Chapter 16: Employee Benefits: Group Life and Health Insurance
Meaning of Employee Benefits
employee benefits are employer-sponsored benefits, other than wages, that enhance the economic security of individuals and families and are partly or fully paid for by employers
These benefits include:
-group life, medical and dental insurance
-group short term and long term disability plans
-paid holidays, vacations, family and medical leave
-educational assistance, employee discounts
Fundamentals of Group Insurance
group insurance differs from individual insurance in several ways
-many people are covered under one contract; a master contract is formed between the group and insurer
-coverage usually costs less than comparable insurance purchased individually
-individual evidence of insurability is usually not required
-experience rating is used
Group Insurance
Group insurers observe certain principles
-the group should not be formed for the sole purpose of obtaining insurance
-there should be a flow of persons through the group
-benefits should be automatically determined by a formula
-a minimum percentage of eligible employees must participate
-the plan should be easy to administer
eligibility for group status depends on insurance company policy and state law
-usually a minimum size is required
employees must meet certain participation requirements:
-be a full time employee
-satisfy a probationary period
-apply for coverage during the eligibility period
-be actively at work when the coverage begins
Group Life Insurance Plans
group life insurance plans typically provide yearly term insurance coverage
-provides low cost protection to employees
-the basic amount of coverage can be based on the workers’ earning, position, or it can be a flat amount for all
-coverage usually ends when the employee leaves the company
group plans also make available supplemental term insurance, whereby employees can purchase additional amounts without evidence of insurability
most plans also provide group accidental death and dismemberment (AD and D) insurance
-pays additional benefits if the employee dies in an accident or incurs certain types of bodily injuries
-the benefit is some multiple of the group life insurance benefit
-the full benefit, called the principal sum, is paid if the employee dies in an accident
in a noncontributory plan, the employer pays the entire cost
in a contributory plan, the employer and the employee share the cost
some plans require employees to satisfy a probationary period of 1-3 months before they can participate in the plan
experience rating is commonly used
most plans offer some coverage for the spouse and dependent children
employees can covert their term insurance to an individual cash value policy if they leave employment
some plans have a portable term insurance option that allows the coverage to continue if the employee leaves
credit life insurance, offered by banks, provides for the cancellation of outstanding debt if the borrower dies
Group Medical Expense Insurance
group medical expense insurance is an employee benefit that pays the cost of hospital care, physicians’ and surgeons’ fees, and related medical expenses
coverage is available through:
-commercial insurers
-Blue Cross and Blue Shield plans
-managed care organizations
-self insured employer plans
commercial life and health insurers sell both individual and group medical expense plans
most individuals and families insured by commercial insurers are covered under group plans
the health insurance market is highly concentrated
-in 37 states, the three largest insurers had at least 80 percent of the total enrollment
Blue Cross and Blue Shield plans are medical expense plans that cover hospital expenses, physician and surgeon fees, ancillary charges, and other medical expenses
-Blue Cross plans cover hospital expenses
-Blue Shield plans cover physicians’ and surgeons’ fees
-most plans include both BC and BS
-in most states, plans operate as non-profit organizations, but some have converted to for-profit status to raise capital
managed care organizations are generally for-profit organizations that offer managed care to employers
-plans offer medical expense benefits in a cost effective manner
-plans emphasize cost control and carefully monitor the medical care provider by physicians
many employers self-insure part or all of the benefits provided to their employees
-self insurance means the employer pays part or all of the cost of providing health insurance to the employees
-plans are usually established with stop-loss insurance whereby a commercial insurer will pay claims that exceed a certain limit
-some employers have an administrative services only (ASO) contract with a commercial insurer
-self-insured plans are exempt from state laws that require insured plans to offer certain state-mandated benefits
Managed Care Plans
indemnity plans (or fee-for-service plans) have declined in importance over time
-they now account for less than 1% of all covered employees
-physicians were paid a fee for each covered service
-employees could select their own physician
-plans paid the usual, customary, and reasonable fees for each covered service
-cost-containment was not heavily stressed
managed care is a generic name for medical expense plans that provide covered services to the members in a cost effective manner
-an employee’s choice of physicians and hospitals may be limited
-cost control and cost reduction are heavily emphasized
-utilization review is done at all levels
-the quality of care provided by physicians in monitored
-healthcare providers share in the financial results through risk-sharing techniques
-emphasis on preventative care and healthy lifestyles
a health maintenance organization (HMO) is an organized system of health care that provides comprehensive medical services to its members on a prepaid basis
-HMOs negotiate rates and enter into agreements with hospitals and physicians to provide medical services
-broad, comprehensive medical services are provided
-choice of providers is limited
-cost-sharing provisions are imposed
HMOs place heavy emphasis on controlling costs
-a common method to pay network physicians is modified fee-for-service, where payments are based on a negotiated fee schedule
-providers may receive a capitation fee, which is a fixed annual payment for each plan member regardless of the frequency or type of service provided
-some employers have banded together to form purchasing cooperatives to obtain more favorable prices
-a gatekeeper physician is a primary care physician who determines whether medical care from a specialist is necessary
there are several types of HMOs:
-under a staff model, physicians are employees of the HMO and are paid a salary or a salary and an incentive bonus to hold down costs
-under a group model, physicians are employees of another group that has a contract with the HMO
-under a network model, the HMO contracts with 2 or more independent group practices
-an individual practice association (IPA) is an open panel of physicians who work out of their own offices and treat HMO members at reduced fees, on a fee-for-service basis
