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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
Outsourcing Metrics
Benefit Administration
Benefit Communication Eligibility determination Open enrollment Billing and reconciliation Vendor Management COBRA management Audits
Reasons to Audit Health Benefits AdministrationControlling 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
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?
Stakeholders – DB plans
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.
Role of PBGC
Advice to “DAD”
Freezing Pension Plans
Who is impacted?
What is impact?
Hybrid Plans
Comparison DB/DC/HybridPlan Feature Defined
Benefit Plan Defined Contribution Plan
Hybrid Plan Hybrid Plan Tendency
Employer contributes
Virtually always
Sometimes Virtually Always
DB
Employee contributes
Very rarely Employee Choice
Automatic DB
Participation Automatic Employee Choice
Automatic DB
PBGC Insurance Yes but capped
Not needed Yes but capped
DB
Early departure penalty
Yes No No DC
Annual communication
Balance at end of career
Current balance
Current balance
DC
Accrual of benefits Loaded to career end
Level over career
Level Mixed
Financial market risks
Employer bears
Employee bears
Shared Mixed
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.
Percentage of Retirement Type
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
Summary and Conclusions
