RMI 2101 Final Exam Guide (Topics 8,9,10,11)

Employee Benefits

Any types of Compensation othat than direct salary/wages.

Average EE Benefits account for 40% of payroll

Total Compensation

= Current Wages + Value of EE Benefits

Why do ER offer EE Benefits?

To maintain competitiveness in the market

Attract and retain capable EES

Tax Advantages for both EEs and ERs

ERs can take advantage of group insurance (bulk)

Types of EEs Benefits Financing

1. Non-Contributory Benefits

2. Contributory Benefits

3. Voluntary Benefits

Non-Contributory Benefits

ER pays full cost of benefits plan, while EE doesn't make financial contribution

Contributory Benefits

ER and EE share the cost of plan

Voluntary Benefits

ER offers benefits on the "menu" and EE pays the entire cost of that benefit.

Better than traditional insurance bc ER offers better price than outside options

Section 125/Cafeteria Plans

An ER-sponsored benefit plan that gives EEs access to certain pretax benefits (Taxable and Non-Taxable)

EE Contributes a part of their salary on a pre-tax basis to pay for benefits and you don't pay taxes on it.

ER can deduct cost of EE benefits as an ordinary business expense, so they also don't pay taxes

Flexible Spending Accounts

A type of section 125 plans where an EE agrees to reduce their pre-tax wage by a certain amount and deposit into an account used for benefits.

(Its EE money, but tax free. So EE are saving money at the end of day)

types of FSAs

1. Healthcare FSA - Co-payments, out of coverage costs

2. Dependent Care FSA - Child & Elder Care

3. Transportation FSA - Parking and Public transportation costs

"Use-It-Or-Lose-It" Rule

Disadvantage of FSAs where any unused funds at the end of the plan year are forfeited to ER, which covers admin costs.

Availability of FSA funds for Medical vs Transportation & Dependent Care

Total medical FSA funds are available since day 1 while dependent care and transportation FDSAs are only the amount you have already contributed.

FSA Maximum Contributions

Medical = $2,500

Depedent Care & Transportation = $5,000

Tax Breaks for Section 125 Plans

Breaks only exist for qualified plans that don't discriminate in favor of key EEs/HCEEs

Mandated/Compulsory Benefits

Benefits that ERs HAVE to offer

Characteristics of Mandated/Compulsory Benefits

Requires ER to act in a risk bearing capacity to provide the insurance and/or pay for benefits

Group Insurance

Insure a group as a whole w/:

1. No individual Underwriting

2. Looks at demographics to set rates/prices

Advantages of Group Insurance

Rates are Lower and based on past information of the group

How to control adverse selection?

1. Waiting Periods

2. Pre-existing Conditions Exclusion

3. Minimum Participation Requirements

4. Min Group Size

5. Stready flow of risks through pool

6. Have a reason for the existence of the group

Issues with Healthcare in the US

1. High Cost

2. High % of uninsured and underinsured people

3. High degree of 3rd payments for Healthcare

2-Party Transaction

Supply & Demand where consumer knows the price before consuming and price is at equilibrium

3rd-Party Transaction

Supply, Demand, & Financial Entity that pays for HCGS

supply = Providers

demand = Patients

Financial Entity = ER, insurance

Lethal/Costly Combination of the 3rd Party System

Classical moral hazard because the entity is paying for the HCGS, so patients never see true cost of care and HC abuse the FFS system to make more money, causing supply-induced demand.

Fee-For-Service Reimbursement

A fee is paid for each service provided to patient, which causes the supply-induced demand.

Insurer only sees cost after being billed.

Co-Pays

Fixed cost every time you consume HGCS

Co-Insurance

A percentage of the bill the insured pays

Indemnity Plans

Insurer FULLY indemnifies insured for covered losses in hospital costs, surgeon fees, follow-up visits.

Insured has freedom to choose providers

Issues w/ Indemnity Plans

Gaps in Coverage w/:

1.Non-hospital expenses

2.Limited Coverage for Stays

3.Balance Billing

Balance Billing

Insurer doesn't cover certain expenses, so hospital then charges the patient

Major Medical Plans

Benefits provided for a broad array of impatient and outpatient services.

Fills gaps that indemnity plans don't, yet still have a few exclusions in coverage.

Freedom in choice of provider

Managed-Care Plans

Providers coverage, yet in a cost-effective manner by curbing freedom in choice of providers in network (Which insurer negotiates with). Patient Choices in care are also limited.

Emphasizes cost-control and cost-reduction tactics

HMOs

Plan that removes incentives present for Providers under the FFS model.

Doesn't always pay provider for doing more, so risk dynamics for over-utilization shifts to providers.

