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Distinguish between the broad view and the narrow view of employee benefits.,"The broad view considers employee benefits to be virtually any form of compensation other than direct wages paid to employees. It includes both government-mandated benefits and private plans. Thus, such things as the employer’s share of Social Security tax on behalf of an employee, paid vacations and pension plans are considered to be employee benefits under the broad view. The narrow view, on the other hand, can be summarized as any type of plan sponsored or initiated unilaterally or jointly by employers and employees and engaged in providing benefits that result from the employment relationship and that are not underwritten or paid directly by government. Although this textbook and course are primarily concerned with the narrow definition of employee benefits, such emphasis does not imply that legally required benefits are unimportant.  On the contrary, these benefits are extremely important and must be considered when designing employee benefit programs.  This is especially true since integrating private employee benefit plans with the benefits supplied by governmental entities makes for the most comprehensive coverage.  At a time when governmental deficits and economic pressures are prompting consideration of rollbacks in social insurance benefits, the need to consider the interrelationship of private and governmental coverages is more important than ever. The tripod, or three-legged stool, of economic security is built upon governmental benefit programs, benefits supplied to employees by their employers through the employment relationship, and benefits provided by an individual for their own welfare and for the welfare of their dependents."
List the categories of benefits that generally are considered to fall under a broad view of employee benefits.,"A broad view of the term employee benefits generally includes the following types of benefits: (a) Legally required benefits—employer’s share of funding for Social Security benefits for the elderly and disabled and their dependents that includes retirement income, survivor and disability insurance, and hospital and medical insurance (Old-Age, Survivors, Disability, and Insurance (OASDI)); workers’ compensation (WC); unemployment insurance (UI); and state temporary disability income insurance (b) Payments for time not worked, e.g., rest periods, lunch periods, vacations and holidays (c) Employer’s share of medical and medically related benefits (d) Employer’s share of retirement and savings plan payments (e) Miscellaneous benefits, e.g., employee discounts, severance pay, education expenditures and child care, etc."
What benefits are typically excluded when the term employee benefits is viewed and defined in a narrow sense?,"The benefits typically excluded when the term employee benefits is viewed and defined in a narrow sense are those that are legally mandated, notably employer funding for Social Security and Medicare, unemployment insurance and workers’ compensation benefits."
Explain the types of business- or human resource-related reasons for firms establishing employee benefit plans.,"There are many business reasons that firms have established employee benefit plans. Employers want to attract and retain capable employees. Having employee benefit plans in place fosters this objective. In many cases, plans are necessary to retain current employees. Also, employers hope that good benefit plans will foster corporate efficiency, productivity and improved employee morale. Concerns for employees’ welfare and social objectives are also reasons for providing benefits."
What impact have labor unions historically had in employee benefits?,"Labor unions, through the collective bargaining process, have had an impact on the growth of employee benefit plans. A notable event occurred in 1948 when the National Labor Relations Board (NLRB) ruled in the Inland Steel case that the duty to bargain in good faith over wages also included insurance and fringes such as pension benefits. Shortly thereafter, in the W. W. Cross & Co. case, NLRB ruled that wages included a health and accident plan."
Explain the significance of the Taft-Hartley Act in employee benefit planning. ,"The Labor-Management Relations Act, also called the Taft-Hartley Act, sets forth the framework for good-faith collective bargaining over wages, hours, conditions, and terms of employment and employee benefits. The Act, along with the Internal Revenue Code (IRC), established the distinction between retirement benefits and welfare benefits. It also provides the regulatory framework for administration of these benefits in a collective bargaining agreement. As such, it is the legislative basis on which jointly trusteed benefit plans are founded."
Summarize three major federal tax advantages associated with employee benefit plans.,"Three major federal tax advantages associated with employee benefit plans are: (1) Most contributions to employee benefit plans by employers are deductible as long as they are reasonable business expenses. (2) Within certain limits, these employer contributions are generally not considered income to employees. (3) In certain types of retirement and capital accumulation plans, benefits accumulate tax-free to the employee until distributed."
Why is the employee benefit mechanism an effective and efficient way of providing insurance coverage?,"Employment-based insurance is convenient for employees. They don’t need to search for individual coverage, and it is often less expensive. Providers and suppliers find it more convenient and simpler to communicate and market employee benefits through an employer."
"In addition to business reasons, collective bargaining activity, favorable tax legislation and the efficiency of the employee benefits approach, other factors have enhanced the appeal of employee benefits. Summarize some of these other factors.","Certain historical events shaped the appeal of employee benefits. For instance, price controls imposed during World War II and the Korean War froze wage increases but allowed additions or enhancements to employee benefits. Also, the idea that the government might mandate certain benefits in the absence of private employer action served as “moral suasion” to spawn private employer action. Such discussion surrounds some of the provisions of the Patient Protection and Affordable Care Act (PPACA)* and its encouragement for private employers to provide health care benefits. Equally important are legislative and regulatory measures allowing employers to integrate private plans with governmental programs, thus building comprehensive benefit plans through a public/private partnership. *Throughout this course and in other courses, the health care reform law of 2010 formally known as the Patient Protection and Affordable Care Act (PPACA) will also be referred to by its shortened name of Affordable Care Act (ACA) and, in some course readings, as Obamacare."
What is the starting point in the design of any employee benefit plan?,The design of any employee benefit plan should start with setting overall objectives from the standpoints of both the employer and the employees. Thus there should be a meaningful and well-reasoned rationale for any and every employee benefit plan. The rationale and sustainability of an employee benefit plan should take into account the present time as well as look strategically toward the future.
List the types of overall questions that should be addressed in setting benefit objectives.,Some overall or basic questions that should be addressed in the planning and/or evaluation of an employee benefit plan include the following: You must click each box to read the required content. (a) What benefits should be provided? There should be clearly stated reasons or objectives for the types of benefits provided. Benefits provided both under governmental programs and for the individual employees should be considered. (b) Who should be covered by the benefit plan? (c) Should employees have benefit options? (d) How should the benefit plan be financed? (e) How should the benefit plan be administered? (f) How should the benefit plan be communicated?
