, often amounting to as much as one- third of annual benefits costs. In March 2006 (the most recent data available at the time of publication), the average monthly health insurance premium was $266.50 per employee for single coverage.3 Single coverage extends benefits only to the covered employee. Family coverage is substantially higher, averaging $617.18 per employee.4 Family coverage offers benefits to the covered employee and his or her family members as defined by the plan (usually the spouse and children). Since the 1980s, many insurance plans have extended family coverage to unmar- ried heterosexual or homosexual domestic partnerships. Domestic partnership is established by providing evidence of living together, financial interdependence, and joint responsibility for each other’s welfare.
Many private sector companies require employees to contribute a portion of health insurance premiums because of their considerable cost.5 In 2008, employee contributions represented a relatively small percentage of the health insurance premiums. Employees with single coverage contributed nearly 17 percent, and those with family coverage contributed nearly 29 percent.
Health insurance premiums are likely to increase based on the trend in prices for medical services. For example, the prices for medical care services overall have increased more than 300 percent since 1982 (compared to a 115 percent increase for all goods and services purchased by consumers during the same period).
The substantially higher rate increases for medical services may be explained by several factors:
• Longer life expectancies. • Aging baby-boom-era individuals, who place higher demands on health care. • Advances in medical research that add diagnostic tests and treatments, such as
substantially more effective (and expensive) treatments to save low-birth-weight babies.
• A general tendency for the health profession and family members to treat death as unnatural rather than as a natural ending to life, leading to higher expendi- tures to prolong the lives of the terminally ill.
There is no reason to expect that health care costs will decrease in the foresee- able future. Continuing medical research, more advanced diagnostic tools, and higher demand due to the aging population and the desire for better treatment will contribute to higher costs.
Chapter 6 Employer-Sponsored Health Insurance Programs 139
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Individual versus Group Insurance Coverage Companies offer employees coverage under health insurance programs on either an individual policy or group policy basis. Individual coverage extends insurance protection to a named employee* and possibly to his or her dependents, including the spouse and children. The insurance provider (indemnity plan through an insurance company, a health maintenance organization, a preferred provider organization, or a point-of-service plan) issues separate policies to every covered individual and conducts transactions directly with them. These transactions include the collection of premiums and the settlement of claims for benefits from the insured. Under individual plans, insurance providers require that prospective participants furnish evidence of health status based on a medical examination. Insurance providers use mortality tables and morbidity tables to decide whether to offer insurance and, if so, the terms and premium amount. This decision-making process is known as underwriting. Mortality tables, created by actuaries, indicate yearly probabilities of death based on such factors as age and sex. Morbidity tables, also created by actuaries, express annual probabilities of the occurrence of health problems. In general, insurance companies set insurance rates higher as the probability of death or the occurrence of health problems increases.
Group coverage extends coverage to a group of employees and their depend- ents under a single master contract. Insurance providers issue master contracts to employers, professional associations, labor unions, and trust funds established to provide health insurance to designated people. These entities are known as group policyholders. The underwriting process is somewhat different for group policies. Group policies generally do not exclude any group member based on health sta- tus. Instead, they focus mainly on establishing the premium for the master con- tract, usually expressed on an annual basis. Insurance providers use experience ratings issued by actuaries to set premiums. Experience ratings specify the inci- dence, type, and financial cost of insurance claims for groups (i.e., everyone as a whole covered under a group plan). Experience ratings hold employers (and other group entities described earlier) financially accountable for past claims, establish- ing the basis for charging different premiums.
Earlier, we referred to a variety of group policyholders including employers and trusts. Exhibit 6.2 describes the categories of group plans based on the type of policyholder.
REGULATION OF HEALTH INSURANCE PROGRAMS
A variety of federal and state laws affect employer and insurer practices, respec- tively. Every state has regulations pertaining to health insurance programs.
Federal Regulation The main federal laws influencing employer-sponsored health insurance pro- grams include the Health Maintenance Organization Act of 1973, the Employee
*We will also use the terms covered individual, insured, and participant interchangeably.
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Retirement Income Security Act of 1974, and the Americans with Disabilities Act of 1990. Tax regulations issued by the Internal Revenue Service may influence employer-sponsored health insurance practices.
The Health Maintenance Organization Act of 1973 Health maintenance organizations (HMOs) are regulated at both federal and state levels. At the federal level, HMOs are governed by the Health Maintenance Organization Act of 1973 (HMO Act),6 amended in 1988, to encourage employers to include HMOs as a choice in their benefits programs. Congress enacted the HMO Act based on the idea that HMOs are a viable option of financing and delivering health care. Companies must offer HMOs if they are subject to the minimum wage provisions of the Fair Labor Standards Act (Chapter 4). The act spurred the growth of HMOs by making development funds available to qualifying HMOs and imposing a dual choice requirement on employers that sponsored health ben- efits programs. Qualified HMOs provide basic and supplemental health services that follow the U.S. Department of Health and Human Services guidelines, and demonstrate sound finances to minimize the likelihood of insolvency. Under the dual choice requirement, employers with at least 25 employees had to offer at least one HMO as an alternative to a fee-for-service plan when an HMO formally offered its services to an employer’s workforce.
The dual choice requirement was eliminated in 1995 to allow HMOs and other types of health care programs to compete on a more equal footing in two ways. First, employers now can negotiate rates based on the expected experience of their employee population. That is, the premium amount varies by the likelihood that employees will use HMO services. Oftentimes, HMOs and employers review
• Single-employer arrangements. An employer arranges for group coverage of all employees under one policy.
• Pooled coverage. An employer pools money with other employers to provide coverage for its employees under one policy. Oftentimes, employers in the same industry with similar workforces use pooled arrangements. Employer contributions are based on a percent of payroll, cents per hour, or dollar amount per worker per week or per month.
• Multiple employer welfare arrangements. This arrangement offers health insurance and other benefits to the employees of two or more unaffiliated employers, except for any arrangement established or maintained by a collective bargaining agreement.
• Multiple employer trusts. This arrangement is made for employers with relatively small workforces. A single master trust holds each employer’s contributions, and insurance premiums are paid from the trust.
• Voluntary employee beneficiary associations. This arrangement permits tax-deductible contributions to a trust to fund health care benefits or other types of employee benefits. The return on investment of contributions is also tax-free.
• Collective bargaining agreements. A labor union can negotiate the terms of health insurance coverage for its members and members of the bargaining unit with employers.
EXHIBIT 6.2 Types of Group Plans
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recent usage of HMO services to predict future usage. Employers whose employ- ees tend to use HMO services more extensively pay higher premiums than employers whose employees tend to use HMO services less extensively.
Second, the HMO Act promotes more equal competition because employers may not financially discriminate against employees choosing an HMO option. In other words, companies must make the same percentage contribution toward an HMO’s premium as they do to provide other health insurance plans. Suppose, for example, that an employer has paid 75 percent of the premiums for traditional indemnity plans. Previously, this employer paid only 40 percent of the premiums to provide HMO coverage. Contributing less is no longer acceptable. This employer now must pay at least 75 percent of the HMO premium to remain in compliance with the HMO Act.
The Employee Retirement Income Security Act of 1974 (ERISA) In Chapter 4, we discussed that ERISA heavily governs the operation of pension plans and welfare plans. The definition of welfare plans encompasses medical, surgical, or hospital care or benefits, or benefits in the event of sickness.7 Four parts of Title I (protection of employee rights) apply to welfare plans:
• Reporting and disclosure. • Fiduciary responsibilities. • Continuation coverage. • Additional standards for group health plans, and group health plan portability,
access, and renewability requirements.
The latter two provisions are amendments to ERISA since its passage in 1974. The Consolidated Omnibus Budget Reconciliation Act of 1985 established continuation coverage and additional standards for group health plans. The Health Insurance Portability and Accountability Act of 1996 created standards for group health plan portability, access, and renewability requirements. Chapter 4 includes a discussion of these ERISA provisions.
An additional amendment to ERISA, the Women’s Health and Cancer Rights Act of 1998,8 requires group health plans to provide medical and surgical benefits for mastectomies. Medical and surgical benefits must cover surgical reconstruc- tion of either breast for a symmetrical appearance.
As we know, ERISA protects the rights of employees in retirement and welfare benefit plans. However, a recent Supreme Court decision imposes limits on patients’ rights to sue HMOs for malpractice or negligence in particular circum- stances. The Court reasoned that states with patient protection laws exceeded their authority by enacting laws that interfere with ERISA’s exclusive remedy in private sector employee benefit matters.
