Chapter 5 - Employer-Sponsored Health-Care Plans (2).pptx

Welcome Bus 121 - Employee Benefits Raj K. Singh, Ph.D. Management Area A. Gary Anderson School of Management School of Business University of California Riverside UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Topics       2 Attendance Exam 1 Group Paper – Response to Questions Homewor...

Welcome Bus 121 - Employee Benefits Raj K. Singh, Ph.D. Management Area A. Gary Anderson School of Management School of Business University of California Riverside UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Topics       2 Attendance Exam 1 Group Paper – Response to Questions Homework Assignments Employer Sponsored Health-Care Plans Read Article: Social security and mortality: The role of income support policies and population health in the United States Authors: Peter S. Arno, James S. House, Deborah Viola, and Clyde Schechter Publication: Journal of Health Policy, 2011 UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS EmployerSponsored Health- Care Plans Raj K. Singh, Ph.D. Management Area A. Gary Anderson School of Management School of Business Administration Course: Bus 121 – Employee Benefits UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Overview  Discuss basic definitions, followed by a review of the origins and costs of employer-sponsored plans.  Key regulations pertaining to health-care plans are considered.  Specific types of employer-sponsored plans are reviewed, such as:  fee-for-service plans, managed care plans, consumerdriven health care, and retiree health care benefits. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS 4 Defining and Exploring Health-Care Plans 5  Health-care plans covers the cost of services promoting sound mental/physical health.  Employers can offer these benefits using:  Fully insured plans – contractual relationship with one or more insurance companies to provide services for employees and qualified dependents.  Self-funded plans – the employer chooses benefits to offer, pays for claims, and assumes risk. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Defining and Exploring Health-Care Plans  Fully insured plans.  Insurance companies assume the risk for paying medical claims, and insurers administer the plan.  Understand the difference between: Individual coverage – a person purchases health insurance outside the employment setting for themselves and their dependents. Group coverage – an employer-sponsored healthcare plan extends coverage to most or all employees. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS 6 Defining and Exploring Health-Care Plans  Fully insured plans.  The insurance policy specifies the amount the insurer pays for medical claims.  Employers pay a premium to establish and maintain health-care plans.  How do insurers determine premiums? Plan providers use mortality tables and morbidity tables as well as experience ratings to determine terms and premium amounts – known as underwriting. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS 7 Defining and Exploring Health-Care Plans Fully insured plans – determining premium Mortality tables Morbidity tables Experience ratings Indicate yearly probabilities of death based on such factors as age and sex Express annual probabilities of the occurrence of health problems Specify the incident, type, and financial cost of insurance claims for groups UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Defining and Exploring Health-Care Plans  Under self-funded plans, the employer offers benefits, pays claims, and assumes all the risk.  Self-funding makes sense when covering employee medical expenses is less than insurance coverage.  Another distinction applying to both fully insured and self-funded plans is:  Single coverage – covered employees receive benefits.  Family coverage offers benefits to the covered employee and qualified dependents. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS 9 Defining and Exploring Health-Care Plans  Companies can offer health-care coverage by:  Fee-for-service plans,  Alternative managed care plans – High deductibles, medical cost sharing  Consumer-driven health care- Health savings account  Any can be fully insured or selffunded. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS 10  U.S. health care is a multiplepayer system  more than one party is responsible for coverage.  A single-payer system, also called universal health-care systems are  administered and regulated by the government. Origins of Health-Care Benefits 11  Predecessors appeared in the late 1800s for mining and railroad workers.  The Great Depression in the 1930s gave us:  Social Security Act of 1935,  Widespread unemployment,  Non-profit Blue Cross was established, and  For-profit companies began fee-for-service plans. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Origins of Health-Care Plans  World War II gave us wage freezes.  Benefits expanded to promote productivity.  Welfare practices were established.  Among those were health-care plans.  In the 1960s:  Government amended the Social Security Act and established Medicare and Medicaid.  Demand exceeded supply causing inflation of health care costs. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS 12 Origins of Health-Care Plans 13  In the 1970s:  ERISA protected employees’ interests.  Health Maintenance Act of 1973 (HMO Act) provided financial incentives for offering HMOs.  