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					The Costs of Employee
      Benefits
    Joseph J. Martocchio
    What are Employee Benefits
   Employee benefits refer to employee
    compensation other than hourly
    wage or salary
     Two Dimensions of Employee
              Benefits
   The source of the benefit can be
    characterized as legally required or
    discretionary
   The role the benefit serves recipients
    can be characterized as protection,
    paid time off, or accommodation and
    enhancement
      Legally Required Benefits
   Legally required benefits are
    mandated by several laws:
    • Social Security Act of 1935
    • State workers’ compensation laws
    • Family and Medical Leave Act of 1993
    Discretionary Employee Benefits
   Discretionary benefits fulfill three
    main roles:
    • Protection programs
    • Paid time
    • Accommodation and enhancements
    Income Protection Programs
   Three types of protection programs:
    • Disability insurance
    • Life insurance
    • Retirement plans
        Defined Benefit Plans
   Retirees receive guaranteed
    payments for the duration of their
    lives based on years of employment,
    age, and final salary level before
    retirement
     Defined Contribution Plans
   Plans allow employees to set aside a
    portion of their salary for investment
    purposes
   These plans are riskier than defined
    benefit plans due to the uncertainty
    of the investment income
   Employers may match a small
    portion
     Health Protection Programs
   Programs refer to a host of practices
    geared toward promoting sound
    health
   Health insurance plans represent the
    largest portion of a company’s health
    protection offerings
     Health Insurance Programs
   Fee-for-service plans
   Managed care plans
   Point-of-service plans
   Savings accounts based on the
    consumer-driven health care
    philosophy
        Fee-for-Service Plans
   Provide protection for three types of
    medical expenses: hospital expenses,
    surgical expenses, and physicians’
    charges
         Managed Care Plans
   Include HMOs and PPOs
   Managed care plans impose
    substantial restrictions on an
    employee’s ability to make choices
    about from whom they can receive
    medical treatment
        Point of Service Plans
   Combines features of fee-for-service
    systems and HMOs
   Employees pay a nominal copayment
    for each visit to a designated in-
    network physician however the
    possess the option to receive care
    from out of network physicians for a
    higher cost
    Consumer-Driven Health Care
   Flexible spending accounts (FSAs)
   Health reimbursement accounts
    (HRAs)
             Paid Time Off
   Vacation
   Sick leave
   Holidays
Accommodation and Enhancement
         Programs
   Promote opportunities for employees
    and family members through:
    • Mental and physical well being of
      employees
    • Family assistance programs
    • Flexible work schedule
    • Skills and knowledge acquisitions
Employer Costs for Compensation
         and Benefits
   Overall, benefits accounted for
    approximately 30 percent of total
    compensation costs
     Environmental Factors and the
            Cost of Benefits
   Industry prospects with economic
    conditions and forecasts
   Government regulation of employee
    benefits
   Changing demographics of the labor
    force
   Advances in health care
    Industry prospects with economic
        conditions and forecasts
   Economic forecasts can influence the
    extent that the firm is willing to
    invest in employee benefits
   Employers will likely continue
    employee benefits due to:
    • Tax benefits
    • Attracting and retaining quality
      employees
       Government Regulation of
          Employee Benefits
   The cost of legally required benefits
    reduces the ability of the firm to pay
    discretionary benefits
    Changing Demographics of the
             Workforce
   Greater diversity in the workforce in
    terms of gender, age, and cultural
    makeup requires a greater array of
    benefits programs
      Advances in Health Care
   Health insurance costs continue to
    increase due to:
    • Increasing life expectancies
    • Aging of baby boomers
    • Advances in medical research that add
      diagnostic tests and treatments
    • Higher expenditures to prolong the lives
      of the terminally ill
    Responses by the Firm to Rising
            Benefit Costs
   Requiring employees to pay more for
    health care
   Making greater investments in
    accommodation and enhancement
    benefits
   Eliminating retiree health care
    insurance coverage
Requiring Employees to Pay More
         for Health Care
   In addition to various insurance
    plans, FSAs and HRAs provide an
    important alternative to firms
   These accounts provide employees
    with resources to pay for medical
    and related expenses not covered by
    higher deductible insurance plans at
    substantially lower costs to
    employers
    Increased Accommodation and
        Enhancement Benefits
   Decrease absenteeism and tardiness
   Enhance worker productivity through
    improved health
   Education benefits may increase the
    skills of employees and allow for
    more flexibility within the workforce
     Guidelines to Curbing Benefits
                 Costs
   Employee contributions to help
    companies save money by requiring
    that employees pay a nominal
    portion of the benefit costs
   Waiting periods to limit participation
    in the benefits program
     Guidelines to Curbing Benefits
            Costs Continued
   Educate employees about the cost of
    health care
   Conduct utilization reviews to
    evaluate the quality of specific health
    care services
     Guidelines to Curbing Benefits
            Costs Continued
   Use the services of independent case
    management companies to ensure
    that participants with serious health
    problems receive essential medical
    attention on a cost-effective basis
     Guidelines to Curbing Benefits
            Costs Continued
   Provider payment systems that begin
    with negotiations over amounts the
    system will pay participating
    physicians, health care facilities, and
    pharmacies for the duration of the
    managed care plan’s contract with
    these providers
                 Summary
   This chapter has covered:
    • Types of benefits
    • Types of health care plans
    • Environmental factors
    • Company responses
    • Guidelines for cutting benefits costs

				
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