The Americans with Disabilities Act of 1990 The Americans with Disabilities Act of 1990 (ADA)9 prohibits illegal discrimination in employment practices on the basis of disability. The U.S. Equal Employment Opportunity Commission (EEOC), the government entity that oversees the
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administration and enforcement of the ADA, ruled that employers are required to provide the same health insurance coverage to employees regardless of disability status. Meanwhile,
Congress recognized . . . that some types of benefit plans rest on an assessment of the risks and costs associated with various health conditions in accordance with accepted principles of risk assessment. As a result, the ADA permits employers to make disability-based distinctions in employee benefit plans where the distinctions are based on sound actuarial principles or are related to actual or reasonably antici- pated experience.10
The EEOC requires employers to justify disability-based distinctions in health plans. Companies can justify disability-based distinctions with two justifications: by demonstrating that the health plan is bona fide, and that the plan is not a sub- terfuge to evade the purposes of the ADA. Exhibit 6.3 contains an elaboration of the bona fide plan and subterfuge justifications.
The EEOC applies different standards for disability-based treatment between physical health conditions and mental health conditions. Specifically:
The Commission has also taken the position that it is not necessarily a disability- based distinction if an employer’s health insurance plan provides unequal benefits for mental conditions compared to physical conditions. This is because, in the con- text of health insurance, the term “mental conditions” covers, for example, not only impairments like schizophrenia and major depression—which likely would be dis- abilities under the ADA—but also counseling for grief, self-esteem, or marital prob- lems, which are not impairments and so are not ADA disabilities.
As a result, a distinction in a health insurance plan’s coverage of expenses for treatment of physical, as compared with mental, conditions (a) constitutes a broad distinction that covers a multitude of dissimilar conditions, and (b) limits both indi- viduals with and those without disabilities. Such distinctions in health insurance plans thus will not generally violate the ADA.11
Tax Regulations The Internal Revenue Code (Chapter 4) allows companies to take deductions for providing health insurance coverage. The rules differ according to whether health insurance plans are self-funded. We discuss this distinction in more detail later in this chapter. For now, self-funding or self-funded plans pay benefits directly from an employer’s assets. Companies may take tax deductions for the amount of money they contribute toward health insurance premiums for non-self-funded plans subject to the following restrictions: Employers do not give preferential treatment to highly compensated employees regarding the level of benefits received, unless based solely on employees’ compensation or years of service.
State Regulation A variety of state laws regulate health insurance company practices. As we discuss later, employers may contract with health insurers—that is, companies offering fee-for-service plans or a managed care arrangement. Alternatively, employers may choose self-funding as a basis to provide health care benefits to employees. State regulation of health benefits does not influence self-funded plans.
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Every state has laws regulating health insurers’ practices. State laws mandating health benefits require that insurance companies include certain health benefits in insurance policies offered or make particular optional health benefits available upon request. Overall, these laws address four areas of responsibility:
• Extending coverage to particular services, treatments, or health conditions (e.g., substance abuse treatment).
• Reimbursing recognized health care providers for health care services. • Individuals who must be covered by health insurance policies (e.g., adopted
children). • Length of time coverage must be available to employees terminating employment.
Laws vary from state to state. Every state includes a department that oversees insurance regulations. These data are available to the public upon request. Also,
Bona Fide Plans
Under the first prong of the defense, an employer must demonstrate that its plan is either a bona fide insured plan that is not inconsistent with state law, or a bona fide self-insured plan. To be bona fide, a plan must exist and pay benefits; in addition, the terms of the plan must have been accurately communicated to eligible employees. To determine whether a plan meets this standard, investigators typically need simply obtain a copy of the employer’s plan documents and confirm that benefits have in fact been paid.
Subterfuge
The term subterfuge refers to disability-based disparate treatment in an employee benefit plan that is not justified by the risks or costs associated with the disability—that is, to disability-based distinctions that are not “based on sound actuarial principles or related to actual or reasonably anticipated experience.” Whether a provision of a benefit plan is a subterfuge must be determined on a case-by-case basis. There are several ways that an employer can prove that a disability-based distinction in a benefit plan is not a subterfuge. Among possible justifications are the following:
• The employer may prove that it has not engaged in the disability-based disparate treatment alleged. • The employer may prove that the disability-based disparate treatment is justified by legitimate actuarial
data, or by actual or reasonably anticipated experience, and that conditions with comparable actuarial data and/or experience are treated the same way.
• Actuarial data will measure both the likelihood that the employer will incur insurance costs related to the disability and the magnitude of those costs as they arise. Thus, employers must show that the reduction in coverage for the disability or disabilities is required to account for an increased possibility that the benefit will be claimed or that the amounts required for coverage will be higher. Employers may not, however, rely on actuarial data that is outdated or that is based on myths, fears, stereotypes, or assumptions about the disability at issue.
• Even where employers can produce actuarial data that demonstrates that the risks and costs of treatment of a condition justify differential treatment of it, employers must also show that they have treated other conditions that pose the same risks and costs the same way. If there is evidence that an employer has treated other conditions differently from the disability at issue, the employer has discriminated by singling out a particular disability for disadvantageous treatment. Investigators should find cause.
EXHIBIT 6.3 Justifications for Disability-Based Distinctions
Source: U.S. Equal Employment Opportunity Commission. October 3, 2000. EEOC Compliance Manual. Washington, DC. Online at www.eeoc.gov/docs/benefits.html. Justifications for Disability-Based Distinctions. Accessed April 19, 2009.
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the National Association of Insurance Commissioners (NAIC),12 a nonprofit organization, addresses issues concerning the supervision of insurance within each state (www.naic.org).
FEE-FOR-SERVICE PLANS
Three long-standing forms of health insurance programs include fee-for-service plans, managed care plans, and point-of-service plans. Larger employers com- monly offer employees one or more types of health insurance programs. We dis- cuss each of these in turn.
Fee-for-service plans provide protection against health care expenses in the form of a cash benefit paid to the insured or directly to the health care provider after the employee has received health care services. These plans pay benefits on a reimbursement basis. Three types of eligible health expenses are hospital expenses, surgical expenses, and physician charges. Under fee-for-service plans, policyholders (employees) may generally select any licensed physician, surgeon, or medical facility for treatment, and the insurer reimburses the policyholders after medical services are rendered.
Two types of fee-for-service plans are available. The first type, indemnity plans, is based on a contract between the employer and an insurance company. The contract specifies the expenses covered and the rate. The second type, self- funded plans, operates in the same fashion as indemnity plans.
The main difference between insurance plans offered by independent insur- ance companies and self-funded insurance plans centers on how benefits pro- vided to policyholders are financed. When companies elect indemnity plans, they establish a contract with an independent insurance company. Insurance compa- nies pay benefits from their financial reserves, which are based on the premiums companies and employees pay to receive insurance. Companies may instead choose to self-fund employee insurance. Such companies pay benefits directly from their own assets, either current cash flow or funds set aside in advance for potential future claims. The decision to self-fund is based on financial considera- tions. Self-funding makes sense when a company’s financial burden of covering employee medical expenses is less than the cost to subscribe to an insurance com- pany for coverage. By not paying premiums in advance to an independent carrier, a company retains these funds for current cash flow.
Types of Medical Expense Benefits Fee-for-service plans provide three types of medical benefits under a specified policy: hospital expense benefits, surgical expense benefits, and physician expense benefits. Sometimes, companies select major medical plans to provide comprehensive medical coverage instead of limiting coverage to the three specific kinds just noted, or to supplement these specific benefits.
Hospitalization Benefits Hospitalization benefits defray expenses associated with treatment in hospitals. Fee-for-service plans distinguish between inpatient benefits and outpatient benefits.
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Inpatient benefits cover expenses associated with overnight hospital stays, while outpatient benefits cover expenses for treatments in hospitals not requiring overnight stays. Fee-for-service plans also describe the extent of coverage based on a schedule of benefits, usually expressed as the daily amount of the hospital stay.
Inpatient benefits fall into two categories: room and board, and other related benefits. Room and board benefits defray the costs of overnight hospital stays, including the room fee and related expenses. Typical related expenses are nursing care and meals. Fee-for-service plans usually specify coverage for a designated number of days per hospital stay. The second category, other related benefits, defrays a variety of costs associated with hospital stays. These costs include physician- ordered services (e.g., consultation with a physical therapist), pharmaceutical prod- ucts, laboratory services (e.g., analysis of blood samples), X-rays, and the use of operating rooms.
Outpatient benefits apply to treatments and related expenses not associated with overnight hospital stays. Three types of outpatient benefits include emer- gency room treatment, preadmission testing, and surgery. Emergency room treat- ment applies to the sudden onset of serious illness or the occurrence of accidents. As the name implies, preadmission testing takes place within a few days prior to hospital admission for surgical procedures. The goal is to determine whether a patient possesses a medical condition that could place him or her at risk for com- plications or death from surgery (e.g., an abnormal heart rhythm). Outpatient ben- efits also cover surgical procedures not requiring overnight stays. Increasingly, medical advancements enable treatment of serious health conditions that avoids close monitoring by doctors and nurses for a period of days following surgery.