What is the functional approach to employee benefit planning?,"The functional approach essentially is the application of a systematic method of analysis to an employer’s total employee benefits program. It analyzes the organization’s employee benefit program as a coordinated whole in terms of its ability to meet various employees’ (and others’) needs and to manage loss exposures within the employer’s overall compensation goals and cost parameters. The functional approach is certainly useful when initially conceptualizing and designing a comprehensive benefit program while launching a new business venture, but it is equally beneficial when evaluating proposals for new or revised benefits, evaluating enhancements such as cost-saving proposals and constructing effective communication of an employer’s total benefits program to its employees. In summary, the functional approach is essentially a planning approach aligning a total compensation philosophy with strategic business objectives."
"Describe the reasons that the functional approach is considered to be an appropriate approach for the effective planning, designing and administration","of employee benefits. The functional approach is considered to be an appropriate approach for the effective planning, designing and administration of employee benefits for several reasons. First, because employee benefits are a very significant element of total employee compensation and generally are a very tax-effective way of compensating employees, they should be planned and organized to be effective in meeting employee needs. Second, employee benefits generally represent a large item of labor cost for employers. Therefore, effective planning and avoidance of waste can be an important employer cost-control measure. Third, employee benefits in the past often were adopted by employers on a piecemeal basis, without being coordinated with existing employee benefit programs. Consequently, reviewing these plans or proposed changes to them using the functional approach can eliminate overlap and fill gaps. Fourth, a systematic approach to planning benefits helps keep an employee benefit plan current, competitive and in compliance with regulatory requirements. (The last point can be illustrated by the enactment of the ACA. This extensive law shows the demands that may be placed on the benefit plans of private employers to help solve perceived social problems.) Finally, the functional approach allows benefits to be integrated properly with each other. *Throughout this course and in other courses, the health care reform law of 2010 formally known as the Patient Protection and Affordable Care Act (PPACA) will also be referred to by its shortened name of Affordable Care Act (ACA) and, in some course readings, as Obamacare."
What elements of its compensation system should an employer seek to balance in designing a total compensation package?,"In designing its total compensation package, an employer should seek to balance various elements of its compensation system, including basic cash wages and salary, current incentive compensation (such as current cash bonuses and company stock bonuses), longer term incentive plans and so-called employee benefits, to help meet the needs and desires of the employees on the one hand and the employer’s basic compensation philosophy and objectives on the other. Thus, the functional approach to planning and designing an employee benefit plan must remain consistent with the employer’s total compensation philosophy."
Identify and describe three types of total compensation/benefits policies that employers may adopt.,"There are many different types of total compensation policies that firms may adopt. However, there are three basic broad or general types of total compensation approaches. (1) Average compensation/benefits policies follow the generally prevailing compensation/benefits level in a firm’s industry or community or both. (2) High-compensation/benefits policies attempt to attract higher levels of management, technical and general employee talent. (3) Low-compensation/benefits policies are lower than average and more modest in scale."
Explain how the type of industry in which a firm is operating affects its total compensation philosophy and employee benefits approach.,"A larger, well-established employer in a mature industry, a financial institution or a nonprofit organization may take a relatively liberal approach toward meeting the benefits needs and desires of its employees. Developing firms, or growth industries with considerable current needs for capital, may seek to rely more heavily on short-term-oriented incentive types of compensation. Further, firms in industries that are highly competitive, subject to cyclical fluctuations or perhaps in a currently depressed state may not be willing to add to their relatively fixed labor costs by adopting or liberalizing employee benefits, even if there may be a functional need for doing so. In fact, such firms may seek to cut back on their employee benefit commitments when possible."
Compare the compensation/service-oriented benefit philosophy and the needs-oriented benefit philosophy.,"Employers with a compensation/service-oriented benefit philosophy tend to relate employee benefits primarily to compensation or service, or both, in designing benefit plans within the constraints of any nondiscrimination rules. Thus, the level of benefits tends to be tied to the salary or pay levels of employees and their years of service. The needs-oriented benefit philosophy tends to focus on the needs of employees and their dependents, and employers with this philosophy typically design benefit plans primarily on this basis."
"Identify the steps used in applying the functional approach to employee benefit plan design, review and revision.","The steps involved in applying the functional approach are as follows: (a) Classify employee (and dependent) needs or objectives into logical functional categories. (b) Classify the categories of persons the employer may want to protect. (c) Analyze the benefits presently available under the plan in terms of functional categories of needs or objectives, categories of persons the employer may want to benefit, and regulatory requirements and possibly mandatory coverages. (d) Determine any gaps in benefits, or overlapping of benefits, or both, provided from all sources under the plan and other benefit plans in terms of functional categories of needs and the persons to be protected. (e) Consider recommendations for changes in the employer’s present employee benefit plan to meet any gaps in benefits and to correct any overlapping of benefits, including possible use of the flexible benefit (cafeteria plan) approach. (f) Estimate the costs or savings from each of the recommendations made in step (e). (g) Evaluate alternate methods of financing or securing the benefits previously recommended as well as the employee benefit plan’s existing benefits. (h) Consider other cost-saving techniques in connection with the recommended benefits or existing benefits (that is, develop possible cost-containment strategies). (i) Decide upon the appropriate benefits, methods of financing and sources of benefits as a result of the preceding analyses. (j) Implement the changes. (k) Communicate benefit changes to employees. (l) Periodically reevaluate the employee benefit plan."
