1. The Costs of Employee Benefits
Joseph J. Martocchio

2. What are Employee Benefits
Employee benefits refer to employee compensation other than hourly wage or salary

3. 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

4. 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

5. Discretionary Employee Benefits
Discretionary benefits fulfill three main roles:
Protection programs
Paid time
Accommodation and enhancements

6. Income Protection Programs
Three types of protection programs:
Disability insurance
Life insurance
Retirement plans

7. 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

8. 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

9. 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

10. Health Insurance Programs
Fee-for-service plans
Managed care plans
Point-of-service plans
Savings accounts based on the consumer-driven health care philosophy

11. Fee-for-Service Plans
Provide protection for three types of medical expenses: hospital expenses, surgical expenses, and physicians’ charges

12. 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

13. 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

14. Consumer-Driven Health Care
Flexible spending accounts (FSAs)
Health reimbursement accounts (HRAs)

15. Paid Time Off
Vacation
Sick leave
Holidays

16. 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

17. Employer Costs for Compensation and Benefits
Overall, benefits accounted for approximately 30 percent of total compensation costs

18. 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

19. 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

20. Government Regulation of Employee Benefits
The cost of legally required benefits reduces the ability of the firm to pay discretionary benefits

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. Summary This chapter has covered: Types of benefits
Types of health care plans
Environmental factors
Company responses
Guidelines for cutting benefits costs