1. Class 16 - Chapter 13 EMPLOYEE BENEFITS

2. Patient Protection and Affordable Care Act a.k.a. ACA Obamacare

3. Legally Mandated Benefits Patient Protection and Affordability Care Act of 2010 a.k.a. ObamaCare (Obama) Intention: Increasing the quality and affordability of health care Lowering the uninsured rate Expanding public and private insurance coverage Reduce costs to the individual and to the government

4. ACA - Goal To enhance health insurance coverage and eliminate the possibility of being declined health insurance coverage for pre-existing conditions, while at the same time, reducing the cost of health insurance for the needy. Provide health insurance coverage for the uninsured (approximately 40 million)

5. SOME ACA FACTS ObamaCare prohibits insurance companies from dropping your coverage if you get sick or make an honest mistake on your application. It eliminates pre-existing conditions and gender discrimination. Let's young adults stay on their parent's plans until 26. Creates state-based Health Insurance Exchange Marketplaces where Americans can shop for Federally regulated and subsided insurance.Health Insurance Exchange Marketplaces Protects against unjustified rate hikes and give you more rights to appeal insurance company decisions and much, much more.

6. ACA – ISSUES Expensive new mandated overages ACA requires all plans to cover previously optional services, such as additional preventive care, contraception, maternity, drug abuse, alcohol abuse, mental health parity, pediatric dental, etc. Consumers are no longer allowed to choose not to buy coverage for these types of health issues (the individual mandate), even if they do not need or want it. Major funding issues Tied up in legislative and judicial arguments – for and against.

7. Delicate Balancing Act or Vicious Battle Health care costs to Employer Health care costs to Employee Health care cost to Taxpayers Public view of American Health Care system Public view of federal government managing the American health care system

8. Why Are Health Costs Increasing Hospital costs increasingUnhealthily lifestyles Aging populationPharmaceutical cost & research Medical technologyWaste Fraud or incompetenceLawsuits Consumer ignoranceComplexity of industry LegislationInsurance Cutbacks in reimbursementService for all Lack of competitive pressures Mindset: Everyone is entitled to best medical services regardless of costs.

9. HRM Cost Containment Strategies 12-9  Develop self-funded arrangement  Coordinate health insurance in families with two working spouses  Cost shifting  Develop a wellness program  Offer high deductible plans

10. HRM Suggestions for Employers to Control Cost of Health Benefits 1.Shop for bargains. 2.Know what employees care about. Would they be willing to accept a higher deductible if it means the company can also afford prescription drug coverage? 3.If employees are willing to take responsibility for their own health care spending, offer a health- savings account or consumer-driven plan. 4.Review your claims history to identify correctable problems. 5.Encourage healthy behavior with incentives like discounts for health club memberships, free health screenings, and lower premiums for employees who participate in a wellness program. 6.Promote a workplace culture that values healthy habits. 1.Shop for bargains. 2.Know what employees care about. Would they be willing to accept a higher deductible if it means the company can also afford prescription drug coverage? 3.If employees are willing to take responsibility for their own health care spending, offer a health- savings account or consumer-driven plan. 4.Review your claims history to identify correctable problems. 5.Encourage healthy behavior with incentives like discounts for health club memberships, free health screenings, and lower premiums for employees who participate in a wellness program. 6.Promote a workplace culture that values healthy habits.

11. Medical Insurance 70% of all full-time employees in U.S. receive medical benefits Policies typically cover: – Hospital expenses – Surgical expenses – Visits to physicians 70% of all full-time employees in U.S. receive medical benefits Policies typically cover: – Hospital expenses – Surgical expenses – Visits to physicians Additional coverage may include: – Dental care – Vision care – Prescription drug programs – Mental health – Addictions Additional coverage may include: – Dental care – Vision care – Prescription drug programs – Mental health – Addictions

12. Medical Insurance Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 Federal law that requires employers to permit employees or their dependents to extend their health insurance coverage at group rates for up to 36 months following a qualifying event: Layoff Reduction in hours Employee’s death Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 Federal law that requires employers to permit employees or their dependents to extend their health insurance coverage at group rates for up to 36 months following a qualifying event: Layoff Reduction in hours Employee’s death