Describe the types of employee needs and exposures to loss that may be covered under employee benefit plans.,"The following classifications include most of the commonly accepted needs and exposures to loss that may be covered under an employee benefit plan: (a) Medical expenses incurred by active employees, their dependents, retired (or certain otherwise terminated, suspended or temporarily not in service) employees or former employees, and by their dependents (b) Losses due to employees’ disability (short term and long term) (c) Losses resulting from active employees’ deaths, from their dependents’ deaths and from the deaths of retired (or certain otherwise terminated, suspended or temporarily not in service) employees or former employees (d) Retirement needs of employees and their dependents (e) Capital accumulation needs or goals (short term and long term) (f) Needs arising from unemployment or from temporary termination or suspension of employment (g) Needs for financial counseling, retirement counseling and other counseling services (h) Losses resulting from property and liability exposures and the like (i) Needs for dependent-care assistance (e.g., child-care or elder-care services) (j) Needs for educational assistance for employees, their dependents, or both (k) Needs for custodial-care expenses (long-term care) for employees or their dependents or for retired employees or their dependents (l) Other employee benefit needs or goals (such as a desire to participate in corporate stock plans or other longer term incentive programs)."
"Within the constraints of applicable law, in determining to whom—beyond full-time workers—an employer wants to extend coverage of its employee benefit plans, an employer must consider adequacy of protection and cost. What are the classifications of employees that are often considered separately when determining benefit coverages?","The categories of persons that a firm may want to include in its employee benefit coverages are: (a) Active full-time employees (b) Dependents of active full-time employees (c) Retired former employees (d) Dependents of retired former employees (e) Disabled employees and their dependents (f) Surviving dependents of deceased employees (g) Terminated employees and their dependents (h) Employees (and their dependents) who are temporarily separated from the employer’s service, such as during layoffs, leaves of absence, military duty, strikes and so forth (i) Individuals other than full-time active employees (for example, part-time employees, directors and so forth)."
An analysis of an existing or proposed employee benefit program involves examining levels of benefits and length-of-service requirements.,"(a) Explain how the concept of replacement ratio can be used by firms for setting benefit levels of retirement and disability plans. The retirement income objective might be expressed in terms of some percentage of the estimated final pay of an employee, or a so-called replacement ratio. In designing a retirement plan to meet this objective, income from Social Security, various capital accumulation benefits and the retirement plan itself would be considered. The same kind of analysis can be used in designing a disability income plan in terms of a replacement ratio of average or normal earnings. Income from all sources under the total compensation package, as well as the disability income plan itself, should be considered. (b) Explain how the use of length of service, or probationary periods, may vary with respect to protection-oriented benefits and accumulation-oriented benefits. Protection-oriented benefits consist of medical expense benefits, life insurance benefits, and short- and long-term disability income benefits that protect employees and their dependents against serious loss exposures that could spell immediate financial disaster. Such benefits may have a relatively short probationary period because of the need for immediate coverage of the employees and their dependents. Accumulation-oriented benefits, such as pension plans, profit-sharing plans, savings or thrift plans, and so forth, reward an employee for relatively long service with an employer. These types of benefits usually involve a longer probationary period than protection-oriented benefits because they are viewed as a reward for long service and the longer probationary period is not a disadvantage for long-term employees."
Describe the impact of making a plan contributory on employee participation. ,"Making a plan contributory will have an impact on employee participation and how well a plan meets the needs of the employee group as a whole. Moreover, if participation in a contributory plan is mandatory, this may create an employee relations problem. Thus, most contributory plans are not mandatory, and many contributory plans vary the levels or types of benefits in accordance with the degree of employee contributions."
Explain the arguments related to flexibility in the design of an employee benefit plan as related to the functional approach to benefit planning.,"One argument is that the more flexibility an employee has, the more likely they are to select a benefit program that best meets their individual needs and goals. Thus, flexibility in plan design such as optional participation, coverage amount and coverage options facilitates the functional approach. The opposing argument states that allowing flexibility in types and amounts of benefits works against the functional approach because employees might not recognize all their or their families’ needs and leave some important needs uncovered."
Describe the steps that can be implemented when conducting a review or audit of an existing employee benefit program in order to more appropriately align the benefit plans for talent acquisition with organizational strategic objectives and achieve business results.,"When looking to more appropriately align benefit plans for talent acquisition in order to accomplish strategic objectives and achieve business results, a systematic approach should be implemented. The following steps should be taken: a. Determine gaps in benefits and any overlapping benefits. b. Consider recommendations for changes in the present plan. c. Estimate costs (or savings) for each recommendation. d. Evaluate alternative methods of financing benefits. e. Consider cost-saving or cost-containment techniques. f. Decide on appropriate benefits and financing methods. g. Implement any changes. h. Communicate benefit changes to employees. i. Periodically reevaluate the plan, testing its alignment in achieving intended results."
Discuss the concept of risk within the context of employee benefit planning.,The concept of risk is important in employee benefit planning. Risk in this context means uncertainty with respect to possible losses. It refers to the inability to determine with certainty the actual number and value of claims a benefit plan will have to meet.
Describe the relationship of peril and hazard to risk. ,"Risk, peril and hazard are interrelated concepts. Risk is defined as uncertainty concerning the possibility of a loss. A peril basically is the cause of a loss. Such things as fires, floods, theft, illness and death are perils. A hazard is a condition that increases the probability that a peril will occur or tends to increase the severity of the loss when a peril occurs."
"Explain the concepts of physical hazard, moral hazard and morale hazard.","A physical hazard is a physical condition, such as defective wiring in a building or the absence of fire-extinguishing equipment, that increases the chances of loss. A moral hazard exists when dishonesty or other character traits in an individual increase the chances of loss. A classic example of a moral hazard is arson. Because of moral hazards, premiums are higher to all insureds, including the honest insureds. Insurers attempt to control moral hazard by careful underwriting and by various policy provisions such as deductibles, waiting periods, exclusions and riders. Morale hazard consists of carelessness or indifference that individuals have because they are covered by insurance and thereby protected against loss. An important problem in the benefits area that can be considered a morale hazard is employees or medical providers scheduling or receiving unneeded medical tests or medications. Note the distinction between moral and morale hazard is not made in some areas of studies. For instance, many economists use the term moral hazard to describe morale hazard. (The distinction is made mostly by insurance academicians.)"