Health insurance was discretionary, until:  The Patient Protection and Affordable Care Act (PPACA) required employers to offer health care.  The PPACA also required individuals to have health insurance. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Health-Care Coverage and Costs Employees  Employer-sponsored healthcare provides employees with the means to afford expensive health-care services.  In 2015, 70% of private-sector employees used some form of employer-sponsored healthcare plans. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS 14 Employers  Companies stand to gain in at least two ways.  There should be less absenteeism leading to higher productivity, service quality, and morale.  Should help employee recruitment and retention. Health-Care Coverage and Costs  Average monthly premiums in March, 2015:  Single coverage: $390.79/employee and $496.96/union member.  Family coverage: $961.22/employee and $1,263.16/union member.  Since the 1980s, many plans extend coverage to unmarried opposite sex or same sex partners.  In 2015, 32% and 37% respectively, had access to health care benefits. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS 15 Health-Care Coverage and Costs  Employee contributions varied considerably.  Single coverage:  overall, employees contributed 22% of the cost with  union workers contributing 13%, and  the lowest paid contributing 27%.  Family coverage:  overall, employees contributed 32% of the cost with  union workers contributing 16%, and  the lowest paid workers contributing 41%. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS 16 Health-Care Coverage and Costs Since 1984, costs have increased more than 450% because of: Longer life expectancies Aging baby boomers Medical advances Tendency to treat death as unnatural UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Types of Medical Expense Benefits 18  Hospitalization benefits defray expenses associated with treatment in hospitals.  Plans distinguish between:  Inpatient benefits cover expenses associated with overnight hospital stays.  Outpatient benefits cover hospital expenses not requiring overnight stays.  Plans describe the extent of coverage based on a schedule of benefits. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Regulation of Health-Care Plans Federal Regulations – Main Actions HMOA ERISA PPACA UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS IRS ADA Regulation of Health-Care Plans 20  Health Maintenance Organization Act of 1973.  HMOs are regulated at federal and state level.  Employee Retirement Income Security Act of 1974.  Amendments include COBRA, HIPAA, and  Women’s Health and Cancer Rights Act of 1998.  The American with Disabilities Act of 1990.  EEOC oversees enforcement of the ADA. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Regulation of Health-Care Plans Companies are known to either “pay or play.” $3240/year $2160/year Failing to offer coverage. Failing to offer affordable coverage. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Assessed per full-time employee Regulation of Health-Care Plans  Tax Regulations.  The IRC allows companies to take deductions for providing health plans or paying claims directly.  Rules differ for insurance plans and self-funded plans.  Companies may take deductions for their contribution to health plan premiums  as long as there is no preferential treatment to highly compensated employees. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS 22 Regulation of Health-Care Plans  State Regulations.  Every state has laws regulating fully insured plans, overall addressing four areas of responsibility:  Extending coverage to particular services, treatments, and health conditions.  Reimbursing recognized health care providers.  Who must be covered.  Length of time coverage must be available to employees after they leave the company.  National Association of Insurance Commissioners (NAIC) addresses issues for each state. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS 23 Health Plan Design Alternatives 24  The U.S. Bureau of Labor Statistics uses several criteria to distinguish between fee-for-service plans and managed care plan.  A prepaid plan pays health-care providers a fixed amount according to the number of individuals covered by the plan.  An indemnity plan reimburses either the healthcare provider or the patient. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Fee-for-Service Plans 25  Fee-for-service plans pay a cash benefit either to the employee or to the health care provider.  Pay benefits on a reimbursement basis.  Participants may select any licensed physician, surgeon, or medical facility.  These plans do not rely on networks of healthcare providers. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Managed Care Plans  Managed care plans emphasize cost control by limiting choice of doctors and hospitals.  Three common forms of managed care:  Health Maintenance Organizations (HMOs),  Preferred Provider Organizations (PPOs),  And Exclusive Provider plans (EPOs),  Point-of-Service (POS) plans. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS 26 Health Maintenance Organizations (HMOs)  Described as prepaid plans because:  Fixed periodic enrollment fees cover members  If services are with a provider in the network  And approved.  Either fully covered or requires a copayment.  Open-access HMOs also require network providers but will cover:  Emergency care outside the network. