MGMT Managing Employee Reward Systems Health Insurance Introduction zHealth Insurance in US is provided by employer voluntarily to employees (usually full-time) zMany small employers in US (< 10 employees) do not provide health insurance z43 million people in US have no health insurance zMost other countries provide health insurance to all citizens by funding through taxes zEx: Canada has a national health system

MGMT Managing Employee Reward Systems Health Insurance Costs are Increasing - Here’s Why zLack of Incentives in the Market yDemand for medical care is inelastic zNew Medical Technologies are Expensive zCost of Malpractice Insurance zDefensive Medicine means expensive procedures zCost Shifting - to pay for Uninsured patients zAging Population - heavy users of medical benefits

MGMT Managing Employee Reward Systems Health Insurance Models zTraditional Plan - Fee for Service zManaged Care - Health Maintenance Organization (HMO) zManaged Care - Preferred Provider Organization (PPO)

MGMT Managing Employee Reward Systems Traditional Health Insurance Plan zFee for Service - Few Cost Controls zProvides Maximum Choice of Doctors zBecoming Obsolete - 10% US ‘ees currently use zFinancial Features yDeductible - employee pays first $200-$1000 yCo-insurance - plan splits medical costs - 80/20 yPremium - monthly cost of policy - employer and employee both contribute yCap or Stop Loss Point - employee’s contribution ends at a certain planned level of medical costs yEx: Blue Cross/ Blue Shield

MGMT Managing Employee Reward Systems Health Maintenance Organizations (HMOs) zComprehensive care for one price zFocus on wellness & Preventative Medicine zPay monthly premium, co-payment ($10 fee per visit), no co-insurance or deductive zLess paper work or claims forms zDoctors need approval for some procedures zSome restrictions on choice of doctors zUse primary care physicians as “gatekeepers” zEx: Kaiser Permanente

MGMT Managing Employee Reward Systems Preferred Provider Organizations (PPOs) zNetworks of doctors and hospitals - negotiate lowered fees for plan, receive more patients zIncentive to use doctors in network - lower cost to patients under plan - covered under premium zEmployee has flexibility to use non-network doctors - higher fees subject to deductible & co- insurance zHas some features of both HMO and “fee for service” plans.

MGMT Managing Employee Reward Systems Managing Health Insurance Costs zSelf-Funding Plan - CU currently uses and lost control of its costs under this approach zCoordinate both spouse’s HI policies -split medical costs and dependents zDevelop wellness program - components cover diet,health screenings, exercise, weight control zCost sharing with employees - increase employee contributions to premium, 2nd opinions,flexible benefit plans

MGMT Managing Employee Reward Systems COBRA Regulations - Health Insurance Continuance zGovernment rules provide continuation of health insurance coverage for employees and dependents after separating from firm zEmployee (or dependents) pay 102 percent of premiums to continue group insurance rate zQualifying events - employee quit, layoff, employee death or divorce z18-36 months of extended coverage zPenalties for non-compliance of company