a preferred provider organization (PPO) is a plan that contracts with healthcare providers to provide certain medical services to members at discounted fees
-PPO providers typically are paid on a fee-for-service basis
-patients are not required to use a preferred provider, but the deductible and co-payments are lower if they do
-if the provider’s actual charge exceeds the negotiated fee, the provider absorbs the excess
-most PPOs do not use a gatekeeper physician
a point-of-service (POS) plan is typically structured as an HMO, but members are allowed to go outside the network for medical care
-if patients see providers who are in the network, they pay little or nothing out of pocket
-deductibles and copayments are higher if patients see providers outside the network
Affordable Care Act and Group Medical Expense Insurance
the Act prohibits certain practices
-applicants cannot be turned down or rated up regardless of their health condition
-prohibition on preexisting conditions
-prohibition on lifetime and annual limits
-insurers may not retroactively rescind a policy because of unintentional errors on the application
-retention of coverage until age 26
-no cost sharing for certain preventive services
other provisions of the Act include:
-an employer mandate requires large firms to offer health insurance or pay penalties
-health insurance plans must provide essential health benefits
-small employer tax credits
-the SHOP Marketplace program enables small firms to offer high-quality health and dental coverage
-required minimum loss ratio
-grandfathered plans
-flexible spending account limits
-out of network claim payments for emergency room visits
-uniform coverage documents
-cadillac tax on high-value policies
-employer W-2 reporting obligations
Key Features of Group Medical Expense Insurance
new group medical expense plans sold today generally have the following features:
-comprehensive benefits
-calendar year deductible
-coinsurance requirements
-copayments for certain expenses
-annual limit on out of pocket expenses
-no cost sharing for certain preventive services
-noncovered services
Consumer-Directed Health Plans
a consumer-directed health plan is a generic term for a plan that combines a high-deductible health plan with a health savings account (HSA) or health reimbursement arrangement (HRA)
-a high-deductible health plan is a medical expense plan with a high annual deductible
-a health reimbursement arrangement is an employer-funded plan with favorable tax advantages, which reimburses employees for medical expenses not covered by the employer’s standard insurance plan
Recent Developments in Employer-Sponsored Health Plans
health insurance premiums continue to rise
employers are shifting more costs to employees through higher deductibles
PPOs dominate group health insurance markets
continued growth of high-deductible health plans with a savings option
coverage for early retirees continues to decline
establishment of tiered or high-performance networks
establishment of tiered pricing for prescription drugs
increase in employers offering of wellness benefits
use of health risk assessments
establishment of onsite health clinics
tighter eligibility requirements for spousal coverage
Group Medical Expense Contractual Provisions
group medical expense plans contain numerous contract provisions, including:
-a coordination-of-benefits provision specifies the order of payment when an insured is covered under 2 or more group health insurance plans
-the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) gives employees the right to remain in the employer’s plan for a limited period after leaving employment
The Health Insurance Portability and Accountability Act (1996) placed restrictions on the rights of insurers to limit coverage for preexisting conditions
The Affordable Care Act changed the preexisting conditions under HIPPA:
-insurers are prohibited from denying or limiting coverage for preexisting conditions
Group Dental Insurance
group dental insurance helps pay the cost of normal dental care
-plans cover x-rays, cleaning, fillings, etc
-a covered employee or family must satisfy a deductible each calendar year
-coinsurance requirements vary depending on the type of service provided
-most plans have maximum limits on benefits
-some dental services are excluded
-a predetermination-of-benefits provision informs the employee of the amount that the insurer will pay for a service before the service is performed
Group Disability-Income Insurance
group disability-income insurance pays weekly or monthly cash payments to employees who are disabled from accidents or sickness
under a short-term plan, benefit payments range from 13 weeks to two years
-most cover only nonoccupational disability, which means that an accident or illness must occur off the job
-employee must be totally disabled to qualify
-you are considered totally disabled if you are unable to perform each and every duty of your regular occupation
under a long-term plan, the benefit period ranges from 2-65 years
-for the first two years, you are considered disabled if you are unable to performa all of the material duties of your own occupation
-after two years, you are still considered disabled if you are unable to work in any occupation for which you are reasonably fitted by education, training, and experience
-plans typically cover occupational and non-occupational disability
-if the disabled worker is receiving Social Security or other disability benefits, the payments are reduced to discourage malingering
some long term plans have additional supplemental benefits
-under a cost of living adjustment, benefits are adjusted annually for increases in the cost of living
-under the pension accrual benefit, the plan makes a pension contribution so that the disabled employee’s pension benefit remains intact
-a survivor income benefits provisions makes monthly payments to an eligible surviving spouse or children for a limited period following the disabled worker’s death
Cafeteria Plans
a cafeteria plan allows employees to select those benefits that meet their specific needs
-in many plans, the employer gives each employee a certain number of dollars or credits to spend on benefits, or take cash
-many plans allow employees to make their premium contributions with before tax dollars
-under a full choice, or full flex plan, employees select from a full range of benefits
-a premium conversion plan allows employees to make their premium contributions for plan benefits with before tax dollars
-many plans include a flexible spending account which is an arrangement that permits employees to pay for certain unreimbursed medical expenses with before tax dollars
-to avoid forfeiture of flexible spending account funds, a plan can provide either a grace period or a carryover to the next year
one advantage of cafeteria plans is that employees can select those benefits that best meet their specific needs
a disadvantage is that the employer may incur higher development costs