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS 27 Types of Health Maintenance Organizations  Prepaid group practices may be:  Staff model HMOs own the medical facilities.  Group model HMOs contract with physicians and cover multiple specialties.  Network model HMOs contract with two or more independent practices and pay a capped fee.  Individual practice associations (IPAs) are partnerships of independent physicians, health professionals and group practices. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS 28 29 Preferred Provider Organizations (PPOs)  A preferred provider organization (PPO),  is where a select group of providers agree to provide services to a given population at a lower level of reimbursement.  In return, the physician’s are guaranteed a minimum patient load.  An exclusive provider organization is similar to a PPO but more restrictive.  Pay on a reimbursement basis and do not require a primary care physician. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Point-of-Service Plans 30  A point-of-service (POS) plan combines features of fee-for-service plans and HMOs.  Almost identical to PPOs but require a primary care physician, similar to HMOs.  Employees pay a copayment, similar to HMOs.  Employees can receive care outside the network, similar to fee-for-service plans. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Features of Health-Care Plans Health-care plans share a number of common features. Deductible Coinsurance Preadmission Certification UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Out-ofPocket Maximum Second Surgical Opinions Preexisting Condition Clauses Lifetime and Yearly Limits Features of Health-Care Plans  Employees must pay for services, or meet a deductible, before the plan pays for benefits.  Coinsurance refers to the percentage paid by the insured, after meeting the deductible.  Most plans specify the maximum amount the insured must pay per calendar year.  Known as out-of-pocket maximum.  A preexisting condition is one treated previous to, and excluded from, coverage. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS 32 Features of Health-Care Plans  Plans require preadmission certification of medical necessity for hospitalization.  Second surgical opinions reduce unnecessary surgical procedures, and costs.  Lifetime limits refers to the maximum amount a plan would cover.  Yearly limits refer to the maximum amount a plan would cover each year. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS 33 Consumer-Driven Health Care 34  Battling against rising costs, employers are increasingly adopting a:  Consumer-driven health-care plan (CDHP) which combines a pretax payment account with a high-deductible health plan.  High-deductable health insurance plans (HDHPs) require higher deductibles and low outof-pocket maximums. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Other Health-Care-Related Benefits  Most health-care plans cover other benefits, often using separate plans, such as:  Dental care, vision care, prescription drugs, and mental health and substance abuse care.  Sometimes, employers rely on carve-out plans which is a contract agreement to provide such special services.  Usually, HMOs and PPOs manage such plans. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS 35 Other Health-Care-Related Benefits Dental insurance may cover routine and necessary procedures. Dental fee-forservice plans are similar to medical fee-forservice plans. Dental service corporations are nonprofits owned by state dental associations. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Dental maintenance organizations or dental HMOs are most similar to HMOs. Other Health-Care-Related Benefits 37  Vision insurance plans cover eye examinations, lenses, frames, and fittings.  Prescription drug plans cover the cost of drugs dispensed by a pharmacist.  Medical reimbursement plans reimburse some or all of the cost.  Prescription card programs offer prepaid benefits with nominal copayments.  Mail order prescription drug programs dispenses medications treating chronic conditions. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Other Health-Care-Related Benefits  Federal law does not require employers to provide maternity care benefits, but  influences how benefits are designed/implemented.  Pregnancy Discrimination Act of 1978 requires employers treat pregnancy as other disabilities.  FMLA allows 12 unpaid work weeks of leave.  Newborns’ and Mothers’ Health Protection Act of 1996 sets minimum standards for the length of hospital stays for mothers and newborns. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS 38 Retiree Health-Care Benefits Since the 1980s, companies encountered a strong financial disincentive to provide health insurance benefits to retired employees for two reasons. Substantial increases in health care and insurance costs have created financial strain on employers. UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS Changes in company accounting practices made offering benefits to retirees less appealing. Summary 40  Discussed basic definitions, followed by a review of the origins and costs of employer-sponsored plans.  Explained key regulations pertaining to health-care plans were considered, both federal and state laws.  Reviewed specific types of employer-sponsored plans such as:  fee-for-service plans, managed care plans, consumer-driven health care, and retiree health care benefits UNIVERSITY OF CALIFORNIA RIVERSIDE SCHOOL OF BUSINESS