EMPLOYERPROVIDED BENEFITS

1
EMPLOYER-PROVIDED BENEFITS

• Definition The indirect form of total
  compensation. All benefits and services, other
  than pay for time worked, that are provided to
  employees in whole or in part by their employers.
•  
• Issues/challenges
• Benefits gap what are employers
  responsibilities?
• Maintaining competitiveness position in product
  and labor markets
• Legal compliance
• Meeting the benefits needs of a diverse workforce

2
The Benefits of Providing Benefits

• Attraction and retention of employees?
• Financial value nontaxable income, group rates
• But, do Ees fully appreciate the financial value?
• An implicit element of the psychological contract
•  
• Financial benefits to the employer
• Tax efficiency
• Ability to offer valued benefit at reduced cost
• Reduction of absenteeism and turnover
•  
• Consistent with corporate culture
•  
• Public relations value

3
The Health Care Debate in the U.S.

• Two issues
• Coverage
• More than 46 million Americans are uninsured
• Most are employed, or the dependent of someone
  who is employed
• Costs
• Rapidly rising costs of providing health
  insurance to employees
• National healthcare expenditures are projected to
  comprise 17 of GDP by 2010
• Impact on competitiveness in global market

4
Policy Options for Enhancing Coverage

• Government provides insurance to all citizens
• Government provides health care to all citizens
• Government requires all employers to provide
  insurance to employees
• Government requires all citizens to obtain health
  insurance, with subsidies for low-income families
• Health care rationing

5
The Rising Costs of Health CareSome Explanations

• Perverse incentives (moral hazard)
• Consumer ignorance
• Pharmaceutical and technological advances
• Pharmaceutical marketing and impact on demand
• Providers emerging negotiating strength
  (consolidations)
• Declining health of Americans (obesity, diabetes,
  smoking, stress and inactivity)
• Medical error

6
The Problem of Perverse Incentives

• Favorable Tax Laws
• Strong incentives for employers to provide
  generous benefits
• No incentive for employers to shop for
  cost-effective plans
• ? Weak competitive pressures in the health
  insurance market
•  

7
The Problem of Perverse Incentives (contd)

• Generous Health Insurance Plans
• Results in lowering the cost of health care to
  the consumer, which
• ? Reduces incentives to use services carefully
  or to shop for cost-effective providers, and
• ? Increases the demand for health care services
  (moral hazard), and
• ? Weakens competitive pressures in the health
  care market.

8
The Problem of Perverse Incentives (contd)

• Traditional Fee-for-Service Plans
• Unconditional reimbursement for services
• ? Strong incentives to increase services
• The Result (of tax laws and HI plans)
• High demand
• Limited competition
• ? Increased prices

9
Some Solutions Changing the Incentives

• For Consumers
• Increase cost-sharing provisions
• a. deductibles and coinsurance
• Encourage healthy behavior
• a. culture
• b. wellness programs
• c. experience rating
• Consumer-driven health plans
• Education

10
Changing the Incentives (contd)

• For Providers
• Reduce rewards for over-prescribing (HMO)
• Demand accountability (Stop paying for bad
  care)
• Reward cost-effectiveness
• Negotiate lower fees (PPO)

11
Changing the Incentives (contd)

• For Employers
• Shift favorable tax treatment from employer to
  individual
• For Insurance Companies
• Negotiate disease management programs
• Boost competition (employer collaboratives)
• Demand information (transparency)

12
Changing the Incentives (contd)

• Challenge for Employers
• Maintaining employee satisfaction and ability to
  attract/retain qualified employees
• Containing costs
• Maintaining quality
• Avoiding legal liabilities
• Balancing business objectives and ethics

13
What Do You Predict?

• Plan 1 Fee-for-service
• Payer reimburses provider
• Employee-paid premium None
• Employee cost-sharing None
• Managed care provisions None

14
What Do You Predict?

• Plan 2 Health Maintenance Organization
• Capitation fee paid by employer
• Employee/employer costs, and provider income, are
  fixed
• Providers costs vary with services provided
• Employee cost-sharing None

15
What Do You Predict?

• Plan 3 National Health Insurance (1)
• Government provides insurance for all citizens
• Providers are independently employed
• Reimbursement is on a fee-for-service basis
• Fees are set by the government
• Cost-sharing provisions
• Low income family none
• Middle income family 150 deductible, 20
  co-pay
• High income family 300 deductible, 25 co-pay
•  

16
What Do You Predict?

• Plan 4 National Health Insurance (2)
• Government provides health care to all citizens
• Government operates clinics, hospitals, lab
  facilities
• Providers are employed by the government
• Cost-sharing provisions None
•  

17
What Do You Predict?

• Plan 5 Flexible Benefits Plan
• Choices
• First dollar fee-for-service plan no
  cost-sharing
• Modest FFS plan 300 deductible, 20 co-pay
• Catastrophic FFS plan 2000 deductible, 20
  co-pay
• Employee-paid premium
• First dollar FFS 175/month
• Modest FFS 100/month
• Catastrophic FFS 50/month
• Ees can change their selection without
  restriction