13. COBRA Consolidated Omnibus Budget Reconciliation Act of 1985 – (Reagan) Employees have the right to continue employer’s group coverage for up to 18 or 36 months after termination, other than for cause. Employee pays 100% of premium (+ 2% admin fee) Benefit coverage vs. non-productive employee, i.e. no longer employed by company Former employee health care experience still goes on company policy after the employee has left the company

14. EXAMPLE OF COBRA PREMIUMS Example Per employee premium = $1000/month Employer pays 80%; employee pays 20% Employer pays 80% ($800); employee pays 20% ($200) Under COBRA Employee pays $1000 per month + employer optional 2% ($20) admin fee

15. HIPAA Health Insurance Portability and Accountability Act – 1996 (Clinton) Federal law that protects employee’s ability to transfer between health insurance plans without a gap in coverage due to a pre-existing condition. At issue is health care costs.

16. PROBLEMS WITH COBRA Cost to former employee – companies typically pay 50 – 80% of premium Under COBRA employee must pay 100% of premium + optional 2% administrative fee Former employee health care experience still goes on company policy after the employee has left the company

17. EXAMPLE OF COBRA PREMIUMS Example Per employee premium = $1000/month Employer pays 80%; employee pays 20% Employer pays 80% ($800); employee pays 20% ($200) Under COBRA Employee pays $1000 per month + $20 admin fee

18. Seven Ways Employers Can Control Cost of Health Benefits 1.Shop for bargains. 2.Know what employees care about. Would they be willing to accept a higher deductible if it means the company can also afford prescription drug coverage? 3.If employees are willing to take responsibility for their own health care spending, offer a health- savings account or consumer-driven plan. 1.Shop for bargains. 2.Know what employees care about. Would they be willing to accept a higher deductible if it means the company can also afford prescription drug coverage? 3.If employees are willing to take responsibility for their own health care spending, offer a health- savings account or consumer-driven plan.

19. Seven Ways Employers Can Control Cost of Health Benefits 4.Review your claims history to identify correctable problems. 5.Encourage healthy behavior with incentives like discounts for health club memberships, free health screenings, and lower premiums for employees who participate in a wellness program. 6.Promote a workplace culture that values healthy habits. 7.Measure results of initiatives. 4.Review your claims history to identify correctable problems. 5.Encourage healthy behavior with incentives like discounts for health club memberships, free health screenings, and lower premiums for employees who participate in a wellness program. 6.Promote a workplace culture that values healthy habits. 7.Measure results of initiatives.

20. HRM Thought Starters to Health Insurance Producing a comparison study for guidance: Analysis of employer/employee costs COBRA option vs. A.C.A. Company growth potential vs. keeping the employee levels below 50 Follow the ACA law and incur costs, or do not follow the law and pay the penalty

21. Life Insurance Employers may provide life insurance to employees or offer the opportunity to buy coverage at low group rates. Term life insurance – if the employee dies during the term of the policy, the employee’s beneficiaries receive a death benefit payment. Usually twice the employee’s yearly pay. Additional benefits may include accidental death and dismemberment. Employers may provide life insurance to employees or offer the opportunity to buy coverage at low group rates. Term life insurance – if the employee dies during the term of the policy, the employee’s beneficiaries receive a death benefit payment. Usually twice the employee’s yearly pay. Additional benefits may include accidental death and dismemberment.

22. Optional Benefits Life insurance Term life 1 x annual salary 2 x annual salary Option to purchase more life insurance Must follow state insurance rules Senior leadership: life insurance spelled out in contract

23. Figure 13.4: Sources of Income for Persons 65 and Older

24. Optional Benefits Programs: Retirement Plans About half of employees working in private business sector have employer-sponsored retirement plans. Contributory plan - retirement plan funded by contributions from employer and employee. Noncontributory plan - retirement plan funded entirely by employer contributions. About half of employees working in private business sector have employer-sponsored retirement plans. Contributory plan - retirement plan funded by contributions from employer and employee. Noncontributory plan - retirement plan funded entirely by employer contributions.