Surgical Benefits Surgical expense benefits pay for medically necessary surgical procedures but usu- ally not for elective surgeries such as cosmetic surgery. Generally, fee-for-service plans pay expenses according to a schedule of usual, customary, and reasonable charges. The usual, customary, and reasonable charge is 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. Whenever actual sur- gical expenses exceed the usual, customary, and reasonable level, the patient must pay the difference. Finally, such policies cover a physician’s charges for services rendered in the hospital on an inpatient or outpatient basis, as well as office visits.
Physician Benefits Physician benefits defray the costs of physician fees associated with hospital stays or office visits. In extenuating circumstances, fee-for-service plans provide cover- age for home visits. Extenuating circumstances usually refer to instances when travel to a medical facility would jeopardize a patient’s life.
Features of Fee-for-Service Plans Fee-for-service plans contain a variety of stipulations designed to control costs and to limit a covered individual’s financial liability. Common fee-for-service stip- ulations include deductibles, coinsurance, out-of-pocket maximums, preexisting
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condition clauses, preadmission certification, second surgical opinions, and max- imum benefits limits.
Deductible A common feature of fee-for-service plans is the deductible. Over a designated period, employees must pay for services (i.e., meet a deductible) before insurance benefits become active. The deductible amount is modest, usually a fixed amount ranging anywhere between $100 and $500, depending on the plan. Alternatively, deductible amounts may depend on annual earnings, either expressed as a fixed amount for a range of earnings or as a percentage of income. Fee-for-service plans usually apply separate deductible amounts for each type of coverage (i.e., hospital- ization, surgical, and physician expenses). In other words, insured individuals must pay a specified amount for hospitalization, surgical, and physician expenses, respec- tively. Exhibit 6.4 illustrates deductibles based on annual salary. The deductible fea- ture applies to a designated period, usually a one-year period that corresponds with the calendar year or the company’s benefit plan year (see Chapter 11).
Coinsurance Insurance plans feature coinsurance, which becomes relevant after the insured pays the annual deductible. Coinsurance refers to the percentage of covered expenses paid by the insured. Most indemnity plans stipulate 20 percent coinsur- ance. This means that the plan will pay 80 percent of covered expenses while the policyholder is responsible for the difference—in this case, 20 percent.
Coinsurance amounts vary according to the type of expense. Most commonly, insurance plans apply no coinsurance for diagnostic testing and 20 percent for other medical services. Many insurance plans provide benefits for mental health services. Coinsurance rates for these services tend to be the highest, usually 50 percent.
The benefits described in this summary represent the major areas of coverage. The plan year is July 1 through June 30 of the following year.
Plan year deductible The plan year deductible is indexed to salary for employees. See the following table for current plan year information.
Additional deductibles Each emergency room visit $200 Non-PPO hospital admission $200 Transplant deductible $100
Employee’s Annual Salary (Based on each employee’s Member Plan Family Plan Year annual salary as of April 1) Year Deductible Deductible Cap
$52,700 or less $250 $300 $52,701–$66,000 $350 $400 $66,001 or more $450 $550 Retiree/annuitant/survivor $250 $300 Dependents $200 NA
EXHIBIT 6.4 Plan Year Deductibles
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Out-of-Pocket Maximum As discussed earlier, health care costs are on the rise. Despite generous coinsurance rates, the expense amounts for which individuals are responsible can be stagger- ing. Oftentimes, these amounts are beyond the financial means of most individuals. Thus, most plans specify the maximum amount a policyholder must pay per cal- endar year or plan year, known as the out-of-pocket maximum provision.
The purpose of the out-of-pocket maximum provision is to protect individuals from catastrophic medical expenses or expenses associated with recurring episodes of the same illness. Out-of-pocket maximums are usually stated as a fixed dollar amount and apply to expenses beyond the deductible amount. Unmarried individuals often have an annual out-of-pocket maximum of $1,000, and family out-of-pocket maximums are as high as $3,500. For example, an insur- ance plan specifies a $200 deductible. An unmarried person is responsible for the first $200 of expenses plus additional expenses up to $800 per year—that is, the out-of-pocket maximum—for a total of $1,000.
Exhibit 6.5 shows an example of an out-of-pocket maximum as well as coin- surance rates and deductible amounts for specific services.
Preexisting Condition Clauses A preexisting condition is a condition for which medical advice, diagnosis, care, or treatment was received or recommended during a designated period preceding the beginning of coverage and for which coverage is excluded. The designated period for preexisting conditions usually spans between three months and one year. Insurance companies impose preexisting conditions to limit their liabilities for serious medical conditions that predate an individual’s coverage. As discussed in Chapter 4, the Health Insurance Portability and Accountability Act of 1996
General Deductibles: $1,250 per Individual; $2,500 per Family per Plan Year
Professional and physician coinsurance (20%) Physician network, where available (10%) PPO inpatient coinsurance (10%) Transplant deductible ($100) Transplant inpatient and outpatient coinsurance (20%) Standard hospital coinsurance (20%) Standard hospital admission deductible ($200) All emergency room deductibles ($200) Emergency room coinsurance (20%)
The Following Do Not Apply toward Out-of-Pocket Maximums:
• Prescription drug benefits or copayments. • Mental health substance abuse benefits, coinsurance, or copayments. • Notification penalties. • Ineligible charges (amounts over usual and customary and charges for noncovered
services).
EXHIBIT 6.5 Deductibles and Out-of- Pocket Maximums
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places restrictions on the use of preexisting condition clauses based on credits for prior coverage under a former employer’s health plan.
Preadmission Certification Many insurance plans require preadmission certification of medical necessity for hospitalization. Specifically, physicians must receive approval from a registered nurse or medical doctor employed by an insurance company before admitting patients to the hospital on a nonemergency basis—that is, when a patient’s life is not in imminent danger. Insurance company doctors and nurses judge whether hospitalization or alternative care is necessary. In addition, they determine the length of stay appropriate for the medical condition. Precertification requirements reserve the right for insurance companies not to pay for unauthorized admissions or hospital stays that extend beyond the approved period.
Second Surgical Opinions Second surgical opinions reduce unnecessary surgical procedures (and costs) by encouraging an individual to seek an independent opinion from another doctor. Following a recommendation of surgery from a physician, many individuals are inclined to seek an independent opinion to avoid the risks associated with sur- gery. With second surgical opinion provisions, insurance companies cover the cost of this consultation. Some insurance companies require second surgical opinions before authorizing surgery, while others offer second surgical opinion consulta- tions as an option to each individual.
Maximum Benefit Limits Insurance companies specify maximum benefit limits, expressed as a dollar amount over the course of one year or over an insured’s lifetime. In many cases, insurance policies specify both annual maximums and lifetime maximums. They may also choose not to set any dollar limit to benefits. Setting annual maximums provides insurance companies with greater control over total cost expenditures. A maximum lifetime benefits provision protects employers from the costs of long- term or catastrophic claims and repeating incidences of illness.
Major Medical Insurance Plans: Supplemental and Comprehensive Employers may choose to include major medical insurance plans as a supplement to the hospitalization, surgical, and physician expense benefits, or in place of those plans. Supplemental major medical plans act as a backup to basic insurance by covering expenses that exceed maximum benefit limits. Alternatively, these plans extend coverage to services not included in the regular fee-for-service plans. These services include prescription drugs, medical equipment and appliances, private duty nursing, and ambulance service. Supplemental plans possess the same fea- tures as regular fee-for-service plans, including deductibles, coinsurance, and out- of-pocket maximums.
Comprehensive major medical plans replace traditional fee-for-service plans by extending coverage to a broader array of services (similar to supplemental plans). Unlike traditional plans, comprehensive plans usually apply a single
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deductible for all covered services. Many companies have moved toward com- prehensive major medical plans because a single plan helps reduce possible dupli- cation of coverage by different insurers offering specialized insurance.
MANAGED CARE PLANS
Managed care plans emphasize cost control by limiting an employee’s choice of doctors and hospitals. Three common forms of managed care include health main- tenance organizations (HMOs), preferred provider organizations (PPOs), and point-of- service (POS) plans.
