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Life/Health Exam 1
| Question | Answer |
|---|---|
| Loss exposures of Employee benefits | loss of income to employee, medical expenses for an employee, loss of productivity to an employee |
| Perils | random events - injury/illness/sickness, retirement, death, unemployment |
| Personal issues and circumstances: | EAP - Employee assistance program: troubled employees can cause loss of productivity |
| Benefits vs. Healthcare | Benefits does NOT equal healthcare |
| Medical Expenses (2 types) | Pre-retirement and post retirement |
| Pre-retirement medical expenses | "health insurance plan" - indemnity plan, managed care plan |
| Types of Managed Care Plans (pre-retirement) | HMO, PPO, POS, CHDP, HDHP, HRA, HSA |
| Specialized Coverage for narrowly defined perils (pre-retirement) | dental insurance, vision insurance, prescription drug insurance |
| Post-retirement medical expenses | Medicare, post retirement health benefits (PRHB- ex. Medicare supplement |
| Loss of Income (5 categories) | 1. disability non-occupational 2. disability occupational 3. unemployment 4. death 5. retirement |
| Disability non-occupational | STD & LTD insurance, Sick leave & PTO, AD&D, Social Security Disability Benefit (oasDi) |
| Short term disability vs. Long term disability | Short term: a few months, for example maternity leave. Long term: Longer than 6 months |
| Sick leave | You get a certain amount of sick days that are paid |
| Paid Time Off | No matter what the reason, you have a specific amount of days off that you are paid not to work |
| Accidental Death and Dismemberment | for example, if you lose a finger - a finger is worth a specific amount. It is hard to measure loss so they put a price on it, rather than determining the income loss due to dismemberment |
| Disability Occupational | workers compensation disability benefits, OASDI, STD, LTD, AD&D |
| Disability part OASDI | Covered under occupation & nonoccupational - it does not make a distinction if you were at work or not |
| Why do resources of potential loss of income need to be integrated? | When you have these resources of potential income, these sources need to be integrated or else someone may be over-insured & could create a moral hazard for them to become disabled |
| Unemployment | unemployment insurance, severance package |
| Death | Employer provided life insurance (GTL insurance), oaSdi (social security survivor benefits), accidental death, workers compensation death benefits, business travel accident insurance, retirement plan-survivor benefit |
| Retirement plan-survivor benefit requirement | It is not required but if they do, they have to offer survivor benefit |
| Retirement | "pension" - Defined benefit plan, defined contribution plan, 401(k) or 403(b)- non-profit form |
| Broad View | US Chamber of Commerce survey, based on total compensation view |
| Total Compensation under Broad View | (Current Direct Salary) + (Value of Employee Benefits) |
| Employee benefits definition: | any form or type of compensation other than direct, current wages paid to EE |
| What is the percentage of payroll for employee benefits | 18% - 70%, on average about 40% of payroll |
| What types of compensation under Broad View? | 1. ER's share of legally required programs 2. cost for private insurance plans and retirement plans 3. payments for time not worked 4. extra cash payments 5. cost of deminimus fringes |
| What are some private insurance and retirement plans under broad view? | health, life, disability, 401(k) |
| What are payments for time not worked under Broad view? | Paid time off, vacation |
| What are extra cash payments under Broad View? | Bonuses, tuition reimbursement |
| What are deminimus fringes under Broad View? | Benefits of small value, such as lunches, free coffee/water bottles/things in the office, free parking (small things, not taxed) |
| What is a example of a qualified employee discount | 25% of for employees at Macy's |
| What is an example of no additional cost service | Airlines/airplane, seats at universities- it will go on whether you're there or not |
| Narrow View of Employee Benefits | An employee benefit plan is any plan - sponsored or initiated unilaterally or jointly by employers &/or employees |
| Sponsored unilaterally | no one is forcing ERs to do it |
| Sponsored jointly | unions, collective bargaining plan |
| What are the main conditions of the narrow view? | 1. providing benefits that stem from an employment relationship 2. not underwritten or paid directly from any government 3. providing protection against loss of income and medical expenses |
| What are the two main benefit categories of the narrow view | 1. health and welfare benefits 2. retirement benefits |
| Factors contributing to Employee Benefits as a method of compensation | 1. Post WWII wage & price controls 2. union demand through collective bargaining 3. Favorable Tax Treatment 4. Changes in the social economic makeup of the US work force 5. social legislation & regulation |
| Post WWI Wage and Price Controls | Price inflation- for excess demand after so many families started forming; instilled a wage and price freeze as a way of regulation.. substitute health insurance for wages - since ERs coudlnt raise wages to attract EEs.IRS imposed no tax on ER provided HI |