How does pure risk differ from speculative risk? ,"Pure risks involve situations where only two alternatives are possible—either the risk will not happen (no financial loss) or it will happen and a financial loss takes place. For example, the risks of fire, auto accidents, illness, unemployment, disability, theft of property and earthquake are all pure risks. Also, many employee benefit coverages fall into this classification. It should be noted that nothing positive can result from a pure risk. Illness can be used as an illustration of pure risk. The best thing that can happen is for one not to become ill because if one does become ill, a negative result takes place. It also should be noted that many pure risks can be insured. Speculative risks involve situations where a possibility—that does not exist in a pure risk—is present, namely, the possibility of a gain. Thus, speculative risks have three potential outcomes: (1) a loss, (2) no loss or (3) a gain. Some examples of speculative risks are the purchase of a share of common stock, acquiring a new business venture or gambling."
"From an employee benefit perspective, what is the most important type of pure risk to cover? Explain. ","The most important classification of pure risk from an employee benefit standpoint is personal risk. Personal risks are losses that directly impact an individual’s life or health. Many risks involving employee benefit plans fall into this classification. Death, illness, disability, unemployment and old age are all personal risks."
Explain the nature of property and legal liability risks. ,"Property risks involve potential losses to the value of one’s real or personal property. Fire, flood, earthquake, wind, theft and auto collisions are examples of potential sources of property risks, and a house, furniture, automobile and jewelry are examples of types of potential property subject to loss. Legal liability risks involve losses resulting from the negligent or wrongful actions of individuals that result in injuries or losses to others. They stem from lawsuits by the injured people seeking damages from negligent parties. Some common sources of legal liability are negligent behavior associated with the ownership and use of automobiles, the operations of one’s home or business, the manufacture and/or sale of products, the performance of one’s job and professional misconduct."
Do employee benefit plans cover property and legal liability risks? Explain why or why not. ,"Property and legal liability risk coverages can be found in a number of employee benefit plans. For example, homeowner insurance, auto insurance and group legal services plans as well as certain aspects of financial planning and financial wellness programs involve property and liability risk counseling and coverages. Nevertheless, there is a much greater emphasis on personal risk in employee benefit plans. List of expandable sections. Select each button to expand the content."
Briefly summarize the methods that can be used for handling risk. ,There are several methods of handling risk. The primary risk-handling alternatives are: You must click each box to read the required content. (a) Avoidance (b) Control (c) Retention (d) Transfer (e) Insurance
What is the definition of insurance? ,Insurance is the pooling of fortuitous losses by transfer of such risks to insurers who agree to indemnify insureds for such losses or to render services connected with the risk.
Describe insurance as a mechanism from the standpoint of an employee benefit plan.,"From the standpoint of an employee benefit plan, insurance is a mechanism in which the insured (employer/employee) pays money (premiums) into a fund (insurance company). Upon the occurrence of a loss, reimbursement is provided to the person suffering the loss. Thus, the risk has been reduced or eliminated for the insured, and all the individuals who paid into the fund share the resulting loss. Insurance is one of various means by which an employee benefit plan may be financed.  Large benefit plans may utilize insurance, self-funding, and various combinations or variations of these two approaches.  Often an employer that chooses to self-insure will layer some sort of stop-loss coverage (which is insurance) to protect against risk exposures exceeding expected losses. However, many small- to medium-size firms rely almost exclusively on the insurance mechanism to support their employee benefit plans. Smaller firms typically do not have sufficient covered lives to allow the necessary pooling of exposure units, which is needed when self-insuring."
Compare the insurance mechanism with gambling.,"Insurance is a mechanism for handling an existing risk, whereas gambling creates a risk where one did not previously exist. For example, insurance is purchased to deal with the existing risk of illness; however, the outcome of a sports event is financially meaningless to the typical fan until they gamble on the final score. Second, the risk created by gambling is a speculative risk, whereas insurance deals with pure risks. Third, gambling involves a gain for one party (the winner) at the expense of the other (the loser) whereas insurance is based on a mutual sharing of any losses that occur. Fourth, the loser in a gambling transaction remains in that negative situation, whereas an insured who suffers a loss is financially restored in whole or in part to their original situation."
Explain the principle of indemnification.,"The fact that insurance is used to make the victims of losses whole reflects the principle of indemnification on which insurance is structured. An insured is indemnified if a covered loss occurs. That is, they are placed in somewhat the same situation that existed prior to the loss, for example, reimbursement for damaged property, medical bills, disability income and the like."
Which risk-handling alternative is the only one that is mutually exclusive of the others? Why?,"Avoidance. When you avoid a risk, you have no losses, so there is no need for other risk-handling techniques."
Discuss how the various risk-handling alternatives have application to the personal risk inherent in aging and the need for long-term care.,"The possibility of needing long-term care, especially at advanced ages, is a personal risk individuals and families must confront. Because of the significant expense for long-term care services, careful consideration should occur in deciding how to manage this risk. Likely risk management techniques could be insurance (transfer), proper health care and living conditions (control), and identifying a means by which to pay for care from accumulated savings or from income (retention). Accumulated liquid assets may be adequate to pay for such a loss, but owing to the extreme expense of these services, use of accumulated assets may severely deplete family wealth. Insurance, Medicaid planning, planning with potential caregivers and increased savings amounts are a few of the strategies that families may consider. Employers, cognizant of the risk and its effect on their workers, have played an increasing role in helping employees understand and plan for this risk. Providing access to insurance and long-term care planning services through employee assistance programs are two such employer initiatives."
Describe the characteristics of an ideal insurable risk from the standpoint of an insurance company.,"From the viewpoint of the insurer, there are six requirements of an ideal insurable risk. (1) There must be a large number of homogeneous risks (exposure units). (2) The loss should be both verifiable and measurable. (3) The loss should not be catastrophic in nature. (4) The chance of loss should be subject to calculation. (5) The premium should be reasonable or economically feasible. (6) The loss should be accidental and unintentional from the standpoint of the insured."
Explain The law of large numbers,"Insurance is based on the law of large numbers, which means that the greater the number of exposures, the more closely the actual results will approach the probable results that are expected from an infinite number of exposures."
