22.4 Review and Practice
- What are the advantages and disadvantages of managed-care plans?
Anna Claire’s Costumes, Inc., has experienced medical benefit cost increases of 16 and 19 percent over the last two years. The benefits manager believes that high hospitalization rates and unnecessarily long hospital stays may explain these increases. The company wants to control costs by reducing hospitalization costs.
- What cost control methods could be implemented to achieve this objective?
- Would employees still have adequate protection with these new techniques in place?
Marguerite Thomas, a Canadian, and Margaret Phythian, a Minnesotan, each tried to convince the other that the health care system in her respective country was superior. In Canada, Marguerite enjoys nationalized health care, where everyone is covered. She does not worry that she may need care she can’t afford. She is willing to pay the taxes necessary to support the system. She doesn’t mind waiting several weeks to get certain elective procedures done because she knows that everyone is getting the care they need and she is willing to wait her turn. Margaret, however, likes the high-quality, high-tech care available to her in the Twin Cities area through her employer-provided HMO. She gets high-quality care and never needs to wait for treatment. She also likes the lower tax rate she pays, partly because the U.S. government isn’t funding a nationalized health care system.
- If Marguerite and Margaret were unemployed or had low income, which system might they prefer? Would this change if they were in high income tax brackets? Explain your answer.
- Which system would you prefer? What tradeoffs are you willing to make to have this type of health care system?
- How do employees gain in the long run if the company contains medical benefit costs?
Knowledge Networking, Inc., is a growing business of high-tech and electronics equipment and software. It is a specialty retail and online business that has tripled its revenues in the past seven years. The company started fifteen years ago and includes fifty outlets on both the East and West coasts. In 2005, the company went public and now, despite the financial crisis, it is doing very well with innovation and creative offerings. The company has 5,600 full-time employees and 1,000 part-time employees. Knowledge Networking, Inc., provides all the social insurance programs and offers its employees a cafeteria plan with many choices.
For the health coverage, Knowledge Networking employees have a choice among the following:
- An IPA type HMO (fully insured) at a cost of $250 for the employee only per month
- One PPO and one POS administered by a TPA (self-insured) at a cost of $300 and $320 respectively
- An HSA with an underlying PPO plan (fully insured) at a cost of $150 per month.
Employees also have generous choices of group disability coverages, dental and vision care, premium conversion plan, and flexible spending accounts as part of the cafeteria plan.
Use the table below to describe what you think Knowledge Networking’s group disability insurance plans look like.
Knowledge Networking, Inc.
Group Short-Term and Long-Term Disability Insurance
Current Definitions and amounts Supplements Additions Eligibility Financing/cost and who pays Tax implication Insured and by whom?
Give an example of the benefit plan choices that the following two employees would make:
- Shawn Dunn, a young, unmarried healthy employee who makes $100,000 a year
- Dan Rohm, a forty-five-year-old man with four school-age children who makes $125,000 a year
- Describe long-term care insurance.
- If custodial care is the least expensive type of service covered by long-term care insurance, is it important to make sure your contract covers this type of care?
- Your grandmother is sixty-five years old. She has begun to receive benefits through Medicare and has just enrolled in Medicare Part B. She wants to know why she should purchase a Medigap insurance policy. Explain this predicament to her.
The Meridian Advertising Agency has 1,340 employees in six states. The main office is in Richmond, Virginia. Fifty percent of the employees are women in their childbearing years. Most employees are in good health. The major medical losses last year occurred because of Jack Denton’s heart surgery, fifteen baby deliveries, and four cases of cancer treatment. Jack Denton is the creative director of the agency.
Meridian is using EB-Consulting to assist in choosing health care and dental coverages. Currently the agency fully insures six options of health plans:
- A staff model HMO available only in Richmond (premium per employee is $145 per month)
- An IPA HMO available in many but not all locations ($155 per month)
- A POS available in all locations ($160 per month)
- A PPO available in all locations ($175 per month)
- An indemnity plan available in all locations ($190 per month)
- An HSA plan with an underlying PPO ($70 per month premium; the employer contributes into the account at $100 per month)
The Meridian Agency provides $145 each month. The rest is paid by the employee using a premium conversion plan.
Compare the current health care programs that are used by the Meridian Agency in terms of the following:
- Benefits provided under each plan
- Possible out-of-pocket expenses for the employees and their families for illnesses and injuries
- Choice of providers
- The ways providers are being reimbursed
Jack Denton (the employee who had heart surgery) has two children. He lives twenty miles west of Richmond in a rural community of one hundred people and farms his land on the weekends. His wife is expecting another baby in four months. Before his surgery, Jack and his wife evaluated the plans and selected the one that best fit their needs.
- Which health plan do you think they selected? Explain your answer.
- Do you think now, after his surgery, Jack is still happy with this choice? Explain your answer.
Meridian is considering adding a dental plan.
- What type of dental plan do you think EB-Consulting would suggest?
- Why are dental insurance plans more likely than medical expense plans to include benefits for routine examinations and preventive medicine?
- EB-Consulting is trying to convince the Meridian Agency to add long-term care insurance to their employee benefits package. Explain long-term care coverage.