Health Maintenance Organizations HMOs are sometimes described as providing prepaid medical services because fixed periodic enrollment fees cover HMO members for all medically necessary services only if the services are delivered or approved by the HMO. HMOs gener- ally provide inpatient and outpatient care as well as services from physicians, sur- geons, and other health care professionals. Most medical services are either fully covered or, in the case of some HMOs, participants are required to make nominal copayments. Copayments represent nominal payments an individual makes as a condition of receiving services. HMOs express copayments as fixed amounts for different services such as office visits, prescription drugs, and emergency room treatment. Common copayment amounts vary between $15 and $25 for each doc- tor’s office visit, and $10 to $50 per prescription drug. We address the reason for the wide variation in prescription drug copayment amounts later in this chapter.
Types of Health Maintenance Organizations HMOs differ based on where service is rendered, how medical care is delivered, and how contractual relationships between medical providers and the HMOs are structured.
Prepaid Group Practice Model Prepaid group practices provide medical care for a set amount. Group HMOs typ- ically operate around the clock with phone coverage for emergencies or emergency room treatment. Prepaid group practices may take one of three specific forms.
Staff model HMOs own the medical facilities, and these organizations employ medical and support staff on these premises. These practices compensate physi- cians on a salary basis. Staff physicians treat only members of their HMO. Occasionally, staff model HMOs establish contracts with specialists to provide services not covered by staff members. Contract physicians are compensated according to a capped fee schedule. This means that the HMO establishes the amount it will reimburse physicians for each procedure (we discuss capped fee schedules in more detail later in this chapter). If contract physicians charge more than the fee set by the HMO, then they must bill the difference to the patients. For example, an HMO sets a cap of $40 for an annual physical examination. If the physician charges $55 for the annual examination, then the physician bills the HMO for $40 and the patient for the remaining $15.
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Group model HMOs primarily use contracts with established practices of physicians that cover multiple specialties. Unlike staff model HMOs, group model HMOs do not directly employ physicians. These HMOs compensate physicians according to a preestablished schedule of fees for each service or on a capitation basis by setting monthly amounts per patient. We discuss capitation in more detail later in this chapter.
Network model HMOs and group model HMOs are similar except for one fea- ture. Network model HMOs contract with two or more independent practices of physicians. These HMOs usually compensate physicians according to a capped fee schedule.
Individual Practice Associations Individual practice associations (IPAs) are partnerships of independent physicians, health professionals, and group practices. IPAs charge lower fees to designated pop- ulations of employees (e.g., Company A’s workforce) than fees charged to others. Physicians who participate in this type of HMO practice out of their own facilities and continue to see HMO enrollees and patients who are not HMO enrollees.
Features of Health Maintenance Organizations HMO plans share several features in common with fee-for-service plans, includ- ing out-of-pocket maximums, preexisting condition clauses, preadmission certifi- cation, second surgical opinions, and maximum benefits limits. HMOs differ from fee-for-service plans in three important ways. First, HMOs offer prepaid services while fee-for-service plans operate on a reimbursement basis. Second, HMOs include the use of primary care physicians as a cost-control measure. Third, coin- surance rates are generally lower in HMO plans than in fee-for-service plans. Exhibit 6.6 illustrates the features of an HMO.
Primary Care Physicians HMOs designate some of their physicians, usually general or family practitioners, as primary care physicians. HMOs assign each member to a primary care physi- cian or require each member to choose one. Primary care physicians determine when patients need the care of specialists. HMOs use primary care physicians to control costs by significantly reducing the number of unnecessary visits to spe- cialists. As primary care physicians, doctors perform several duties. Exhibit 6.7 lists the major duties of primary care physicians.
Copayments The most common HMO copayments apply to physician office visits, hospital admissions, prescription drugs, and emergency room services. Office visits are nom- inal amounts, usually $10 to $15 per visit. Hospital admissions and emergency room services are higher, ranging between $50 and $150 for each occurrence. Mental health services and substance abuse treatment require copayments as well. Inpatient serv- ices require copayments that are similar in amount to those for hospital admissions for medical treatment. However, copayments for outpatient services (e.g., psy- chotherapy, consultation with a psychiatrist, or treatment at a substance abuse facil- ity) are generally expressed as a fixed percentage of the fee for each visit or treatment. HMOs usually charge a copayment ranging between 15 and 25 percent.
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HMO Plan Design
Plan year maximum benefit Unlimited
Lifetime maximum benefit Unlimited
Hospital Services
Inpatient hospitalization 100% after $150 copayment per admission
Alcohol and substance abuse* 100% after $150 copayment per admission (maximum number of days determined by the plan)
Psychiatric admission* 100% after $150 copayment per admission (maximum number of days determined by the plan)
Outpatient surgery 100%
Diagnostic lab and X-ray 100%
Emergency room hospital services 100% after $200 or 50% copayment, whichever is less
Professional and Other Services
Physician visits 100%, $15 copayment may apply (including physical exams & immunizations)
Well baby care 100%
Psychiatric care* 100% after $20 or 20% copayment per visit (maximum number of days determined by the plan)
Alcohol and substance abuse care* 100% after $20 or 20% copayment per visit (maximum number of days determined by the plan)
Prescription drugs $12 copayment, generic incentive and formulary restrictions may apply. Formulary is subject to change during the plan year.
Durable medical equipment 80%
*HMOs determine the maximum number of inpatient days and outpatient visits for psychiatric and alcohol/substance abuse treatment. Each plan must provide for a minimum of 10 inpatient days and 20 outpatient visits per plan year. These are in addition to detoxification benefits, which include diagnosis and treatment of medical complications. Some HMOs may provide benefit limitations on a calendar year.
EXHIBIT 6.6 HMO Benefits
• Make an initial diagnosis and evaluation of the patient’s condition. • Identify applicable treatment protocols and practice guidelines. • Decide whether treatment is warranted; if warranted, specify the treatment. • Approve referrals to medical specialists. • Evaluate patient’s health following treatment.
EXHIBIT 6.7 Role of Primary Care Physicians
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PREFERRED PROVIDER ORGANIZATIONS
Under a preferred provider organization (PPO), a select group of health care providers agrees to furnish health care services to a given population at a higher level of reimbursement than under fee-for-service plans. Physicians qualify as preferred providers by meeting quality standards, agreeing to follow cost-containment proce- dures implemented by the PPO, and accepting the PPO’s reimbursement structure. In return, the employer, insurance company, or third-party administrator helps guar- antee provider physicians minimum patient loads by furnishing employees with financial incentives to use the preferred providers. Exhibit 6.8 summarizes the main features of a PPO plan.
The exclusive provider organization (EPO) is a variation of PPOs. EPOs oper- ate similarly to PPOs, but these systems differ in a significant way: EPOs do not offer reimbursement for services provided outside the established network. That is, EPOs are more restrictive than PPO plans. Exceptions to this rule include med- ical emergencies or the need for a medical specialty not contained in the provider network.
Features of Preferred Provider Organizations PPO plans include features that resemble fee-for-service plans or HMO plans. Features most similar to fee-for-service plans are out-of-pocket maximums and coinsurance, and those most similar to HMOs include the use of nominal copay- ments. Preexisting condition clauses, preadmission certification, second surgical opinions, and maximum benefits limits are similar to those in fee-for-service and HMO plans. PPOs contain deductible and coinsurance provisions that differ somewhat from other plans.
Deductibles PPOs include deductible features. The structure and amount of deductibles under PPO plans most closely resemble practices commonly used in fee-for-service plans. Unlike fee-for-service plans, PPOs often apply different deductible amounts for services rendered within and outside the approved network. Higher deductibles are set for services rendered by non-network providers to discourage participants from using services outside the network.
Coinsurance Coinsurance is a feature of PPO plans, and its structure is most similar to fee-for- service plans. PPOs calculate coinsurance as a percentage of fees for covered services. PPOs also use two sets of coinsurance payments: The first set applies to services rendered within the network of care providers; the second to services rendered outside the network. Coinsurance rates for network services are sub- stantially lower than for non-network services. Coinsurance rates for network services range between 10 and 20 percent. Non-network coinsurance rates run between 60 and 80 percent.
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POINT-OF-SERVICE PLANS
A point-of-service (POS) plan combines features of fee-for-service systems and health maintenance organizations. Employees pay a nominal copayment for each visit to a designated network of physicians. In this regard, POS plans are similar to HMOs. Unlike HMOs, however, employees possess the option to receive care
Inpatient Hospital Services
Preferred provider organization hospital 90% after annual plan deductible. No admission deductible.
Non-preferred provider $300 per admission deductible. The plan pays 65% after annual organization hospital plan deductible if member voluntarily chooses to use a non-PPO,
or voluntarily travels in excess of 25 miles when a PPO hospital is available within the same travel distance. Coverage will be at 80% after annual plan deductible if a PPO hospital within 25 miles of a member’s residence is not medically qualified to perform the required services, if no PPO exists within 25 miles of the member’s residence, or if a member utilizes a non-PPO for emergency services.
Outpatient Services
Lab/X-ray 100% of usual and customary (U&C) after annual plan deductible.