Explain How the possibility of catastrophic losses generally is handled by employee benefit plans,"Employee benefit plans often insure life risks, hospital and dental risks, and disability income losses. Usually these are not subject to catastrophic occurrences because of geographic location, but catastrophic losses can take place, such as a plant explosion, a poisonous gas leak causing a large number of deaths or injuries, or a concentration of certain diseases because of the exposure to certain elements that are indigenous to a specific employee group. However, this usually is not an important consideration in underwriting typical benefit plans. Policy limitations, reinsurance and restrictions on groups insured all can be used to minimize the problem to the extent it exists."
Explain the concept of adverse selection.,"Adverse selection exists when individuals who have higher-than-average risks join a group or comprise a larger percentage of a group than anticipated because of the availability of insurance or other benefits. In that case, they are said to “select against” the insurer. That is, those with the greater probabilities of loss, and who therefore need insurance more than the average insured, attempt to obtain the coverage."
What are the underwriting methods used by insurers to address the problem of adverse selection by individual applicants for insurance coverage?,"The desirable situation for an insurance company is to have a spread of risks throughout a range of acceptable insureds. The spread ideally will include some risks that are higher and some that are lower than the average risk within the range. Insurers attempt to control adverse selection by the use of sophisticated underwriting methods and supportive policy provisions. Underwriting is the uniform process by which insurers select and classify applicants for insurance. Examples of the types of policy provisions historically used to control adverse selection include preexisting conditions clauses in medical expense policies, suicide clauses, maximum coverage amounts and open enrollment period restrictions. Today some of these provisions have limited applicability because of health care reform legislation."
How does the group insurance underwriting technique used in employee benefit plans allow the problem of adverse selection to be dealt with differently from the way it is handled under individual insurance?,"The management of adverse selection under group insurance contracts necessarily is different from the approach used in individual insurance. Group insurance is based on the group as a unit and, typically, individual insurance eligibility requirements are not used for the group insurance underwriting used in employee benefit plans. As an alternative, the group technique itself is used to control the problem of adverse selection."
"Briefly describe the characteristics of the group technique that enable such coverages as life and health insurance to be written as employee benefit plans by minimizing the risk of adverse selection. (Text, pp. 6-8)","Characteristics of the group technique that enable such coverages as life and health insurance to be written as employee benefit plans by minimizing the risk of adverse selection are: (a) Only certain groups are eligible. A group should not be formed solely for the purpose of obtaining insurance. The purpose of obtaining insurance should be incidental to the formation of the group. (b) There should be a steady flow of lives through the group. Younger individuals should come into the group as older individuals leave it to maintain a fairly constant mortality or morbidity ratio in the group. (c) There should be a minimum number of persons in the group. This is meant to prevent unhealthy individuals from being a major part of the group and to spread the expenses of the benefit plan over a larger number of individuals. (d) A minimum portion of the group must participate. The rationale for this provision is to reduce the possibility of adverse selection and to spread the expense of administration of the plan. (e) Frequently, eligibility requirements are imposed under group plans for the purpose, once again, of preventing adverse selection. (f) Maximum limits on the amount of benefits may be imposed to prevent the possibility of an excessive amount of coverage on any particular unhealthy individual. (g) To prevent unhealthy lives in a group from obtaining an extremely large amount of a particular benefit, there is automatic determination of benefits whereby coverage is determined for all individuals in the group on an automatic basis."
"How have the requirements of the group technique been liberalized over the years? (Text, p. 8)","Over the years, many of the requirements of the group technique have been liberalized as providers of employee benefits have gained experience in handling group employee benefits and because of the competitive environment. Nevertheless, the basic group selection technique is important in understanding why employee benefits can work on a group basis and how any problems that exist might be corrected."
What distinguishes self-funding from the insurance method of financing employee benefit plans?,"Self-funding or self-insurance of employee benefit plans means that an organization retains the risks as opposed to an insurance company taking on the risks in return for a premium. For self-funding, the key characteristic of an ideally insurable risk that must be present is that the organization is big enough to permit the combination of a sufficiently large number of exposure units to make losses predictable. That is, the program must be based on the operation of the law of large numbers. Obviously, few organizations are large enough to engage in a sound program that meets requirements of an ideally insurable risk without some arrangement with an insurer. Indeed, many so-called self-funded employee benefit plans transfer some of the pure risks undertaken to an insurer in whole or in part. The use of stop-loss insurance is the means by which plan sponsors transfer a portion of their risk to insurers while retaining a portion of the risk themselves by self-insuring certain risks in their employee benefit plans."
Describe the basic features of indemnity plans.,"The first employment-based medical plans covered catastrophic losses—primarily inpatient hospital expenses—and later added outpatient, diagnostic and physician services coverage. These early programs and their successors are known as indemnity plans. They are also called traditional, fee-for-services or conventional plans. They pay a percentage of the cost of treatment (as much as 100% for emergency/preventive care and 80% for most other services) and do not require insureds to obtain permission from their physician to access specialty or diagnostic services."
Define the concept of managed care.,"The concept of managed care is wherein insurance carriers have a role in steering health services and care while prepaying some portion of health care services. The managed care model, in the form of health maintenance organizations (HMOs) and their spin-offs, all but replaced traditional indemnity plans."
What are common types of employer-sponsored health plans offered as a sole plan or as one of several plan options?,Common types of employer-sponsored health plans offered as a sole plan or as one of several plan options include: (a) An HMO plan (b) A preferred provider organization (PPO) plan (c) A point-of-service (POS) plan (d) A high-deductible health plan (HDHP) linked to a tax-advantaged individual savings account.
"Despite some retreat from previous popularity in HMO plans, many covered workers find appeal in these types of plans. Describe how HMO plans operate.","An HMO plan requires an individual to select a primary care physician (PCP) from a network of providers. The PCP is responsible for managing the individual’s care and, in the event the required care is beyond the PCP’s scope of knowledge and training, the PCP is empowered to authorize, via referrals, access to additional or specialty care. Under an HMO plan, except for emergency care, no benefits are available for care received outside of the HMO network of providers. An individual’s out-of-pocket expenses for PCP and specialist visits are routinely a flat dollar amount, called a copay, and, with rare exceptions, individuals have no need to file claims for reimbursement."