| Union demand through collective bargaining | Wagner act (1935); Inland steel case (1948); Taft-Harley Act (1947) |
| Wagner Act | 1935; gave unions the right to bargain, negotiate - bargain over "wages" & "other condition of employment" - ex working conditions, breaks, etc |
| Inland Steele Case | (1948) "Wages" under the Wagner Act, the term wages include employee benefits. Therefore, they had the right to negotiate benefits are a bargainable issue |
| Taft-Hartley Act | (1947) aka Labor Management Relation Act (LMRA); multi or single ER plan, collectively bargained - jointly administered welfare funds |
| Taft-Hartley Funds | under the Taft-Hartley act; ER provides money, goes to intermediary between ER and union, and that intermediary controls the money. It is essentially a trust fund that can hold the $- parties don't trust each other to hold $ but it has to go somewhere |
| Favorable Tax Treatment | US federal income tax (IRS), "benefits" are NOT taxable as part of compensation to employees, incentives for employers to offer employee benefits - if they were taxed, EEs might not know if they want them or not |
| Changes in the Social Economic makeup of the US work force | childcare benefits, flexibility in benefits, retirement benefits, portability in benefits: in between employment |
| Social registration & rejuslation | Workers compensation laws, OASDI, ADEA (age disability employment act), COBRA, TEA (transportation equity act), MHPA, FMLA, HIPAA, URISA, PPACA |
| Reasons for Employee Benefits as a method of compensation (5) | 1. favorable tax treatment 2. take advantage of group insurance opposed to individual insurance 3. to attract and retain capable employee 4. concern for the welfare of employees -"corporate culture" 5. improve corporate productivity or efficiency |
| Favorable Tax Treatment of EE benefits | increase compensation by $5000 for an employee - EE has choice as to what form it takes |
| Options of compensation an ER can give - increase compensation by $5000 with either option | Salary (cash), Vacation (non-cash), or health insurance (non-cash) |
| What option of compensation is the best from the ER's point of view | ER is indifferent as to the EEs choice- Option A,B, and C have a real cost of $5000, cost of doing business, tax deductible for the ER either way |
| What option of compensation is the best from the EE's point of view | Option A - salary is taxable (assume EE has combined tax rate of 40% so only recieve $3000), Option B- vacation is also taxable, Option C- HI has no income tax liability,no state/local taxes, no OASDI taxes |
| When can you receive favorable tax treatment | In order to receive favorable tax treatment, plans must demonstrate or prove that they are qualified plans |
| How do you prove if a plan is qualified? | Plans must go through discrimination testing to prove they are qualified - IRS filings, department of labor, form 5500 |
| Qualified plan vs. Non-qualified Plans | Qualified plans receive favorable tax treatment or non-qualified plans do not receive favorable tax treatment |
| Why does the IRS care about favorable tax treatment? | federal income taxes, marginal tax rates |
| Does everyone benefit from favorable tax treatment? | Yes; some benefit more than others |
| Non-highly compensated employees/non-key employees vs high compensated employees/key employees | Non-key Employees don't make the plans, Key employees create the plans toward themselves |
| Problem with HCEs and favorable tax treatment | Key employees may gear plans towards themselves - discrimination. IRS is worried that favorable tax treatment is more in favor of key employees |
| Discrimination Testing HCE/NHCE test or key EE/non key EE test | 1. eligibility- who is eligible and who's not 2. benefits test |
| Nonqualified plan | penalty - key employees and/or HCEs would not receive favorable tax treatment - non-key employees and/or NHCEs would receive favorable tax treatment *people who get penalized are who the discrimination is in favor of |
| Social Insurance Programs (5) | OASDI, Medicare, Workers Compensation, Unemployment Insurance, Temporary Disability Insurance |
| Why do social insurance programs exist? first reason | Individuals tend to be myopic (short-sided) in their planning .. it basically forces people to save |
| Why do social insurance programs exist? second reason | Private market place cannot fill in the gaps - private market in some cases is unable to insure a particular risk, issues with requirements, often insurable risk |
| Why is it important for employers to understand social insurance programs in designing a benefit plan? | 1. possibility of individuals being overinsured for particular loss exposures 2. employers provide much of the funding for the program |
| Which social insurance program is highly likely to become over insured? | Disability - they could get workers compensation, STD, LTD, OASDI |
| How can employers limit over insuring employees in social insurance programs? | Make sure the benefits are coordinated and integrated into plan design |
| Major characteristics of social insurance programs (2) | 1. compulsory purchase of insurance and/or compulsory participation in a program 2. government acts as an insurer "government is acting in a risk bearing capacity for payment of losses |