Approved durable medical equipment 80% of U&C after annual plan deductible. Contact the plan and prosthetics administrator for approval prior to obtaining items.
Facility charges 90% after annual plan deductible for PPOs and licensed, free- standing surgical facilities. (Note: Outpatient facility charges will be covered at 65% after annual plan deductible if member voluntarily chooses to use a non-PPO, or voluntarily travels in excess of 25 miles when a PPO hospital is available within the same travel distance. Coverage will be at 80% after annual plan deductible if a PPO hospital within 25 miles of a member’s residence is not medically qualified to perform the required services, if no PPO exists within 25 miles of the member’s residence, or if a member utilizes a non-PPO for emergency services.)
Professional and Other Services
Physician and surgeon services 80% of U&C after annual plan deductible for inpatient, outpatient, and office visits.
Preventive services Well baby care (through age 6), pap smears (includes office visit), mammograms, prostate screening, routine adult physicals and school health exams (grades 5 and 9) are covered per the applicable coverages listed in the Benefits Handbook. No deductibles apply.
Physician Network
Physician and surgeon services 90% of billed charges. U&C charges do not apply. (where available)
EXHIBIT 6.8 PPO Plan Coverage
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from health care providers outside the designated network of physicians, but they pay somewhat more for this choice. This choice feature is common to fee-for- service plans. Exhibit 6.9 describes the features of a POS plan.
SPECIALIZED INSURANCE BENEFITS
Oftentimes, employers use separate insurance plans to provide specific kinds of benefits. Benefits professionals refer to these plans as carve-out plans. Carve-out plans are set up to cover dental care, vision care, prescription drugs, mental health
POS Plan Design In-Network Benefit Out-of-Network Benefit
Plan year maximum benefit Unlimited Unlimited Lifetime maximum benefit Unlimited Unlimited Annual out-of-pocket maximum Individual $300 Individual $1,500
Family $600 Family $3,500 Annual plan deductible Individual $0 Individual $300
Family $0 Family $600
POS Services Covered
Inpatient hospitalizations 100% after $250 copayment 80% of covered charges after $300 copayment
Psychiatric admission (maximum 100% after $200 copayment No out-of-network benefit, covered of 30 visits per calendar year) in-network only Inpatient alcohol and/or substance 100% after $150 copayment No out-of-network benefit, covered abuse treatment (maximum of in-network only 30 visits per calendar year) Emergency room services 100% after $100 80% after lesser of $200
copayment per occurrence copayment or 50% of usual and customary (U&C)
Outpatient surgeries 100% 80% of U&C after plan deductible Diagnostic lab and X-ray 100% 80% of U&C after plan deductible Physician visits 100% after $10 copayment 80% of U&C after plan deductible Preventive services (including 100% after $10 copayment No out-of-network benefit, covered immunizations) in-network only Well baby care 100% after $10 copayment No out-of-network benefit, covered
in-network only Outpatient psychiatric (maximum 100% after $10 copayment No out-of-network benefit, covered of 30 visits per calendar year) in-network only Outpatient substance abuse 100% after $10 copayment No out-of-network benefit, covered (maximum of 20 visits per calendar year) in-network only Prescription drugs (generic incentive Generic: $12 copayment Emergency drugs only. and formulary restrictions may apply. Brand: $17 copayment In-network copayment applies Formulary is subject to change during Nonformulary: $35 copayment the plan year.) Durable medical equipment 100% 80% of U&C after plan deductible
EXHIBIT 6.9 POS Benefits
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and substance abuse care, and maternity care. Usually, specialty HMOs or PPOs manage carve-out plans based on the expectation that single-specialty practices may control costs more effectively than multispecialty organizations.
Dental Insurance Dental insurance benefits may cover routine preventative procedures (e.g., clean- ings once every six months) and necessary procedures to promote the health of teeth and gums. Most dental programs do not include procedures for cosmetic improvements. Exhibit 6.10 lists services and procedures commonly covered by dental insurance plans. Employers have several options from which to choose for providing dental benefits, including fee-for-service plans and various managed care systems.
Dental insurance benefits are becoming more common. In 1970, only 15 percent of the American population received dental insurance as part of their benefits packages.13 Nowadays, nearly half of the benefits packages of working Americans includes dental insurance. Dental insurance benefits encourage preventative treat- ment. Common wisdom indicates that prevention is far less costly than necessary procedures to remedy serious problems (e.g., gum disease). Dental care is essen- tial to people at all ages, particularly young children and older adults because both groups are particularly prone to cavities.14
Types of Dental Plans Three main types of dental plans are available: dental fee-for-service, dental serv- ice corporations, and dental maintenance organizations. Dental service corpora- tions and dental maintenance organizations represent managed care options. Increasingly, companies are choosing to offer employees managed care options because of the anticipated cost savings.
Dental fee-for-service plans possess features similar to medical fee-for-service plans. These plans specify covered dental services based on a usual, customary, and reasonable charge. Dental fee-for-service plans also include deductibles (similar in amount to medical plans), coinsurance, and maximum benefits. Coinsurance rates often vary between 20 and 40 percent of usual, customary, and reasonable charges after the insured pays the deductible. Dental fee-for-service plans usually set limits to the dollar amount of benefits over a subscriber’s life- time. These limits generally vary by procedure.
• Diagnostics • Endodontics (e.g., nerve of a tooth) • Maxillofacial surgery (e.g., surgery of upper jaw and face) • Oral surgery (e.g., removal of impacted wisdom teeth) • Orthodontics (e.g., straightening teeth) • Palliative • Periodontics (e.g., treats tissue and bone disease) • Preventive (e.g., removal of plaque) • Restorative
EXHIBIT 6.10 Typical Benefits of Dental Insurance Plans
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Dental service corporations are nonprofit organizations that are owned and administered by state dental associations. Like HMOs, dental service corporations offer prepaid benefits and require copayments, usually equal to 20 to 30 percent of fees. The basis for reimbursement is either usual, customary, and reasonable fees or a negotiated schedule of fees for specific dental treatments and procedures. It is not uncommon for fees to exceed the amounts dental service corporations are willing to pay. In this case, patients pay the difference, but this excess amount does not count toward annual deductibles. Unlike HMOs, dental service corporations allow participants to receive benefits from a list of approved dentists.
Dental maintenance organizations, or dental HMOs, are most similar to HMOs for medical care. Dental HMOs provide prepaid dental services. Participants are required to seek treatment from an approved provider, and they pay a nominal copayment. Sometimes, managed care providers offer members a choice between a dentist within the network of approved providers and a dentist outside the network. In this case, the level of prepaid benefits is significantly less for non-network dentists, creating an incentive for members to seek treatment from an approved provider.
Vision Insurance Vision insurance plans usually cover eye examinations, lenses, frames, and the fitting of glasses. Similar to dental protection, vision insurance benefits may be delivered through indemnity plans or managed care arrangements. All forms of delivery limit the frequency and types of services. Typically, benefits are limited to eye examinations, basic prescription lenses, and frames once every one to two years. Vision plan benefits are relatively limited because they exclude coverage of specialty prescription eyeglass lenses (e.g., sunglasses, lightweight plastic lenses, and photosensitive lenses), and these plans restrict the coverage amount for frames. These plans generally do not cover any of the costs of contact lenses unless a vision care provider deems their usage a medical necessity.
Prescription Drug Benefits Prescription drug plans cover the costs of drugs. These plans apply exclusively to drugs that state or federal laws require to be dispensed by licensed pharmacists. Prescription drugs dispensed to individuals during hospitalization or treatment in long-term care facilities are not covered by prescription drug plans. Insurers specify which prescription drugs are covered, how much they will pay, and the basis for paying for drugs.
Currently, three kinds of prescription drug programs are available to compa- nies that choose to provide these benefits to employees. The first, medical reim- bursement plans, reimburse employees for some or all of the cost of prescription drugs. These programs are usually associated with self-funded or independent indemnity plans. Similar to indemnity plans, medical reimbursement plans pay benefits after an employee has met an annual deductible for the plan. After meet- ing the deductible, these plans offer coinsurance, usually 80 percent of the pre- scription drug cost, and the participant pays the difference. Maximum annual and lifetime benefits amounts vary based on the provisions set forth in the plan.
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The second kind of plan, often referred to as a prescription card program, oper- ates similarly to managed care programs because it offers prepaid benefits with nominal copayments. The name arose from the common practice of pharmacies requiring the presentation of an identification card. Prescription card programs limit benefits to prescriptions filled at participating pharmacies, similar to man- aged care arrangements for medical treatment. Copayment amounts vary from $5 to $50 per prescription. The amount depends upon whether the prescriptions meet criteria set by the plan, including the use of generic alternatives and the cat- egorization of prescription drugs on formularies. Formularies are lists of drugs proven to be clinically appropriate and cost effective. Participants pay lower copayments for prescription drugs that meet the established criteria. Prescription card programs may be associated with an independent insurer or as part of an established HMO.