The “managed care backlash” of the late 1990s resulted in significant growth in PPO plans.  PPO plans are highly valued by a significant number of plan participants. Describe the structure and operation of a PPO plan.,"A PPO plan, designed specifically in response to HMO criticism, allows limited benefits for care received outside of the PPO’s preferred network and requires no permission—that is, no referral—to see a specialist. In the event the specialist is part of the preferred network, the coverage may be similarly structured with copays as under an HMO plan. Some PPO plans have tiers within the preferred network, each of the tiers with varying out-of-pocket costs. For care received outside of the network, out-of-pocket costs can be significantly higher than those estimated by a member, due to higher cost-sharing rates (coinsurance rates) and, quite often, to the member’s poor comprehension of how particular benefits are determined."
A POS plan is a managed care plan that combines characteristics of HMO and PPO plans. Describe how POS plans are a hybrid of HMO and PPO plans.,"POS plans are a hybrid of HMO and PPO plans that offer in-network (preferred provider) benefits and out-of-network (nonpreferred provider) benefits. The individual may need to select a PCP to obtain referrals for in-network specialty care or other services. The out-of-pocket expenses for in-network providers are copays, similar (but perhaps slightly higher) to those of HMO plans, and there is no need to file a claim for reimbursement. For out-of-network providers, the out-of-pocket expenses are not a flat dollar amount but rather a percentage (40% is common for many plans) of the insurer’s designated prevailing fees."
Explain why it is difficult to compare PPO and POS plans.,"Drawing a sharp comparison between PPO and POS plans is difficult because of wide variations and overlaps between the two plans’ designs, features and provider payment methodologies. Nevertheless, possible differences include a primary care provider requirement by a POS but not by a PPO, lower copay amounts for preferred care in a POS than in a PPO, and a smaller network of providers to choose from in a POS than in a PPO. These dissimilarities can be present in an employee benefits program between plan options offered by the same insurance carrier or different carriers."
"Many firms now offer HDHPs with tax-advantaged personal savings options, which are sometimes referred to as consumer-directed health plans. Describe the rationale for HDHPs with personal savings options and the operating features of these plans.","An HDHP provides catastrophic insurance; it trades lower premium costs for a higher deductible by paying benefits after the insured has incurred considerable out-of-pocket expenses for covered medical services. The premise of HDHPs is that if participants have a greater financial stake in their health care decisions, they will be better consumers of health care. Thus, an HDHP puts individuals at risk for a large deductible, sets mechanisms for them to prudently manage expenses, and offers the possibility of “accumulating” health care savings in a tax-advantaged personal account. The account linked to the HDHP must meet regulatory requirements to receive favorable tax treatment, and the type of account that is used dictates whether employer or employee contributions, or both, may be made to fund the personal account."
What are the three types of saving options that are coupled with HDHPs?,"Tax-advantaged personal savings accounts allow individuals to pay for medical expenses not covered by their health plans, among which are copays, coinsurance and deductibles. There are three main types of such accounts, with varying eligibility, contribution and distribution rules: flexible spending accounts (FSAs), health reimbursement arrangements (HRAs) and health savings accounts (HSAs)."
"Describe the characteristics of: (a) FSAs, (b) HRAs and (c) HSAs.","FSAs are offered with all kinds of medical plan options by allowing individuals, before the start of a plan year, to elect a certain amount to be deducted on a pretax basis from their paycheck (deductions may not exceed the IRS limit). These deductions are then available throughout the year to pay for IRS-qualified medical expenses, such as prescriptions, office visits, dental exams and out-of-pocket medical expenses. There are restrictions with regard to money not spent at the end of the plan year, and some unspent monies may be forfeited. Individuals can enroll in an FSA regardless of their health plan insurance, and employers may also make contributions to this account. HRAs are employer-funded accounts established to pay health care expenses as determined by the employer from the IRS-qualified listing. Employers are not required by law to roll over unused contributions from one year to another and typically do not do so. HSAs are the newest tax-advantaged option and are coupled with high-deductible health plans. These accounts are owned by the employee and funded with tax-free contributions made either by the employee, the employer or both. Unused contributions from these accounts can be rolled over from year to year and, in the event the employee retires or changes jobs, the monies are available for future use even if the individual is no longer enrolled in a high-deductible health plan. However, there are penalties for money used for nonmedical expenses before age 65. At age 65, withdrawals made for nonmedical expenses are only subject to ordinary income taxes."
Contrast the difference between an in-network versus an out-of-network provider (a preferred versus a nonpreferred provider).,"An in-network provider (also known as a preferred provider) has a contract with the individual’s health insurance plan to provide services to the member at a discount. Some plans may have a “tiered” network with varying out-of-pocket expenses for members. A provider that does not have a contract with the health insurance plan to provide services to its member is an out-of-network provider (also known as a nonpreferred provider). When available in a plan, benefits for out-of-network care cost a member considerably more than those in network."
What is an out-of-pocket expense maximum?,"An out-of-pocket expense maximum is the most a member (the individual covered under the plan) pays during a plan year (usually a calendar year) before the health insurance or plan begins to pay 100% of the allowed amount. This limit never includes insurance premiums paid, balance-billed charges or expenses for care services not covered by the health plan."
"Define the terms allowed amount and usual, customary or reasonable (UCR) fee.","The allowed amount and usual, customary or reasonable (UCR) fee are terms used by health plans to determine the maximum amount the plan will pay for covered health care services. Other terms also used are eligible expense, payment allowance or negotiated rate. For out-of-network providers, if the provider charges more than the allowed amount by the health plan, the provider can charge the member for the difference."
