1. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 12 The Benefit Determination Process © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

2. Learning Objectives Why the growth in employee benefits? The value of employee benefits Key issues in benefit planning, design, and administration Components of a benefit plan Administering the benefit program 12-2

3. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. What are Employee Benefits? Part of the total compensation package, other than: Pay for time worked, provided to employees in whole or in part by employer payments 12-3

4. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Why the Growth in Employee Benefits? Wage and price controls Unions Employer impetus Cost effectiveness of benefits Government impetus 12-4

5. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. The Value of Employee Benefits Research suggests that stating employment benefits in job ads: Leads to applicants’ focusing and relying more heavily on it in job choice Plan and design effective benefit programs Communicate the value of benefit programs to the employees 12-5

6. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Exhibit 12.2 - Ranking of Employee Benefits Note: X = indicates a benefit that was not rated in this study. 12-6

7. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Key Issues in Benefit Planning, Design, and Administration Determine how to: Attract good employees Deal with undesirable turnover Integrate benefits with other compensation components Design strategies to ensure: External competitiveness Adequacy of benefits Design cost effective employee benefits 12-7

8. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Key Issues in Benefit Planning, Design, and Administration Benefit administration issues Who should be protected or benefited How much choice should employees have among an array of benefits? Standard benefit package Cafeteria-style or flexible benefit plans Market-based or customer-driven health care 12-8

9. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Key Issues in Benefit Planning, Design, and Administration Consume-driven health care Full-defined contribution Employee is responsible for finding and purchasing individual medical cover Employer provides funding Tiered networks: Employer offers a choice of medical plans Menu-driven Employers provide online information to help employees customize their own benefit plan 12-9

10. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Key Issues in Benefit Planning, Design, and Administration Managed competition Employer provides a subsidized basic medical plan with buy-up options Health savings accounts: Fund created by the employer, employee, or jointly to: Pay the first x dollars of health care expenses 12-10

11. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Exhibit 12.3 - Possible Options in Flexible Benefit Package 12-11

12. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Exhibit 12.4 - Advantages and Disadvantages of Flexible Benefit Programs 12-12

13. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Key Issues in Benefit Planning, Design, and Administration How should benefits be financed? Noncontributory Contributory Employee financed Are your benefits legally defensible? 12-13

14. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Exhibit 12.5 - Factors Influencing Choice of Benefit Package 12-14

15. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Exhibit 12.6 - Impact of Legislation on Selected Benefits 12-15

16. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Administering the Benefits Program Communicating about the benefits program Claims processing Cost containment 12-16

17. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Communicating the Benefits Program Effective communications package must: Spell out its benefit objectives Match the message with the appropriate medium Use of intranet Use of the employee benefit handbook 12-17

18. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Claims Processing Arises when an employee: Asserts that a specific event has occurred Demands that the employer fulfill promise of payment The claims processor must: Determine whether the act has occurred Determine if the employee is eligible for the benefit Calculate the payment level 12-18

19. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Cost Containment Prevalent practices include: Probationary periods: Excluding new employees from benefit coverage till specific period of time Benefit limitations Limit the coverage to a certain fixed amount Copay: Employees pay a fixed or percentage amount for coverage Administrative cost containment Controlling costs through policies 12-19

20. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Exhibit 12.10 - Basic Primer of Cost Containment Terminology 12-20