The third type of plan, a mail-order prescription drug program, dispenses expensive medications used to treat chronic health conditions such as HIV infec- tion or neurological disorders like Parkinson’s disease. Health insurers specify whether participants must receive prescription drugs through mail-order pro- grams or locally approved pharmacies. Cost is the driving factor for this decision. Mail-order programs offer a cost advantage because they purchase medications at discounted prices in large volumes. A single mail-order program supplies med- ication to participants of many health insurance plans nationwide. Local pharma- cies do not enjoy this advantage because their patronage is much smaller and is limited to people who live in close proximity.
The costs of these prescription drug plans vary. Reimbursement plans tend to be most expensive because pharmacies charge full retail price. Also, reimburse- ment plans entail substantial administrative costs because an administrator eval- uates each claim, applies deductibles, and prepares an explanation of benefits. The prescription card and mail-order programs are usually less expensive because insurance companies have negotiated lower prices in exchange for providing a significant volume of individuals who will need prescription medications. In addition, costs are lower because participants make copayments when they order prescriptions and then the pharmacy bills the insurance company on a set inter- val for all the prescriptions filled during this period (e.g., every week or two weeks).
Increasingly, many prescription drug plans contain two cost-control features: formularies and multiple tiers. Many plans establish formularies to manage costs. The basis for setting formularies varies from plan to plan. For example, some plans prescribe drugs that are therapeutically equivalent to more expensive drugs and use lower levels of coinsurance or copayments to encourage usage. Other plans are more restrictive by limiting coverage only to a specified set of prescrip- tion drugs.
Multiple tiers specify copayment amounts an individual will pay for a specific prescription. Usually, multitier prescription drug programs specify three tiers, from least copayment amount to highest copayment amount: generic ($10 to $20 per prescription), formulary brand name medication ($25 to $40 per prescription), and nonformulary brand name medication ($40 to full price per prescription). The
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idea behind multiple-tier prescription plans is that employees will choose less expensive and equally effective alternatives to nonformulary medications. For example, bupropion hydrochloride (used to relieve symptoms of clinical depres- sion or to aid in smoking cessation) may be obtained as a generic of the brand name Wellbutrin, manufactured by GlaxoSmithKline.
Presumably, multitier prescription plans should save employers considerable costs while also providing effective treatments based on less expensive alternative prescription medication. However, a recent study suggests that attaining the intended goals of multitier prescription plans may be more challenging.
A study by Medco Health Solutions Inc. and Harvard Medical School, pub- lished in the December 2003 New England Journal of Medicine, examined how a move to a three-tier plan affects drug spending and utilization. The article also provided information for health plan providers who are considering increasing member cost sharing as a strategy for reducing their drug spending.
The study found that for two employers who implemented multitier plan designs, this change led a significant proportion of patients who were on brand- name drugs (with the highest copayment) to choose more cost-effective alterna- tives. Depending on the particular drug class, at least 18 percent, and as many as 49 percent of plan members switched to lower-cost medication. However, the sur- vey also found that an aggressive approach to plan changes can have the unin- tended result of causing some patients to stop taking their medications altogether.
Mental Health and Substance Abuse Approximately 25 percent of Americans experience some form of mental illness such as clinical depression at least once during their lifetimes. Psychiatrists define mental disorder as “a behavioral or psychological syndrome or pattern . . . associ- ated with present distress (a painful symptom) or disability (impairment in one or more important areas of functioning) or with a significantly increased risk of suf- fering death, pain, disability, or an important loss of freedom.”15 Nearly 20 percent develop a substance abuse problem. As a result, insurance plans provide mental health and substance abuse benefits designed to cover treatment of mental illness and chemical dependence on alcohol and legal and illegal drugs. Delivery methods include fee-for-service plans and managed care options. As we discuss in Chapter 10, employee assistance programs (EAPs) represent a portal to taking advantage of employer-sponsored mental health and substance abuse treatment options. EAPs help employees cope with personal problems that may impair their personal lives or job performance. Examples of these problems are alcohol or drug abuse, domes- tic violence, the emotional impact of AIDS and other diseases, clinical depression, and eating disorders. EAPs also assist employers in helping troubled employees identify and solve problems that may be interfering with their job or personal life.
Features of Mental Health and Substance Abuse Plans Mental health and substance abuse plans cover the costs of a variety of treatments, including prescription psychiatric drugs (e.g., antidepressant medication), psy- chological testing, inpatient hospital care, and outpatient care (individual or group therapy).
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Mental health benefits amounts vary by the type of disorder. Psychiatrists and psychologists rely on the Diagnostic and Statistical Manual of Mental Disorders (DSM-IV) to diagnose mental disorders based on symptoms, and both fee-for- service and managed care plans rely on the DSM-IV to authorize payment of ben- efits. As discussed earlier, HMOs usually charge a copayment ranging between 15 and 25 percent.
From the employee’s perspective, coinsurance and maximum benefits amounts are generally less generous than general health plans in three ways. First, coinsur- ance amounts for mental health and substance abuse benefits, expressed as a per- centage of treatment cost for both indemnity and managed care plans, range between 40 and 50 percent. Second, mental health and substance abuse plans limit the annual number of outpatient visits or days of inpatient care. Third, annual and lifetime maximum benefits were set significantly lower—for example, $1,500 and $10,000, respectively. However, the Mental Health Parity Act, described in the next section, mandated increases in annual lifetime limits for mental health plans.16
Regulation of Mental Health and Substance Abuse Plans Various federal and state laws apply to the operation of mental health and substance abuse plans. At the federal level, the Mental Health Parity Act established parity requirements for mental health plans offered in conjunction with a group health plan that contains medical and surgical benefits. Parity requirements prohibit setting lower annual or lifetime maximums for mental health and substance abuse benefits than for medical and surgical benefits. This act contains a sunset clause that discon- tinued parity requirements for mental health benefits rendered on or after September 30, 2001. It has been temporarily extended seven different times. President George Bush enacted the most recent extension to December 21, 2009.17 Actions to perma- nently extend this sunset clause have not been successful due in large part to Congress’s focus on the weakened economy and the outcry of Republicans who maintain that the costs of parity would be burdensome to employers.
State laws also play a role in mental health and substance abuse plans. The spe- cific provisions vary from state to state, but, in general, state laws specify mini- mum standards for coverage, including the minimum number of days of inpatient treatment and the minimum number of outpatient counseling sessions.
Maternity Care Maternity care benefits cover all or a portion of the costs during pregnancy and for a short period after giving birth. Most maternity care benefits apply to physi- cians’ fees, laboratory work (e.g., blood work, amniocentesis), and hospitalization during and following the time of delivery. Federal and state laws influence mater- nity care benefits. Federal law does not require that employers provide maternity care benefits. However, some federal laws do influence how companies design and implement maternity care benefits. As we discuss shortly, some state laws mandate the inclusion of maternity care benefits in employee benefits plans.
At the federal level, the Pregnancy Discrimination Act of 1978 (Chapter 4) pro- hibits employers from treating pregnancy less favorably than other medical condi- tions covered under employee benefits plans. In addition, employers must treat
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pregnancy and childbirth the same way they treat other causes of disability. The Family and Medical Leave Act of 1993 entitles most male and female employees of private sector companies (with 50 or more employees) and government organi- zations up to 12 unpaid workweeks of leave during any 12-month period because of the birth of their child (and other family-related reasons that we discuss in Chapter 10). The Newborns’ and Mothers’ Health Protection Act of 199618 sets minimum standards for the length of hospital stays for mothers and newborn chil- dren; it prohibits employers and all insurers (independent and self-funded indem- nity plans as well as managed care plans) from using financial incentives to shorten hospital stays. At the state level, some states require that employers offer maternity care benefits to employees if other health care benefits are provided. These man- dates exclude employers offering health benefits through self-funded plans.
CONSUMER-DRIVEN HEALTH CARE
Managed care plans became popular alternatives to fee-for-service plans mainly to help employers and insurance companies more effectively manage the costs of health care. As discussed, managed care plans by design imposed substantial restrictions on an employee’s ability to make choices about whom they could receive medical treatment from, the gatekeeper role of primary care physicians, and the level of benefits they could receive based on designated in- and non- network providers.
