Chapter 16 Employee Benefits: Group Life and Health Insurance Agenda • • • • • • • Meaning of Employee Benefits Fundamentals of Group Insurance Group Life Insurance Plans Group Medical Expense Insurance Traditional Indemnity Plans Managed Care Plans Key Features of Group Medical Expense Insurance • Affordable Care Act Requirements and Group Medical Expense Insurance Copyright ©2014 Pearson Education, Inc All rights reserved 16-2 Agenda - continued • Consumer-directed Health Plans • Recent Developments in EmployerSponsored Health Plans • Group Medical Expense Contractual Provisions • Group Dental Insurance • Group Disability-Income Insurance • Cafeteria Plans Copyright ©2014 Pearson Education, Inc All rights reserved 16-3 Meaning of Employee Benefits • Employee benefits are employer-sponsored benefits, other than wages, which 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 – Paid holidays, vacations, medical leave – Educational assistance, employee discounts – Employer contributions to Social Security and Medicare Copyright ©2014 Pearson Education, Inc All rights reserved 16-4 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 Copyright ©2014 Pearson Education, Inc All rights reserved 16-5 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 – Individual members should not pay the entire cost – The plan should be easy to administer Copyright ©2014 Pearson Education, Inc All rights reserved 16-6 Group Insurance • 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 Copyright ©2014 Pearson Education, Inc All rights reserved 16-7 Group Life Insurance Plans • The most important form of group insurance is group term life insurance – Provides low-cost protection to employees – Coverage is yearly renewable term – The amount of coverage can be based on the workers’ earnings, position, or it can be a flat amount for all – Coverage usually ends when the employee leaves the company Copyright ©2014 Pearson Education, Inc All rights reserved 16-8 Group Life Insurance Plans • Types of Group Term Coverages include: – A basic amount of term coverage, which is usually a multiple of salary or earnings – Voluntary supplemental term insurance, whereby employees can purchase additional amounts without evidence of insurability – A portable term insurance option that allows employees to continue their term insurance protection if they lose their eligibility for group coverage Copyright ©2014 Pearson Education, Inc All rights reserved 16-9 Group Life Insurance Plans • Many group life insurance plans also provide group accidental death and dismemberment (AD&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 Copyright ©2014 Pearson Education, Inc All rights reserved 16-10 Affordable Care Act Requirements and Group Medical Expense Insurance • Provisions, continued… – Grandfathered plans – Flexible spending account limits – Out-of-network claim payments for emergency room visits – Uniform coverage documents – Employer W-2 reporting obligations Copyright ©2014 Pearson Education, Inc All rights reserved 16-28 Affordable Care Act Requirements and Group Medical Expense Insurance • Other provisions that will go into effect in 2014 include: – – – – – Guaranteed issue Individual mandate Affordable insurance exchanges Employer requirements/penalties Tax on high-value policies Copyright ©2014 Pearson Education, Inc All rights reserved 16-29 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 (HAS) 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 Copyright ©2014 Pearson Education, Inc All rights reserved 16-30 Recent Developments in EmployerSponsored Health Plans • Health insurance premiums continue to rise • Employers are shifting more cost to employees through higher deductibles • Preferred provider organizations continue to 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 Copyright â2014 Pearson Education, Inc All rights reserved 16-31 Exhibit 16.2 Average Annual Premiums for Single and Family Coverage,1999–2011 Copyright ©2014 Pearson Education, Inc All rights reserved 16-32 Exhibit 16.3 Distribution of Health Plan Enrollment for Covered Workers, by Plan Type, 1988-2011 Copyright ©2014 Pearson Education, Inc All rights reserved 16-33 Group Medical Expense Contractual Provisions • The Health Insurance Portability and Accountability Act (1996) placed restrictions on the rights of insurers to limit coverage for preexisting conditions – Period is restricted to 12 months – The act also established the portability of insurance coverage, whereby insurers must give an employee credit for previous coverage Copyright ©2014 Pearson Education, Inc All rights reserved 16-34 Group Medical Expense Contractual Provisions • The Affordable Care Act changed the preexisting conditions under HIPAA: – Currently, individual policies and job-based health insurance plans cannot exclude coverage for preexisting conditions in children under age 19 – Beginning in 2014, insurers are prohibited from denying or limiting coverage for preexisting conditions to adults as well Copyright ©2014 Pearson Education, Inc All rights reserved 16-35 Group Medical Expense Contractual Provisions • A coordination-of-benefits provision specifies the order of payment when an insured is covered under two or more group health insurance plans – Coverage as an employee is usually primary to coverage as a dependent – With respect to dependent children, the plan of the parent whose birthday occurs first during the year is primary • 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 Copyright ©2014 Pearson Education, Inc All rights reserved 16-36 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 Copyright ©2014 Pearson Education, Inc All rights reserved 16-37 Group Disability-Income Insurance • Group disability-income insurance pays weekly or monthly cash payments to employees who are disabled from accidents or illness • 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 Copyright ©2014 Pearson Education, Inc All rights reserved 16-38 Group Disability-Income Insurance • 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 perform 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 nonoccupational disability – If the disabled worker is receiving Social Security or other disability benefits, the payments are reduced to discourage malingering Copyright ©2014 Pearson Education, Inc All rights reserved 16-39 Group Disability-Income Insurance • 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 disable employee’s pension benefit remains intact – A survivor income benefits provision makes monthly payments to an eligible surviving spouse or children for a limited period following the disabled worker’s death Copyright ©2014 Pearson Education, Inc All rights reserved 16-40 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 as 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 Copyright ©2014 Pearson Education, Inc All rights reserved 16-41 Cafeteria Plans – 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 • 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 Copyright ©2014 Pearson Education, Inc All rights reserved 16-42 ... Increase in employers offering of wellness benefits • Use of health risk assessments Establishment of onsite health clinics Copyright â2014 Pearson Education, Inc All rights reserved 16- 31 ... laws that require insured plans to offer certain statemandated benefits Copyright ©2014 Pearson Education, Inc All rights reserved 16- 17 Exhibit 16. 1 Percentage of Covered Workers in Partially or... All rights reserved 16- 22 Managed Care Plans • 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