25. Laws Affecting Optional Benefits Programs: Retirement Plans Employee Retirement Income Security Act of 1974 (ERISA): (Ford) Federal law that increased responsibility of pension plan trustees to protect retirees; Established certain rights related to vesting and portability, and created the Pension Benefit Guarantee Corporation. Employee Retirement Income Security Act of 1974 (ERISA): (Ford) Federal law that increased responsibility of pension plan trustees to protect retirees; Established certain rights related to vesting and portability, and created the Pension Benefit Guarantee Corporation. Pension Benefit Guarantee Corporation (PBGC): Federal agency that insures retirement benefits and guarantees retirees a basic benefit if employer experiences financial difficulties. Pension Benefit Guarantee Corporation (PBGC): Federal agency that insures retirement benefits and guarantees retirees a basic benefit if employer experiences financial difficulties.

26. Optional Benefits Programs: Retirement Plans Defined benefit plan – pension plan that guarantees a specified level of retirement income. Employer sets up a pension fund to invest contributions. Such plans must meet funding requirements established by ERISA Employer must contribute enough for the plan to cover all benefits to be paid out to retirees. (e.g. funding the liabilities) Mathematical formula: Age, length of service, earnings, Defined benefit plan – pension plan that guarantees a specified level of retirement income. Employer sets up a pension fund to invest contributions. Such plans must meet funding requirements established by ERISA Employer must contribute enough for the plan to cover all benefits to be paid out to retirees. (e.g. funding the liabilities) Mathematical formula: Age, length of service, earnings,

27. Optional Benefits Programs: Retirement Plans Defined contribution plan – retirement plan in which the employer sets up an individual account for each employee and specifies the size of the investment into that account. Money purchase plans Profit-sharing and employee stock ownership plans Section 401(k) plans Defined contribution plan – retirement plan in which the employer sets up an individual account for each employee and specifies the size of the investment into that account. Money purchase plans Profit-sharing and employee stock ownership plans Section 401(k) plans

28. 401k Plans Defined in the 401k subsection of the IRS Taxation Code; Enacted into law in 1978 (Carter) Pre-tax employee contributions for 2015 = $18,000 per year in pre-tax earnings Employers can, but are not obligated to, match a portion of employee investment Stringent withdrawal rules May take money and roll over into another qualified plan Employees can make investment decisions – or not.

29. Pre-tax benefit Normal salary = $50,000 Tax based upon $50,000 Pre-tax benefit Normal Salary = $50,000 Employee contribution = $10,000 Taxable income = $40,000

30. Figure 13.5: Value of Retirement Savings Invested at Different Ages

31. Optional Benefits Programs: Retirement Plans Cash balance plan – retirement plan in which the employer sets up an individual account for each employee and contributes a percentage of the employee’s salary. Account earns interest at a pre-defined rate. Arrangement helps employers plan their contributions and helps employees predict their retirement benefits. If employees change jobs, they can roll over balance into an individual retirement account (IRA). Cash balance plan – retirement plan in which the employer sets up an individual account for each employee and contributes a percentage of the employee’s salary. Account earns interest at a pre-defined rate. Arrangement helps employers plan their contributions and helps employees predict their retirement benefits. If employees change jobs, they can roll over balance into an individual retirement account (IRA).

32. Optional Benefits Programs: Retirement Plan Rules Guarantee that when employees become participants in a pension plan and work a specified number of years, they will receive a pension at retirement age, regardless of whether they remained with the employer. Typically 5 year cliff = 100% vesting rights 3-7 year scale = 20% after 3 years, then 20% for each additional year Guarantee that when employees become participants in a pension plan and work a specified number of years, they will receive a pension at retirement age, regardless of whether they remained with the employer. Typically 5 year cliff = 100% vesting rights 3-7 year scale = 20% after 3 years, then 20% for each additional year Report that describes a pension plan’s funding, eligibility requirements, risks, and other details. Employers also provide an individual benefit statement which describes employee’s vested and unvested benefits. Report that describes a pension plan’s funding, eligibility requirements, risks, and other details. Employers also provide an individual benefit statement which describes employee’s vested and unvested benefits. Vesting RightsSummary Plan Description