| OASDI | "Social Security" Benefits: Old age (retirement), Survivor (life insurance), Disability |
| How are payments under OASDI | All benefits are monthly income payments - based on the PIA |
| What does it mean that PIA is a function of AIME? | Primary Income Insurance is a function of Average Index Monthly Earnings |
| Definition of PIA | A person retiring at the "normal retirement age" receives 100% of his/her primary insurance amount per month (PIAr) |
| What do all benefits in OASDI have? | Primary Income Insurance |
| Who is the risk bearer in social insurance programs? | Federal government - they guarantee the benefits |
| At what point does a person stop paying the social security tax? | in 2013, if you make $113,700 or more you stop paying SS tax - paid by EE and matched by ER |
| How does the AIME figure out the PIA | AIME takes off lowest 5 years of earnings and they calculate the highest earnings over 35 years |
| What are the 2 parts of Medicare? | Part A: hospital insurance Part B: supplementary medical insurance |
| What is the Health Insurance tax? | Employee pays 1.45%, if you make over $200,000 you pay another .9%, so in total it is 2.3% ER only pays 1.45% they do not match the extra .9% |
| Workers Compensation types of benefits | on the job injuries/death on the job- WC pays for loss of income if these events occurred |
| Types of compulsion for Workers Compensation | state law: aimed at the employer, risk bearer is private insurance and ER if plan is self-funded |
| What kind of state funds are there in regard to workers compensation? | Competitive state fund: ER may have options, but it may create an adverse selection problem; Monopoly: state only sells one, example Ohio only sells WC |
| Sources of funds for workers compensation | Employer - premiums or self insurance contributions |
| Unemployment Insurance risk bearer and sources of funds | Federal and state; funds are sourced through payroll taxes- FUTA (federal unemployment tax act). In some states employees pay a small pay roll tax as well, tax rate is experience rated back to ER |
| Temporary Disability Insurance applies to which states? | California, Rhode Island, New York, New Jersey, Hawaii & Puerto Rico |
| Types of benefits under temporary disability | Short term, non-occupational disability insurance ...anything that doesn't happen to you on the job |
| Temporary Disability Insurance: who bears the risk? Compulsion? Funding? | State or private insurer bears the risk- they HAVE to provide it; compulsion aimed at employer; funded by premiums paid by ERs and/or EE - payroll taxes |
| What is the problem with TDI? | Different medical plan and not as much income than if it was occupational - employees may not want TDI so they pretend to get hurt at work to get workers compensation instead - false claims |
| How can employers mitigate the problem of TDI? | Supplement TDI so TDI and the supplement end up being the same compensation as workers compensation/occupational .. both are not as high as income you would normally make |
| Buyers | 1/2 EB plans are established from groups of 25 or fewer EEs; Groups of 25-100 EEs have greater flexibility in plan design, need to devote more time to group insurance, 500+ EEs usually have 1 or more people who devote time to EBs |
| Sellers | consist mainly of insurance companies, the Blues, PPO, and TPAs. Have significant cost advantage and are primarily providers of coverage due to large discounts and community rating |
| Agents | A legal representative of the company and has certain powers to act on behalf of the insurer - play a major role in marketing group insurers, get compensation through commission |
| Agents in small vs. large groups | small groups: agents have all sales; large groups: agent likely to call on a group representative for assistance |
| Agents: Standard (regular) commission schedule | schedule has high first year commission rates and lower rates in renewal years |
| Agents: Level of commission schedule | Has the same commission rates for the first and renewal years |
| Standard commission vs. level of commission | standard schedule provides a higher income for the agent in early years, and larger total income if the ER cancels or fails to renew after a short period |
| Brokers and Consultants | they are agents of the buyers and owe their allegiance to buyers rather than the insurance companies through which they place their clients' coverage |
| AFA mandates (brokers and consultants) | Currently require a broker to sell coverage either directly from an insurer or health plan or act as a navigator through the state health benefit exchanges - cannot be paid for both |
| What happened as a result of Brokers and Consultants owing allegiance to buyers rather than insurance company? | Insurance company lowered commission rates, then Brokers/Consultants charged fees for services they already performed or increase the fee levels they have already charged for their services |
| Group Representatives | An employee of the insurance company who is generally located outside the home office and specializes in the selling and servicing of his or her company's group insurance product |
