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Benefits. MANA 5322 Dr. Jeanne Michalski michalski@uta.edu. Health Care Costs and Productivity. Little Relationship Between Health Care Benefits and Worker Productivity
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Benefits MANA 5322 Dr. Jeanne Michalski michalski@uta.edu
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
Benefit Administration • Benefit Communication • Eligibility determination • Open enrollment • Billing and reconciliation • Vendor Management • COBRA management • Audits
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
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 program’s 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.
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?
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 plan—plus, 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 plan’s assets exceed its liabilities.
DB Investment Choices • Option 1: Invest the plan assets in risk free-bonds to fulfill the plan obligations. • Option 2: Invest in riskier assets and obtain insurance to cover the risk of loss.
Freezing Pension Plans • Who is impacted? • What is impact?
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.
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
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.
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