Despite the cost control objectives of managed care, health care costs have con- tinued to rise dramatically over the years while also restricting employee choice. Consumer-driven health care refers to the objective of helping companies main- tain control over costs while also enabling employees to make greater choices about health care. This approach may enable employers to lower the cost of insur- ance premiums by selecting plans with higher employee deductibles. The most popular consumer-driven approaches are flexible spending accounts and health reimbursement accounts. These accounts provide employees with resources to pay for medical and related expenses not covered by higher deductible insurance plans at substantially lower costs to employers.
Flexible spending accounts permit employees to pay for specified health care costs that are not covered by an employer’s insurance plan. Prior to each plan year, employees elect the amount of pay they wish to allocate to this kind of plan. Employers then use these moneys to reimburse employees for expenses incurred during the plan year that qualify for repayment.
Qualifying expenses include an individual’s out-of-pocket costs for medical treatments, products, or services related to a mental or physical defect or disease, along with certain associated costs, such as health insurance deductibles or trans- portation to get medical care. However, health, life, or long-term care insurance premiums paid for by an employer or through an employee’s pretax salary reduc- tions generally do not qualify for reimbursement under a health FSA. Other exclu- sions include medical expenses reimbursed through health insurance plans and the costs of purely cosmetic procedures that enhance appearance but are not
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related to treating a disease or defect. Over-the-counter products are qualified expenses if they are used to diagnose, treat, alleviate, or prevent a disease or ail- ment, such as blood sugar monitoring kits for diabetic patients or crutches and bandages for someone with a serious leg injury.
A significant advantage to employees is the ability to make contributions to their FSAs on a pretax basis; however, a noteworthy drawback is the “use it or lose it” provision of FSAs. FSAs require employees to estimate the amount of money they think they will need for eligible medical expenses. Of course, it is difficult to pre- dict many medical needs and to estimate the costs of anticipated medical needs. Employees lose contributions to their FSAs when they overestimate the cost of medical needs because employers neither allow employees to carry balances nor do employers reimburse employees for balances remaining at the end of the year.
Employers bear some risk from offering FSAs to employees. The maximum amount of expenses an employee can be reimbursed for under a dependent care FSA is $5,000 annually ($2,500 for a married taxpayer filing separately). Although there is no statutory limit on the amount of reimbursement employees can receive under a medical FSA, employers usually set a maximum limit—say, $3,000—to protect themselves against major losses under the risk-of-loss rules or uniform coverage requirement. Under this requirement, employers are obligated to make the full amount of benefits and coverage elected under an FSA plan available to employees from the first day the plan becomes effective, regardless of how much money an employee has actually contributed.
Let’s assume an employee plans to contribute $1,500 per year to her employer’s FSA plan, based on monthly contributions of $125. In this case, $125 per month equals the $1,500 total annual contribution divided by 12 months per year. Continuing with this example, we assume that this employee has a minor illness after making only three monthly contributions to the account ($375), and the med- ical and prescription costs to treat this minor illness are $1,275. The employer must allow this employee to withdraw $1,275 even though she has contributed only $375 thus far. This situation places demands on employer cash resources. Also, if this employee were to leave the company after this three-month period, the employer would have paid $900 out of its own funds toward this employee’s treatment (that is, $1,275 for the treatment cost, less $375, this employee’s contribution to the FSA).
Alternatively, employers may establish health reimbursement accounts (HRAs). The purpose of HRAs and FSAs are similar with two important differences. First, only employers may make the contributions to each employee’s HRA, whereas employees fund FSAs with pretax contributions deducted from their pay. Second, HRAs permit employees to carry over unused account balances from year to year, whereas employ- ees forfeit unused FSA account balances present at the end of the year.
The idea of consumer-driven health care received substantially greater attention than ever before because of the Bush Administration (President George W. Bush) and the Republican-led Congress, who favored greater employee involvement in their medical care and reducing the cost burden for companies to help maintain competi- tiveness in the global market. The Medicare Prescription Drug, Improvement and Modernization Act of 200319 added section 223 to the IRC, effective January 1, 2004, to permit eligible individuals to establish health savings accounts (HSAs) to help
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employees pay for medical expenses. In 2009, an employer, an employee, or both, may contribute as much as $3,000 annually for unmarried employees without dependent children or as much as $5,950 for married or unmarried employees with dependent children. Employers may require employees to contribute toward these limits. Employee contributions would be withheld from an employee’s pay on a pre- tax basis. Employers offer HSAs along with a high-deductible insurance policy, established for employees. High-deductible health insurance plans require sub- stantial deductibles and low out-of-pocket maximums. For individual coverage, the minimum annual deductible was $1,150 with maximum out-of-pocket limits at or below $5,800 in 2009. For family coverage, the deductible was $2,300 with maximum out-of-pocket limits at or below $11,600.
HSAs offer four main advantages to employees relative to FSAs and HRAs. First, HSAs are portable, which means that the employee owns the account balance after the employment relationship ends. Second, HSAs are subject to inflation-adjusted funding limits. In 2009, total contributions from both an employer or employee to an individual’s HSA cannot exceed the high-deductible health plan’s annual deductible or $3,000 for individual coverage ($5,950 in the case of family coverage), whichever is less. An additional $1,000 may be contributed for employees who are at least 55 years old, but not yet eligible for Medicare. Third, employees may receive medical services from doctors, hospitals, and other health care providers of their choice and they may choose the type of medical services they purchase, including such items as long-term care, eye care, and prescription drugs. FSAs and HRAs sub- stantially limit employee choice. Fourth, HSA assets must be held in trust and can- not be subject to forfeiture. That is, any unspent balances in the HSA can be rolled over annually and accumulate tax-free until the participant’s death. FSAs and HRAs have no legal vesting requirement, which means employees do not possess the right to claim unused balances when they terminate employment.
A Watson Wyatt survey of large U.S. employers revealed that about half of these companies offer employees a consumer-driven health plan, and the per- centage is likely to increase by approximately 10 percent in 2010.20 Employers are concerned that employees will not seek preventative or necessary care because of the cost. There could be underlying health problems in the early stages that do not affect how one feels. However, if preventative care is avoided, health issues that could have been easily treated could become serious, leading to short-or long- term disability. Ultimately, the cost of disability insurance will increase, adding to the heavy cost burden of employee benefits plans.
RETIREE HEALTH CARE BENEFITS
Since the early 1980s, companies have encountered a strong financial disincentive to provide health insurance benefits to retired employees for three reasons. First, the substantial increases in health care costs and costs of medical insurance have created a tremendous financial strain on companies that choose to offer them. As noted earlier in this chapter, the cost of medical services has increased more than 300 percent since the early 1980s. The financial pressure on companies intensifies with coverage of retirees because older individuals are more likely to need expensive
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prescription medication and are more likely to require hospitalization because of serious health problems than younger individuals. Of course, the lasting effects of a sharp economic slowdown since the year 2000, particularly since late 2007, intensified global competition, and higher energy costs have made it more diffi- cult for companies to support full workforces. As a result, many employees have experienced small pay increases relative to increases in the cost of living, reduc- tions in benefits offerings, higher contributions for their benefits such as health insurance coverage, and layoffs.
Second, changes in company accounting practices have made offering health care benefits to retirees less appealing. The Financial Accounting Standards Board (FASB), a nonprofit company responsible for improving standards of financial accounting and reporting in companies, implemented FASB 106 in 1990 and FASB 158 in 2005. FASB 106 is a rule that changed the method of how companies recog- nize the costs of nonpension retirement benefits, including health insurance, on financial balance sheets. This rule effectively reduces the amount of a company’s net profit amount listed on the balance sheet. The Board’s view is that benefits such as health care coverage establish an exchange between the employer and the employee. In exchange for the current services provided by the employee, the employer promises to provide, in addition to current wages and other benefits, health and welfare benefits after the employee retires. In other words, postretirement benefits are part of an employee’s compensation for services rendered. Since pay- ment is deferred, the benefits are a type of deferred compensation. The employer’s obligation for that compensation is incurred as employees render the services neces- sary to earn their postretirement benefits.
In 2003, FASB instituted FASB 132, which requires that companies disclose sub- stantial information about the economic value and costs of retiree health care pro- grams. The Board maintains that health care benefits are probably as significant to current employees and retirees as are defined benefit plans. Other FASB rules require clear disclosure of economic resources and obligations related to defined benefit plans. Thus, FASB 132 requires similar disclosure. As a result, companies without sufficient current assets to maintain retiree health care programs are less likely to continue offering these benefits. At the time this book went to print, FASB was entertaining a variety of other accounting rules related to retiree health care and other postretirement employee benefits (OPEB).
For example, FASB established 132(R)a titled Employers’ Disclosures about Postretirement Benefit Plan Assets. The Board decided to amend FASB Statement No. 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, to include additional reporting requirements:
1. The entity’s objective in disclosing information about plan assets, which is to provide users of financial statements with an understanding of:
a. The major categories of assets held in an employer’s plan(s). b. How management makes investment allocation decisions, including the fac-
tors that are pertinent to an investor’s understanding of investment policies or strategies.
c. Significant concentrations of risk within plan assets.