| Functions of Group Representatives | Conducts sales activity through agents, brokers and consultants; aids agents/brokers/consultants in group representing, securing underwriting data, designing plans, preparing for presentation of proposals; usually receive salaries/maybe bonuses |
| Service Plans | Blues, HMOs, PPOs not owned by insurers have traditionally marketed their products and services through EEs who receive a salary (and maybe bonus) rather than agents, brokers, and consultants who receive a commission |
| Third Party Administrators | A person or organization that is hired to provide certain administration services to group benefit plans |
| Functions of Third Party Administrators | receive EE reports and contributions, keep track of EE eligibility, preparing any reports required by state and federal laws, handling complaints and grievances, |
| Who can be a Third Party Administrator | Professional administrators, banks, or insurance companies; easier and cheaper to have someone else do it |
| Design Issues in EE Benefits Planning: 5 Questions | What benefits should be provided? Who should be protected? What options will EE have? How should benefits be financed? How should benefits be funded? |
| What Benefits should be provided? | Required: Social Insurance Programs, Basic set of benefits, need analysis - needs of EE, loss exposures, medical expenses, loss of income |
| Beyond the basics: Why should benefits be provided? | competition in a particular industry for EE, bench marking analysis- where do you want to be among your competitors, Involve EE in the design process, different benefits packages in different geographic areas |
| How can you involve employees in the design process of employee benefits plans? | Employee survey, benefit committees, focus groups |
| Shift in EE benefits | Favorable tax treatment comes with a huge loss - it used to drive plan design. now, needs of employees drive plan design. Favorable tax treatment is still good but there is a lot of discrimination |
| TEA | transportation equity act: parking with pre-tax dollars, similar to FSAs, but TEA counts for non-FSAs |
| Work Life Benefits | Childcare; convenience benefits i.e. dry cleaning, banking services; flexible work arrangements -- all are recognition to balance work time and time you can do these things |
| Life Cycle Benefits | specific insurance products or benefits or savings/retirement i.e. Childcare, long term care |
| Who should be protected | 1. full time, active employees 2. dependents of full time, active employees 3. part time active employees 4. former employees and dependents |
| Dependents of full time, active employees include | spouse- legal marriage, domestic partnerships; children- define maximum age of eligibility, ACA states child is up to age 26 |
| Former employees and their dependents include | retirees and their dependents: Retirement pension plans, OASDI required, Post Retirement Health Benefits, ADEA- can age discriminate but has to be same amount given on both sides - above and below 65 but one side may not go as far |
| Terminated employees and their dependents | severance |
| unemployment insurance | access to COBRA continuation coverage, continuation of health insurance for a period of time, disabled employees and their dependents |
| COBRA continuation coverage | allows you to continue the group insurance you lost now that you are no longer an active employee, but you have to pay yourself- you have access to it, available for you if you want to pay |
| Disabled employees and their dependents have access to | STD, LTD, COBRA coverage, continue Health Insurance, continue life insurance coverage - unusual but it may happen, premium can go up; continue 401(k) and contributions may/may not be matched by ER |
| What options will | |
| Traditional Plan Deisgn | EEs have few options or choices if any, "one size fits all", - smaller employers, unionized plans |
| Plans with minimal care | i.e. retirement life, disability, dental, and AD&D - choice of health plans |
| Opportunity to purchase optional benefits or additional benefits | i.e. LTD, GTLI, AD&D, Dependent Coverage |
| OPTIONAL VS. ADDITIONAL | FIND OUT FROM BOOK |
| Voluntary Benefits | any benefit offered through an employer on a group basis & the EE pays the full cost i.e. long term disability, AD&D; ER Has to offer and if you want it you can pay for it yourself |
| Classic voluntary benefits | group auto insurance, group homeowners insurance, pet insurance on a voluntary basis, group universal life program, mini meds: really basic health insurance plan, "dread disease policies"- i.e. cancer insurance |
| Section 125 Plan | IRC section 125 (1978): A plan where EE has a choice between benefits normally considered taxable & benefits normally considered non-taxable - choice between types and levels of benefits |
| "Menu" of Section 125 plan | Non taxable and taxable |
| What is non-taxable under a Section 125 plan | healthcare, diminimus fringes, group insurance if FA </= 50,000, group disability insurance |
| What is taxable under a Section 125 plan | Cash, group term life > $50,000, group auto insurance |
| Applications of Section 125 | 1. Health care plan: HMOa, HMOb, PPOa 2. Healthcare Plan: HmOa, HMOb, $1000 opt out 3. Flexible Spending Account; 4. Premium Only Plan (POP) |
Created by:
nicolefassak