Benefits

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Benefits

• MANA 5322
• Dr. Jeanne Michalski
• michalski_at_uta.edu

2
Discussion Topics

• Actions companies can take to reduce costs
  associated with legally required benefits.
• Social security
• Unemployment insurance
• Workers compensation
• FLMA Issues
• Health Care Costs
• Consumer-Driven Health Care Plans

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Discussion Topics

• Creating successful Wellness Programs
• Using Wellness Programs to discount premiums
  HIPPA issues
• Getting the most out of Benefits Vendor
  Relationships
• Benefits Administration considerations

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Health Care Costs and Productivity

• Little Relationship Between Health Care Benefits
  and Worker Productivity
• In a typical employer-sponsored health plan,
  most workers use few of the health services. In
  fact, in a typical private plan in the early
  2000s, 70 percent of the covered population
  accounted for about 10 percent of the plan costs.
  The next 25 percent of the covered population
  accounted for roughly 40 percent of the
  expenditures. The final 5 percent consumed
  roughly half the total services financed by the
  plan

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Health Care Costs and Productivity
Segment 2
Segment 1
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Common Chronic Health Problems

• Lost economic output associate with 7 common
  health problems total more than 1 trillion
  (includes lost time)
• world at work, 2009
• Cancer
• Diabetes
• Heart disease
• Hypertension
• Mental disorders
• Pulmonary conditions
• Stroke

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Wellness Programs- What They Can Do
8
Wellness Programs- What They Can Do

• Reduce absenteeism and increase productivity from
  a healthier and happier workforce
• Demonstrate that a company cares about its
  employees and build loyalty
• Identify potential health risks through health
  questionnaires and then initiate preventative
  care
• Reduce health-care costs as a result of early
  intervention and preventive care.

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Important for Wellness Program Success

• Establish a privacy policy and enforce it
  rigorously
• Make sure everyone knows about the wellness
  initiative through repeat messaging in all three
  modes online, print, and on-site
• Make sure employees have time to attend a health
  fair where health screenings are offered

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Wellness Programs

• Use assessment activities to identify health
  risks
• Provide Health Screening
• Make self help materials available
• Include self-care programs
• Nurse advice lines, software, educational
  materials
• Involve the employees family

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Wellness Programs

• Offer incentivebased programs
• Example pedometers gift cards
• Make it applicable to broad section of employees
• its about tapping into behavior change
• Cultivate a network of internal wellness
  evangelists
• Keep the excitement level high
• Think about what you do after the launch
• Competitions
• Link measurable performance to health care costs
• wellness bonus that can be applied to monthly
  health care premium contributions

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Some Easy Examples of Wellness Changes

• Healthy foods in the cafeteria and/or vending
  machines
• America Heart Association, American Cancer
  Society, etc to conduct educational workshops
• Bike racks
• Free health screenings

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New Trend in Health Care Premiums

• Addressing health care costs associated with
• obesity
• elevated blood pressure
• high cholesterol
• glucose levels
• Offer free health screening
• Use results for reduced premiums

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New Trend in Health Care Premiums

• EXAMPLE
• If high-risk levels of these measures are
  identified (e.g., a body mass index, or BMI,
  exceeding 35), the employee will have a year to
  tackle the problem, either through free,
  plan-sponsored care from a physician,
  participation in a wellness program, or an
  individual initiative. Employees in good health
  and those taking corrective measures to reduce
  their health risks will pay a discounted
  insurance premium of 25 per month (half the
  usual fee) in 2010. Employees who fail to
  participate in these screening and/or wellness
  activities will see their monthly premiums remain
  at 50.

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HIPPA and Wellness Programs

• The HIPAA nondiscrimination provisions generally
  prohibit group health plans from charging
  similarly situated individuals different premiums
  or contributions or imposing different
  deductible, copayment or other cost sharing
  requirements based on a health factor. However,
  there is an exception that allows plans to offer
  wellness programs.

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HIPPA and Wellness Programs

• If none of the conditions for obtaining a reward
  under a wellness program are based on an
  individual satisfying a standard related to
  health factor, or if no reward is offered, the
  program complies with the nondiscrimination
  requirements. For example
• A program that reimburses all or part of the cost
  for memberships in a fitness center.
• A diagnostic testing program that provides a
  reward for participation rather than outcomes.
• A program that encourages preventive care by
  waiving the copayment or deductible requirement
  for the costs of, for example, prenatal care or
  well-baby visits.
• A program that reimburses employees for the costs
  of smoking cessation programs without regard to
  whether the employee quits smoking.
• A program that provides a reward to employees for
  attending a monthly health education seminar.

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HIPPA and Wellness Programs

• Wellness programs that condition a reward on an
  individual satisfying a standard related to a
  health factor must meet five requirements
  described in the final rules in order to comply
  with the nondiscrimination rules.

