Employee benefits overview and group medical coverage
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Employee Benefits: Overview and Group Medical Coverage. Overview of employ benefits Group medical insurance Background of health care market Moral hazard problem Traditional fee for service plan Health Maintenance Organizations (HMOs) Provisions in Group Medical Plans

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Employee Benefits: Overview and Group Medical Coverage

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Employee benefits overview and group medical coverage

Employee Benefits: Overview and Group Medical Coverage

  • Overview of employ benefits

  • Group medical insurance

    • Background of health care market

    • Moral hazard problem

    • Traditional fee for service plan

    • Health Maintenance Organizations (HMOs)

    • Provisions in Group Medical Plans

    • Health Care Cost Inflation

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Major types of employee benefits

Major Types of Employee Benefits

  • Medical insurance

  • Retirement plan

  • Life insurance

  • Short term disability insurance

  • Long term disability insurance

  • other insurance such as dental, vision insurance

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Major types of employee benefits1

Major Types of Employee Benefits

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Who pays the cost of benefits

Who Pays the Cost of Benefits?

  • In the long run, employees pay the cost

    • contributory plans - directly

    • noncontributory plans – indirectly

  • In short run, employer profitability is likely to decrease if benefit costs increase

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Background on health care market

Background on Health Care Market

  • Three major players

    • Health care providers

      • Physicians, nurses and hospitals

    • Employees/individuals who seek health care

    • Employers / Insurers who provide insurance

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Moral hazard problems

Moral Hazard Problems

  • Providers often can influence demand

    • Providers better informed

    • Consumers do not pay marginal cost due to insurance

  • Two types of moral hazard

    • Ex ante

    • Ex post

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Major types of group medical insurance

Major Types of Group Medical Insurance

  • Traditional fee-for-service

  • HMO

  • PPO

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Traditional fee for service plans

Traditional fee-for-service plans

  • Employer provides coverage

    • With deductibles and coinsurance

  • Employer either self insures or purchases insurance from

    • Insurers

    • Blue Cross/Blue Shield organizations

  • Employees choose service provider

  • Provider charges fee to employee or insurer

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Classification of fee for service plan

Classification of Fee-for-service Plan

  • Basic health care benefits

    • Hospital expense

    • Surgical expense

    • Medical expense

  • Major medical insurance

  • Comprehensive medical insurance

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Provisions of fee for service plan

Provisions of Fee-for-service Plan

  • Deductible

  • Coinsurance

  • Stop loss limit

  • Maximum limit

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Excessive utilization and fee for service

Excessive Utilization and Fee-for Service

  • Fee-for-service plans aggravate excessive utilization problem b/c of the separation of

    • Provision of insurance

    • Provision of care

  • Reducing excessive utilization

    • Increase deductibles and coinsurance

    • Managed care

      • insurer monitor use

      • limit choice in service providers

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Health maintenance organizations hmos

Health Maintenance Organizations (HMOs)

  • HMO is a type of managed care plan that provides health care services to its members through a network of doctors, hospitals, and health care providers.

  • How HMOs control cost

    • involve contracts with physicians whose compensation depends on utilization

    • Employees’ choice of providers is restricted

  • HMOs charge employers a fixed annual fee

  • Primary care physician

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Hmo backlash

HMO Backlash

  • Critics:

    • HMOs have too little incentives for quality care

    • Factors limiting problem

      • too little care can lead to greater costs later

      • malpractice claims

      • competition

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Preferred provider organizations ppo

Preferred Provider Organizations (PPO)

  • Another approach to containing costs in group health insurance

  • Difference from HMO

    • Give employees and their dependents a broad choice of providers

    • If the insured goes to a preferred provider, PPOs waive most deductibles and coinsurance

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Provisions in group medical plans

Provisions in Group Medical Plans

  • Dependent coverage

    • usually requires an additional employee contribution

  • Premiums within a plan usually vary less than expected claim costs vary

    • cross-subsidies

    • group plans can still be beneficial to low risk

  • Mandated benefits

    • e.g., mental health services

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Provisions in group medical plans1

Provisions in Group Medical Plans

  • Portability

    • Pre-existing conditions clauses

      • why? - reduce adverse selection

      • problems:

        • discourages job changes

        • exposes those who switch jobs to less coverage

    • COBRA

    • 1996 legislation

      • can still have pre-existing conditions clause for 12 months

      • but coverage under a prior employer’s plan counts

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Provisions in group medical plans2

Provisions in Group Medical Plans

  • Renewability

    • Individual coverage typically is guaranteed renewable

    • ==> those who learn about illnesses continue to get insurance on the same terms as those who don’t

    • Group coverage typically is not guaranteed renewable

    • Why the difference?

      • Switching costs higher for individuals

      • ==> less likely to get those with good experience switching insurers

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Health care cost inflation

Health Care Cost Inflation

  • Health care costs increased substantially during the 1980s and early 1990s

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Why have health care costs increased

Why Have Health Care Costs Increased?

  • Excessive utilization

  • Increased demand for quality care

  • Technological advances

  • Increased proportion of elderly people

  • Other factors

    • Uninsured people obtain care via expensive means

    • Increased number of malpractice suits

      • defensive medicine

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