Describe the special consideration given to care designated as preventive care.,"Treatments or services that fall under the category of preventive care (for example, immunizations, mammograms and cholesterol screenings) are covered under health plans without having any deductibles, copayments or coinsurance apply when provided by in-network providers. (Under the Affordable Care Act, only plans deemed grandfathered, that is, in existence on March 23, 2010, may require cost sharing for specified preventive care.)"
What is the history of prescription drug coverage?,"In the early days of employer-sponsored health plans, prescription drug expenses represented a small portion of overall health expenditures and, for the most part, such expenses were not covered by the plans. When coverage became available, the expenses were subject to the same deductibles and coinsurance rates as office visits, laboratory work and other outpatient services. Today, prescription drug coverage is typically carved out of medical health plans and administered by pharmaceutical benefit managers (PBMs). These entities are third-party administrators contracted by plan sponsors to process prescription claims and reimburse pharmacies for dispensing drugs as well as perform myriad other functions, including cost containment and chronic care management."
What has been the impact of parity legislation on mental health and substance abuse (MH/SA) benefits?,"In the past, employers have provided significantly more limited coverage for MH/SA benefits compared with medical and surgical care. The limits have been in the forms of lower reimbursement rates (50% for such services versus 80-100% for non-MH/SA services), fewer allowed visits, and lower lifetime and annual out-of-pocket maximums. In recent decades, the inequities between the two types of benefits in group health plans have been rolled back by a patchwork of state and federal parity and equity-in-coverage laws, culminating in the sweeping health care reform legislation of the Affordable Care Act."
Describe how the structure of delivery models for providing MH/SA benefits has evolved over time.,"The structure of delivery models for providing MH/SA benefits has evolved over time. A massive shift occurred, with many organizations opting to carve out behavioral benefits and have them provided by managed behavioral health care organizations (MBHOs).  These specialty health providers were often independent organizations, yet some were affiliates of health insurance carriers or health provider organizations. The MBHO approach of carving out MH/SA benefits originated in the 1980s. The popularity  of MBHOs crested in the early 2000s when a majority of group health plans carved out from medical and surgical coverage those benefits linked to MH/SA services. A key objective of the separation was to control costs through better oversight of such expenses—case management and early intervention.  However, provisions of the Affordable Care Act, as well as delivery models seeking to more effectively provide holistic care, have resulted in delivery models repositioning MH/SA benefits in closer alignment to physical care through a more integrated care model."
What health care coverage and insurance reforms were enacted by the Patient Protection and Affordable Care Act (ACA)?,"Key major reforms enacted by the ACA include: (a) Expansion of eligibility for medical benefits under the federal government’s program for low-income, financially needy individuals (b) Prohibition against denial of insurance benefits for physical or mental illnesses or conditions that existed before coverage began (c) Restrictions on variation in premium rates by insurers and tax credits/subsidies for low-income individuals purchasing individual coverage (d) Establishment of marketplace exchanges to make available standardized medical plans (e) Group health insurance mandates having direct and indirect impact on employer-sponsored health plans."
Summarize ACA requirements that impact employers sponsoring group health plans.,Major ACA requirements that impact employers sponsoring group health plans are: (a) Play-or-pay rules requiring medium and large employers to offer health insurance to ACA-defined full-time employees or pay a penalty (b) The establishment of a list of “essential health benefits” (c) The elimination of lifetime maximums and the capping of out-of-pocket maximums (d) The expansion of coverage for preventive services (d) Temporary tax subsidies to small employers that offer group health (e) New administrative and reporting requirements.
Describe how coverage for preventive services has been expanded by the ACA.,"Under the ACA, coverage for services such as mammograms and colonoscopies must be provided by group health plans subject to the ACA mandates without charging a deductible, copay or coinsurance."
Describe the intent of the No Surprises Act and summarize the consumer health protections it institutes.,"The No Surprises Act includes comprehensive protections against surprise medical bills. Patients are protected from surprise medical bills sent from an out-of-network provider for emergency services (including by air ambulances, although not ground ambulances) and nonemergency services at in-network facilities (unless a patient consents to treatment by an out-of-network provider). Patients treated by an out-of-network provider will only be liable for cost-sharing amounts that apply to in-network services, and providers cannot send bills for any higher amounts. The legislation establishes an arbitration process to resolve payment disputes between insurers and out-of-network providers. The act also has some protections for temporary continuity of care when a provider changes status from in-network to out-of-network."
Describe the legislative action that has been taken regarding “gag clauses.”,"Under the legislation insurers and group health plans are prohibited from entering into agreements with providers (including a network of providers) or third-party administrators that include a gag clause. Gag clauses restrict or prevent insurers from making price or quality information available to patients or other third parties. Insurers and group health plans are barred from making agreements with providers that restrict the ability to disclose provider-specific cost or quality information or data. This information cannot be withheld from patients, employers, referring providers or business associates. Group health plans and insurers offering group coverage also cannot contract away their right to electronically access de-identified claims and encounter information or data for enrollees. Providers are permitted to place reasonable restrictions on public disclosure of this information, but insurers and group health plans must retain access to this information."
"How is the ban on gag clauses enforced, and is there precedent for Congress taking action against the practice of inserting gag clauses in health-related contracts?","Compliance with the ban on gag clauses is enforced through annual attestations submitted by insurers and group health plans. Prior to passage of this ban on gag clauses for insurers and group health plans, such bans in contracts were previously implemented by Congress between pharmacies and insurers or PBMs. Prior to this congressional action, such gag clauses had prevented pharmacists from disclosing cost information to patients."
How do payment methods affect the delivery of health care?,"Payment methods clearly affect whether, how and how much care is provided. Examples include hospital length of stay, diagnostic imaging in physician offices, home health care visits, coordination among physicians and hospitals, and much more. Financial incentives seem particularly potent in situations of clinical ambiguity, such as diagnostic tests, follow-up visits and some procedures."