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Five HIPPA Requirements for Rewards Based
Wellness Programs

• The total reward for all the plans wellness
  programs that require satisfaction of a standard
  related to a health factor is limited
  generally, it must not exceed 20 percent of the
  cost of coverage under the plan.
• The program must be reasonably designed to
  promote health and prevent disease.
• The program must give individuals eligible to
  participate the opportunity to qualify for the
  reward at least once per year.
• The reward must be available to all similarly
  situated individuals.
• The plan must disclose in all materials
  describing the terms of the program the
  availability of a reasonable alternative
  standard.

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Discussion Topics

• Creating successful Wellness Programs
• Using Wellness Programs to discount premiums
  HIPPA issues
• Getting the most out of Benefits Vendor
  Relationships
• Benefits Administration considerations

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Outsourcing Metrics
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Outsourcing Metrics

• Determine what is important to your organization
• Focus on the output and not the process
• Be specific, loose wording can be
  misinterpreted and lead to dissatisfaction
• Focus on measures over which the provider has
  total control.
• Determine measures that will invoke appropriate
  behaviors, e.g. do you want to use HR Outsourcing
  as the catalyst to change your line managers
  behaviors?

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Vendor Metrics

• "You have to focus on what you are really trying
  to accomplish. Things like time to answer a
  service-center call, the average length of each
  call, the caller-abandonment rate, did you size
  the call center appropriately and case-resolution
  efficiency -- those types of issues,". "You have
  to use some of the classical measurements because
  you have to come out of the gate quickly. At the
  end of the day, those basic measurements drive
  the efficiency of your outsourcing agreement.
• "If you have people calling the call center and
  not getting what they need, and they go back to
  that HR person who isn't supposed to be doing
  that type of work anymore, all of a sudden you
  have a problem,

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Vendor Metrics

• The reasons these things fail is because
  companies must manage the relationship. "You
  need to assess your readiness to outsource,
  especially in the media frenzy we are in right
  now. You need to check with your company culture,
  and process your change-management readiness and
  governance, as well, to make outsourcing work. If
  it fails, it's too easy to blame the outsourcer."
  
• In today's world, metrics should be much more
  performance-based, and cost savings are really
  only one reason to outsource. Another reason is
  to drive focus, in essence creating "white space"
  so HR can focus on the more strategic and
  important matters of executing HR processes.
  "White space" is created by outsourcing the more
  mundane process execution or transactional
  activities.

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Vendor Metrics

• Three most common metrics that companies use to
  monitor the success of their outsourcing
  relationships are
• hard-dollar cost-savings - used by 77 percent
• service-level-improvements used by 59 percent
  and
• employee-satisfaction surveys,- used by 56
  percent
• Most measurement is done via SLAs and surveys of
  some kind, but much of the "good contracts"
  include some work up front. Because most in-house
  HR activities are not measured, she adds, it will
  take some time, say 90 days, to see what the
  baseline is and what those measured goals should
  be.

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Discussion Topics

• Creating successful Wellness Programs
• Using Wellness Programs to discount premiums
  HIPPA issues
• Getting the most out of Benefits Vendor
  Relationships
• Benefits Administration considerations

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Benefit Administration

• Benefit Communication
• Eligibility determination
• Open enrollment
• Billing and reconciliation
• Vendor Management
• COBRA management
• Audits

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Benefit Administration

• As workforces become more geographically
  disperse, eligibility rules become more precise,
  and changes become more common, the need to
  accurately manage eligibility data to ensure you
  are covering for the right members has become
  increasingly important.
• Eligibility Management
• Interfaces with vendors
• Eligibility verification
• Life event processing
• Reconciliation and post-enrollment auditing

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Benefits Adminstration

• Enrollment
• Online benefit information and links?
• Online enrollments that are personalized and
  secure?
• Accurate, clean data with efficient processing

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Benefit Adminstration

• For both fully insured and self funded companies
  with need to manage multiple plans, vendors,
  rates and bills, there is a need to identify,
  document, and resolve data and premium issues
  that lead to lost dollars.
• Billing Reconciliation includes
• Discrepancy resolution
• Premium and funds transfer
• Periodic reconciliation and auditing

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Benefit Adminstration

• Vendor Management
• Interfaces with carrier information systems
• Data exchange
• Reconciliation and auditing of post-enrollment
  data
• Vendor assessment and performance analysis

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Benefits Adminstration

• COBRA Administration
• Eligibility determination
• Generate notices
• Participant access to election information
• Determination of premium to be billed
• Administration of annual enrollment (usually
  passive)

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Reasons to Audit Health Benefits Administration

• Fiduciary Responsibility
• Self-funded employee welfare plans subject to the
  Employee
• Retirement Income Security Act of 1974 ERISA)
  must pay
• benefits in accordance with the terms and
  conditions set forth in the
• Plan document and the Summary Plan Description
  (SPD).
• reasonable and customary charges or usual and
  customary rates are permissible
• they must be enforced
• employer is fiduciary and liable

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Reasons to Audit Health Benefits Administration

• Controlling Financial Exposures
• Many opportunities for payment errors and
  overcharges in health benefits administration.
• payment errors
• providers overcharge
• pricing limitations and discounts not being
  applied
• benefits not properly coordinated

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Reasons to Audit Health Benefits Administration

• The first comprehensive audit of the Medicare
  program showed that fraud, abuse, and errors
  accounted for 23 billion, or 14 percent of the
  programs cost. The same providers and claim
  administrators participating in the Medicare
  program are the same providers and claim
  administrators that provides services and
  determines benefits to be paid for self-funded
  employee welfare plans.