33. Optional Benefits Programs: “Family-Friendly” Benefits Family LeaveChild Care BenefitsCollege Savings PlansElder Care

34. Optional Benefits Programs: Other Quality of Work-Life Benefits Subsidized cafeterias On-site health care services Moving and relocation expenses Employee discounts on products Employee buying service Subsidized cafeterias On-site health care services Moving and relocation expenses Employee discounts on products Employee buying service Tuition reimbursement On-site fitness center On-site dry cleaning services Dues for professional organizations Off-site company recreation area Pet services Tuition reimbursement On-site fitness center On-site dry cleaning services Dues for professional organizations Off-site company recreation area Pet services

35. Selecting Employee Benefits Decisions about which benefits to offer should take into account: Organization’s goals, objectives and budget Expectations of the organization’s current employees and potential future recruits. An organization that does not offer expected benefits will have difficulty attracting and keeping employees. Decisions about which benefits to offer should take into account: Organization’s goals, objectives and budget Expectations of the organization’s current employees and potential future recruits. An organization that does not offer expected benefits will have difficulty attracting and keeping employees.

36. Communicating Benefits to Employees Organizations must communicate benefits information to employees so that they will appreciate the value of their benefits. This is essential so that benefits can achieve their objective of attracting, motivating, and retaining employees. Employees are interested in their benefits, and they need a great deal of detailed information to take advantage of benefits. Organizations must communicate benefits information to employees so that they will appreciate the value of their benefits. This is essential so that benefits can achieve their objective of attracting, motivating, and retaining employees. Employees are interested in their benefits, and they need a great deal of detailed information to take advantage of benefits.

37. COMMUNICATION OF BENEFITS Benefits described in a “Summary Plan Description” Internal newsletters, employee handbooks & policy manuals Must be reasonably available to all employees Employee feedback is strongly encouraged Employer & employee factors in benefits design Impact on attraction and retention of employees Financial impact of benefit costs – real & actuarial

38. Summary Like pay, benefits help employers attract, retain, and motivate employees. Employees expect at least a minimum level of benefits, and providing more than minimum helps an organization compete in the labor market. Benefits are also a significant expense, but employers provide benefits because employees value them and many benefits are required by law. Like pay, benefits help employers attract, retain, and motivate employees. Employees expect at least a minimum level of benefits, and providing more than minimum helps an organization compete in the labor market. Benefits are also a significant expense, but employers provide benefits because employees value them and many benefits are required by law.

39. Summary Employers must contribute to Social Security through a payroll tax shared by employers and employees. Employers must also pay federal and state taxes for unemployment insurance. State laws require that employers purchase workers’ compensation insurance. Major categories of paid leave are vacations, holidays, and sick leave. Employers must contribute to Social Security through a payroll tax shared by employers and employees. Employers must also pay federal and state taxes for unemployment insurance. State laws require that employers purchase workers’ compensation insurance. Major categories of paid leave are vacations, holidays, and sick leave.

40. Summary Medical insurance is one of the most valued employee benefits. To manage costs of health insurance, many organizations offer coverage through a health maintenance organization or preferred provider organization, or they may offer flexible spending accounts. Retirement plans may be contributory or noncontributory and defined benefit plans or defined contribution plans. Medical insurance is one of the most valued employee benefits. To manage costs of health insurance, many organizations offer coverage through a health maintenance organization or preferred provider organization, or they may offer flexible spending accounts. Retirement plans may be contributory or noncontributory and defined benefit plans or defined contribution plans.

41. Summary Employers have responded to work-family role conflicts by offering family-friendly benefits. In deciding contents of a benefits package, organizations need to establish objectives and select benefits that support those objectives. Organizations should also consider employees’ expectations and values. Employers must comply with numerous laws and regulations affecting how they design and administer benefits programs. Employers have responded to work-family role conflicts by offering family-friendly benefits. In deciding contents of a benefits package, organizations need to establish objectives and select benefits that support those objectives. Organizations should also consider employees’ expectations and values. Employers must comply with numerous laws and regulations affecting how they design and administer benefits programs.