Chapter 16 Employee Benefits: Group Life and Health Insurance

1. Chapter 16 Employee Benefits: Group Life and Health Insurance

2. 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

3. Agenda - continued • Consumer-directed Health Plans • Recent Developments in Employer-Sponsored Health Plans • Group Medical Expense Contractual Provisions • Group Dental Insurance • Group Disability-Income Insurance • Cafeteria Plans

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. Group Life Insurance Plans • Group universal life insurance is a voluntary life insurance product paid entirely by the employee through payroll deduction • In the single plan approach, the employee who wants only term insurance pays only the mortality and expense charges • In the two plan approach, the employee who wants only term insurance pays into the term insurance plan; the employee who wants universal life insurance must pay higher premiums to accumulate cash value

12. Group Life Insurance Plans • Many group insurers have worksite marketing programs, which allow an insurer to offer its insurance products to interested employees • Individual producers conduct sales interviews with employees on site • A wide range of products are sold, including life insurance, AD&D insurance, and annuities • Premiums are paid by payroll deduction

13. 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

14. Group Medical Expense Insurance • Commercial life & health insurers sell both individual and group medical expense plans • Most individuals and families insured by commercial insurers are covered under group plans • A small number of health insurers dominate the market • In nearly half of the U.S. metropolitan areas, one insurer controls 50 percent or more of the commercial market (AMA, 2011)

15. Group Medical Expense Insurance • 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

16. Group Medical Expense Insurance • 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 provided by physicians

17. Group Medical Expense Insurance • 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

18. Exhibit 16.1 Percentage of Covered Workers in Partially or Completely Self-Funded Plans, 1999-2011

19. Traditional Indemnity Plans • Under a traditional indemnity plan: • Physicians are paid a fee for each covered service • Insureds can select their own physician • Plans pay indemnity benefits for covered services up to certain limits • Cost-containment has not been heavily stressed • These plans have declined in importance over time

20. Managed Care Plans • 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 is monitored • Health care providers share in the financial results through risk-sharing techniques • Emphasis on preventive care and healthy lifestyles

21. Managed Care Plans • 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

22. Managed Care Plans • 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 • A gatekeeper physician is a primary care physician who determines whether medical care from a specialist is necessary

23. 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 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 two 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

24. Managed Care Plans • A preferred provider organization (PPO) is a plan that contracts with health-care 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 • Most PPOs do not use a gatekeeper physician, and employees do not have to get permission from a primary care physician to see a specialist

25. Managed Care Plans • A point-of-service plan (POS) 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 co-payments are higher if patients see providers outside the network

26. 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 and copayment requirements • Annual limit on out-of-pocket expenses • No cost-sharing for certain preventive services • Noncovered services

27. Affordable Care Act Requirements and Group Medical Expense Insurance • Provisions of the Act that are now in effect include: • Retention of coverage until age 26 • Prohibition on lifetime and annual limits • Prohibition on preexisting conditions • Small employer tax credits • No cost sharing for certain preventive services • Required minimum loss ratio

28. 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 Affordable Care Act Requirements and Group Medical Expense Insurance

29. 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

30. 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

31. Recent Developments in Employer-Sponsored 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

32. Exhibit 16.2 Average Annual Premiums for Single and Family Coverage,1999–2011

33. Exhibit 16.3 Distribution of Health Plan Enrollment for Covered Workers, by Plan Type, 1988-2011

34. 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

35. 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

36. 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

37. 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

38. 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

39. 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 non-occupational disability • If the disabled worker is receiving Social Security or other disability benefits, the payments are reduced to discourage malingering

40. 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

41. 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

42. 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