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Case Discussion
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Case Discussion

• Who are stakeholders of DB plans?
• Differences between DB and DC plans
• Role of PBGC
• What do Employees want in DB plan investments?
• What would you advise dad about his pension?

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Stakeholders DB plans

• Current Employees
• Younger vs. older
• Newly hired vs. Long Service
• Rank and file vs. highly paid
• Retired Workers
• Corporation
• Shareholders
• Management
• Government
• Tax
• PBGC
• Social Security

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Defined Benefit/Defined Contribution
Defined Benefit Plans Defined Contribution Plans
Future benefit is defined by plan formula Current contribution to employee is defined by plan formula
Employer retains risk of asset performance Employee retains risk of asset performance
Employee typically has no discretion over asset allocation Employees typically has some discretion over asset allocation
Pre-funding required by ERISA, but can be less than fully funded in practice By definition, is pre-funded
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Defined Benefit/Defined Contribution
Defined Benefit Plans Defined Contribution Plans
Monthly payments made to employee from retirement until death, regardless of actual lifespan Lump sum payments made to employee that will not increase or decrease according to lifespan
PBGC-government insurance required PBGC insurance not offered
Net pension asset/liability is recorded as a corporate pension asset/liability Assets of pension fund are owned by participants
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DB DC Liabilities

• The assets of a DC plan exactly equal its
  promises to
• retirees and are therefore always in balance.
• The DB plan Is different. What is its liability?
  The liabilities
• are promises made to the retirees to deliver a
  relatively fixed
• amount in the future, akin to a bond. The
  assets are the
• actual assets held by the planplus, the
  requirement of the
• firm to deliver against unfunded pension
  liabilities as well the
• PBGC guaranty to do so. The residual claimant on
  the
• pension plan is the corporation, which can reduce
  its funding
• if the plans assets exceed its liabilities.

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Employees Wants

• CERTAINTY that their promised benefits will be
  paid to them in the future.
• May have few other financial resources to cover
  their retirement, and thus would be sensitive to
  risk that might reduce their pension payments
  below the promised level.
• Because the pension plan promises certain fixed
  benefits, the employee would not benefit from the
  firm taking a more risky strategy and earning
  higher than expected returns. Given that they
  would not necessarily get a larger pension if the
  plan does well, the employees incentives are to
  reduce the risk of the plan.

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DB Investment Choices

• Option 1 Invest the plan assets in risk
  free-bonds to fulfill the plan obligations. This
  asset liability match provides certainty that the
  pension liability will be met.
• Option 2 Invest in riskier assets (with any
  excess return accruing to the company) and obtain
  insurance to cover the risk of loss.

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Role of PBGC
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Advice to DAD
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Freezing Pension Plans

• Who is impacted?
• What is impact?

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Freezing Pension Plans

• Who is impacted?
• Workers in late 50s and 60s
• What is impact?
• Need to save extra quarter of their earnings the
  remainder of their working careeres

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Hybrid Plans
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Hybrid Plans

• Combine attractive features of both DB and DC
  plans
• Often eliminate the early retirement incentives
  of DB plans
• Employer makes contributions
• Benefits specified as account balances
• Account grows from new contributions and
  crediting of a specified return on account assets
• Benefits generally paid in lump sum

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Comparison DB/DC/Hybrid
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Employer Example DB shift to Cash Balance

• Situation
• Ten years ago shifted employees 40 year old from
  DB to cash balance
• Current Question
• They want to know how their account balances
  relate to the monthly benefit they will receive
  during retirement.

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Employer Example DB shift to Cash Balance

• These workers know that their older
  counterparts receive a traditional pension
  annuity and assume that they will, too. They
  dont understand all the ways retirement will be
  different for them. Many do not realize they will
  not get a monthly pension check from their new
  plan when they retire. Instead, most of these
  younger workers will be handed a bag of cash as
  they exit the firm and will have to manage it on
  their own. For many people, the model they still
  rely on for retirement planning no longer
  exists.
• Watson Wyatt Report

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Defined Benefit

• Advantage
• Good for workers because they provide a specified
  retirement benefit that typically is a function
  of final annual earnings
• Disadvantages
• Funding requirements
• Economic/Tax/Accounting changes
• Not portable

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Defined Contribution Plans

• Advantage
• Workers can take the benefits with them when they
  change jobs
• Pre-funded
• Disadvantages
• Workers fail to save enough
• Workers do not make the wisest investment choices
  and so fail to get the most out of their assets
• Workers bear the investment risk
• Benefits are typically paid in the form of
  lump-sum distributions.

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Percentage of Retirement Type
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Summary and Conclusions

• Design benefits to align with overall
  compensation strategy
• Benefits provide security for employees and their
  families
• It is important to
• Provide benefits employees value and appreciate
• Communicate value of benefits to employees
• Understand the whether benefit impacts
  productivity, retention, attraction of employees