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2. A list of examples of detailed categories of plan assets that would include a cat- egory for investment funds (for example, mutual funds, hedge funds, and com- mingled funds).
3. A requirement that an entity disclose the significant investment strategies for investment funds as major categories of plan assets.21
Further updates may be found on the FASB Web site (www.fasb.org), based on a search for “OPEB.”
Third, companies, particularly those with defined benefit retirement plans, are less likely to offer retiree health care benefits. As we discussed in Chapter 5, the federal government, through the Employee Retirement Income Security Act, the recent Pension Protection Act, and the Pension Benefit Guaranty Corporation, requires that employers adequately fund their defined benefits pension plan. Currently, there are no such regulations to shore up other postretirement benefits, like health care. Labor unions and employees are most dissatisfied with these trends because they stand to lose the most. The U.S. auto industry recently has been the stage for cuts in postretirement employee benefits. The dire financial trouble of U.S. automakers is well known, and many factors have been cited as the sources of their problems, including the relatively higher prices of vehicles rela- tive to competing foreign automakers that have substantial market share in the United States. Management has resorted to desperate measures to control costs such as multiple large reductions in the workforce in hopes of instituting competitive pricing. Other measures are likely to include management resistance to maintain the generous level of retiree health care during future labor contract negotiations with the United Auto Workers.
For example, Ford Motor Company negotiated a tentative agreement with the United Auto Workers (UAW) to pay $6.6 billion in obligations to the union’s health care trust fund in Ford Motor stock. The deal was struck with Ford ahead of similar current negotiations with General Motors and Chrysler. While it is com- mon in some European countries for union officials to have board seats, it is prac- tically unheard of in the United States. Daimler-Benz, Volkswagen, and BMW have a representative of organized labor on their supervisory boards. Until the recent dire financial crisis experienced by U.S. automakers, the idea that the UAW would possess power on their corporate boards of directors was unthinkable.
In 2007, Ford, GM, and Chrysler entered into agreements with the UAW to reduce billions of dollars in future health care obligations from their balance sheets. The changes are estimated to have reduced the companies’ liabilities for retiree health care by 50 percent. In return, the automakers promised to make huge lump sum payments into the trusts to cover much of the retirees’ plans. Ford, for instance, paid $2.7 billion into the union’s Voluntary Employment Benefits Association (VEBA) in 2009 but still owes a total of $13.2 billion to the VEBA over the next few years. GM is expected to make a payment of about $7 bil- lion in 2010 and owes the UAW a total of about $22 billion.
In sum, nowadays, there is the sobering realization that the soaring costs of retiree health care benefits may be pushing some companies to the financial limit. Current forces may lead companies to stand down from such offerings in the future.
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Chapter 6 Employer-Sponsored Health Insurance Programs 169
Summary This chapter reviewed the fundamental concepts of company-sponsored health insurance plans, starting with basic definitions and a perusal of the level of health insurance cover- age and costs in the United States. We also reviewed the government regulation of health plans, distinguishing between federal and state laws. Further, we studied a variety of health plans such as fee-for-service plans and managed care plans and discussed how these plans differ in cost control features. Finally, we discussed FASB 106 and 132, which have created a disincentive to companies that offer health care benefits to retirees, and the mounting pressures companies face to meet these obligations.
Key Terms health insurance, 136 insurance policy, 136 premium, 136 multiple-payer system, 136 single-payer system, 136 universal health care systems, 136 Health Maintenance Organization Act of 1973 (HMO Act), 138 single coverage, 139 family coverage, 139 individual coverage, 143 underwriting, 143 mortality tables, 143 morbidity tables, 143 group coverage, 143 group policyholders, 143 experience ratings, 143 Women’s Health and Cancer Rights Act of 1998, 145 self-funding, 146 National Association of Insurance Commissioners (NAIC), 148 fee-for-service plans, 148 indemnity plans, 148 self-funded plans, 148 hospitalization benefits, 148 inpatient benefits, 149 outpatient benefits, 149 usual, customary, and reasonable charges, 149 deductible, 150 coinsurance, 150 out-of-pocket maximum, 151
preexisting condition, 151 preadmission certification, 152 second surgical opinions, 152 maximum benefit limits, 152 comprehensive major medical plans, 152 managed care plans, 153 prepaid medical services, 153 copayments, 153 prepaid group practices, 153 staff model HMOs, 153 group model HMOs, 154 network model HMOs, 154 individual practice associations (IPAs), 154 primary care physicians, 154 preferred provider organization (PPO), 156 exclusive provider organization (EPO), 156 point-of-service (POS) plan, 157 carve-out plans, 158 dental insurance, 159 dental fee-for-service plans, 159 dental service corporations, 160 dental maintenance organizations, 160 dental HMOs, 160 vision insurance, 160 prescription drug plans, 160
medical reimbursement plans, 160 prescription card program, 161 formularies, 161 mail-order prescription drug program, 161 multiple tiers, 161 Mental Health Parity Act, 163 parity requirements, 163 Family and Medical Leave Act of 1993, 164 Newborns’ and Mothers’ Health Protection Act of 1996, 164 consumer-driven health care, 164 flexible spending accounts, 164 risk-of-loss rules (alternatively, uniform coverage requirement), 165 health reimbursement accounts (HRAs), 165 Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 165 health savings accounts (HSAs), 165 high-deductible health insurance plans, 166 Financial Accounting Standards Board (FASB), 167 FASB 106, 167 FASB 132, 167
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1. U.S. Bureau of Labor Statistics. 1919. “Welfare work for employees in industrial estab- lishments in the United States,” Bulletin #250, pp. 119–23.
2. U.S. Bureau of Labor Statistics. August 2008. National Compensation Survey: Employee Benefits in the United States, March 2008 (BLS 08-1122). Online at www.bls.gov. Accessed April 19, 2009.
3. U.S. Bureau of Labor Statistics. 2006. Employee Benefits in Private Industry, 2006 (06- 1482). Online at www.bls.gov. Accessed April 19, 2009.
4. Ibid. 5. U.S. Bureau of Labor Statistics. August 2008. National Compensation Survey: Employee
Benefits in the United States, March 2008 (BLS 08-1122). Online at www.bls.gov. Accessed April 19, 2009.
6. 42 U.S.C. 300e to 330e-17. 7. ERISA §3(1), 29 U.S.C. §1002(1). 8. Added to the Omnibus Consolidated Emergency Supplemental Act on October 21,
1998, Public Law No. 105-277. 9. 42 U.S.C. §12101.
10. U.S. Equal Employment Opportunity Commission. October 3, 2000. EEOC Compliance Manual. Washington, DC: EEOC. Online at www.eeoc.gov/docs/benefits.html#IV. Justifications for Disability-Based Distinctions. Accessed July 26, 2004.
11. Ibid. 12. National Association of Insurance Commissioners. Online at www.naics.org. Accessed
March 1, 2007. 13. Delta Dental Association. 1999–2000. Survey: Facts & Figures on the Dental Benefits
Market, 1999/2000 Update. Oak Brook, IL: Delta Dental Plans Association. 14. U.S. Centers for Disease Control and Prevention. 2007. Oral Health: Preventing Cavities,
Gum Disease, and Tooth Loss. Online at www.cdc.gov/nccdphp/publications/aag/ oh.htm. Accessed April 19, 2009.
15. American Psychiatric Association. 1994. Diagnostic and Statistical Manual of Mental Disorders (DSM-IV). Washington, DC: American Psychiatric Association.
16. Mental Health Parity Act, Public Law No. 104-204, August 2, 1996. 17. Mental Health Parity Act, Public Law No. 110-460, December 23, 2008. 18. 42 U.S.C. §300gg-(4)-(51). 19. Public Law. No. 108-173. 20. Watson Wyatt. (2009). www.watsonwyatt.com. Accessed April 19, 2009. 21. Financial Accounting Standards Board (2008). Employers’ Disclosures about Postretirement
Benefit Plan Assets. Online at www.fasb.org. Accessed April 19, 2009.
1. Discuss the basic concept of insurance. How does this concept apply to health care? 2. Compare the main objectives of the federal and state regulation of employer-sponsored
health insurance practices. 3. What is the most influential event in the history of employer-sponsored health care ben-
efits? Explain why. 4. Describe the principles of fee-for-service plans and managed care plans. What are the
similarities and differences? 5. Discuss some of the choices an employer may make to help control health care costs.
Discussion Questions
Endnotes
170 Part Two Retirement, Health, and Life Insurance
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