Disadvatanges of HMOS

1. Less Freedom in choice of providers

2. Charges provider to choice HMO

3. PCP Gatekeep

4. No coverage for out-of-plan utilization

PPOs

Less Restrictive version of Managed Care where PPO forms networks and negotiates prices on a discount

Low Deductible Health Plans

Indemnity, HMOs, PPOs

Consumer Directed Health Plans (CDHP)

Focuses on making the insured to be more responsible on what care they utilize

Components of CDHP

1. An healthcare Reimbursement Account

2. ER offers high deductible, but its not applied to preventative care services

3. Pricing is made available to insured

CDHP Features

1. Co-Insurance, High Deductible, EE and ER add funds

2. Covers Catastrophic events

3. Encourages people to be healthy

Medicare

Federal health insurance program for people 65 or older and also for younger people with disabilities.

State defines benefits and eligibility

Medicaid

Federal health insurance program for people with low income, but its state that defines the income status

State defines benefits and eligibility

Obamacare (Affordable Care Act)

1. Requires dependents to be covered till age 26

2. Lifetime limits are banned

3. No more upcharges for pre-existing conditions

4. Preventative care is free

5. Forced ERS to being coverage of Part-time workers

ObamaCare Funding

1. 40% Taxes on Cadillac Health Insurance plans - REVOKED

2. $2.0k penalty for ERs that dont offer EE health insurance

3. Fines - REVOKED

Current Trends in Healthcare

1. Provider Transparency

2. Specialty meds increasing costs

3. TeleHealth and mental health

4. Gene Therapies and Pharmaceuticals

Risks to Retirement

1. Loss of Income

2. You get older and more vulnerable

3. Inflation

Social Security Taxes

OASDI - 6.2% up to wage base (176,100k in 2025)

HI - 1.45% + 0.9% on singles making 200k and married people making 250k

Average person pays 7.65%

ERs also match the taxes you pay, so self employed people pay double taxes for SS

O.A.S.D.H.I

Old Age, Survivors, Disability, and Health Insurance

Issues with Social Security

1. Tax rate held constant, but wage base increased

2.Benefits are also taxed since they are also treated as income

3. Pay as you go system, so cant invest the money

Defined Benefit Plan (Pensions)

Pension based on how much you worked and ER burdens uncertainty and investment risk (future liability)

Pension Formula

= (# of years of service) x (final Average Salary) x 2%

Defined Contribution Plan (401ks and 403bs)

EE contributes a portion of pretax salary into a retirement investing account, with ER being able to match contributions

Risk is on EE instead of ER

Advantages of 401ks

Access balance at all times and can consolidate multiple accounts

Tax Code for 401ks

Contributions have immediate income tax deduction, but capped at $23.5k per year

IRAs

Individual Retirement investing Account with only individual contributions from account holder, but capped at $7.0k per year

Tax deductions for IRAs are only available for people who don't have access to 401ks

Withdrawl Rules for IRAs & 401ks

Funds cant be withdrawn before 59 1/2 years without a penalty of 10%. After that, no penalty but withdrawals are treated as income so they get taxed.

401ks & IRAs Rollovers Rules

Can only do rollovers from:

1. 401ks to IRA

2. IRA to IRA

3. 401ks to 401ks

Once money is in the IRA world it cant leave

Roth IRAs

IRAs with no tax deductions from contributed but interest and withdrawals are tax free.

Income must be earned and max $7.0k contributions per year

Pension Plans Eligibility Standards

ERISA sets it as MINIMUM can't exceed:

1. 21 years old

2. one year of service

Retirement Ages for Pensions (401ks dont apply)

Normal Retirement Age = Full Benefits

Early Retirement Age - Partial/Reduced Benefits

Late Retirement age = Full benefits + ER can increase pensions but not required by law to do so.

Vesting

Degree a plans participant pensions benefits are non-forfeitable.

only applies to ER contributions.

Vesting Schedule for 401ks plans

3 year Cliff Vesting

20% - 2 Years

40% - 3 years

60% - 4 Years

80% - 5 Years

100% - 6 Years

Networth formula

= Assets - Liabilities

Income Sources

Job, Investments, Parents/Gifts

Fixed vs Variable Expenditures

Fixed = Obligated to pay/Consistent (Rent)

Variable = Some control and can vary amount (Food)

Retirement strategies

Start ealry, max 401ks and IRAs, and only take the money after 59 1/2 years old

Workers Comp

Occupational Diseases and work related accidents "arising out of " or "in the course of" employment.

state by state basis

Compromise in Workers Comp

ER is held completely liable and covers benefits, but EE cant sue for more.

types of benefits in Workers Comp

1. Loss of Income

2. Medical Expenses

3. Rehab

4. Survivor Benefits

Unemployment Insurance (SUI)

Federal funded program and administered by states that offers benefits to people who aren't working but actively looking

SUI Eligibility

Be abel to work and actiively seeking it.

satisfy waiting period

let go from job which you got wages from

Issues with SUI

-Inadequate benefits

-States inadequately funded

-Waste, fraud, and administrative burdens