Discuss the dimensions of the basic payment structures for health care providers.,"Eight basic payment methods are applicable across all types of health care. Each method is defined by the unit of payment (per time period, beneficiary, recipient, episode, day, service, dollar of cost, or dollar of charges). These methods are more specific than common terms such as capitation, fee for service, global payment and cost reimbursement. They also correspond to the division of financial risk between payer and provider, with each method reflecting a risk factor within the health care spending identity. Financial risk gradually shifts from being primarily on providers when payment is per time period to being primarily on payers when payment is per dollar of charges. List of expandable sections. Select each button to expand the content."
Summarize the basic methods used to reimburse health care providers.,"The basic methods used to reimburse health care providers could be classified into eight types of payment, and they are: (1) Per time period (2) Per beneficiary (3) Per recipient (4) Per episode: (5) Per day (6) Per service (7) Per dollar of cost (8) Per dollar of charges"
"Using examples from Medicare reform payment efforts, explain how changes in payment methods can have sweeping effects.","Changes in basic payment methods can have sweeping effects—both good and bad. In the early 1980s, the Medicare inpatient payment method was changed from paying according to hospital costs to paying for diagnosis-related groups (DRGs). Payment by DRG led to decreased hospital costs, shorter lengths of stay, reduced growth in Medicare payment and even increases in hospital margins (the surplus of revenue over costs) as hospitals became more efficient. This payment change also accelerated the growth in outpatient and post-acute care services, possibly increasing fragmentation of care. In the early 1990s, Medicare moved physician payment from per dollar of charges to per service. The change insulated Medicare from charge inflation but did not protect it from growth in service volume—both actual and as reported on claim forms. In an eight-year period, Medicare spending per beneficiary for physician services grew more than twice as fast as spending for other services and was driven entirely by growth in volume."
Discuss the art of designing a payment policy.,The art of designing a payment policy is to strike the right balance without creating a muddle of conflicting incentives. And the incentives that matter the most are those closest to the clinical decision maker.
What mechanisms are established to mitigate the financial incentives inherent in the various payment methods and to safeguard quality?,"Payment methods are inevitably not neutral on quality. Each method encourages and discourages provision of care overall and in particular situations. Payers therefore establish mechanisms outside each payment method to monitor the efforts by providers to maximize units and minimize cost per unit. Many professional norms also have arisen to mitigate financial incentives in the market for health care, which is often characterized by asymmetrical information (one party has more or better information than the other in a transaction), considerable uncertainty and life-and-death consequences. These mechanisms and norms include utilization review, provider profiling and credentialing, public reporting, appeals to professional ethics, licensure and certification, peer review, litigation and other disciplinary action, and prohibitions against self-referral."
List three features that are generally associated with CDHPs.,"CDHPs generally have a relatively high deductible, a personal spending account and the availability of information tools for enrollees. The objective of the high deductible is to encourage enrollees to be wise consumers of health care services by exposing them to the financial consequences of their choices. Because the high deductible reduces the amount of risk protection insurance provides, a typical CDHP links the high-deductible plan with a personal spending account. And the purpose of information tools is to provide enrollees with the resources they need to make informed decisions."
Explain the motivations for developing CDHPs.,CDHPs emerged as a backlash against managed care plans and the subsequent rise in health care expenditures. They were intended to control costs and promote greater value in health care spending by shifting responsibility for health care decision making from insurers to consumers. They were also seen as a way to accommodate diverse consumer preferences.
Describe the types of concerns made by critics of CDHPs.,"Critics of CDHPs raise three major concerns about CDHPs. First, consumers may not differentiate effectively between more and less valuable care when making choices. Second, there is potential for greater risk segmentation in health insurance markets if CDHPs disproportionately attract favorable risks due to their lower premiums and higher cost sharing. Third, doubts exist whether or not CDHPs will actually reduce health care spending."
What aspects of cost sharing are relevant to CDHPs?,"Three aspects of cost sharing are relevant to CDHPs. First, the annual deductible is the amount the enrollee pays out of pocket before expenditures (except for certain preventive services that are exempt from the deductible) are covered by the plan. For example, in a plan with a $2,000 deductible, the enrollee must spend $2,000 on covered services before the plan begins to pay for care. Secondly, after the enrollee reaches the deductible, services are subject to the plan’s cost-sharing requirements. Although cost sharing can be very complex, varying both in level and in form across services, a simple example is a 20% coinsurance rate. In this case, the enrollee would pay out of pocket 20% of the fees for services used after reaching the deductible. Finally, most plans have an annual out-of-pocket maximum. This is the maximum amount an enrollee must pay for covered services during a plan year. After the enrollee reaches the out-of-pocket maximum, services are covered in full by the plan for the remainder of the plan year."
"Distinguish between health reimbursement arrangements (HRAs) and health savings accounts (HSAs) with regard to (a) the account funder, (b) annual contribution limits, (c) rollover provisions and (d) nonmedical use. (Text, pp. 251-252, Table 1)","(a) HRAs may be funded only by the employer; HSAs may be funded by the employee, employer or both. (b) HRAs have no federal limit on contributions; HSAs have a maximum allowable annual contribution limit for individuals and families. (c) Employers may choose whether to allow funds to accumulate from year to year in HRAs. Employers may also choose whether to withdraw any unused funds in HRAs after employment is terminated. Funds in HSAs, regardless of whether they are employer or employee contributions, accumulate over time and are nonforfeitable. (d) Nonmedical use is not allowed with HRAs. Withdrawals from HSAs for nonmedical use are allowed but subject to income tax and penalties if the participant is under age 65."
Evaluate the impact of the Affordable Care Act (ACA) on the development of CDHPs.,"The enactment of the ACA created substantial uncertainty for CDHPs because of the concern that they would not meet the minimum actuarial value requirements of the act. The ACA also made regulatory changes that reduced the attractiveness of CDHPs. Despite these concerns, CDHPs have developed a strong presence in the post-ACA health insurance market. Whether these plans continue to gain market share under the ACA regulatory framework depends in large part on how price-sensitive people are as well as how people value high-deductible coverage relative to other types of low-premium plans, such as those offering very narrow networks or tightly managing care."
Describe the initial uncertainty that accompanied early CDHP plan designs and the pivotal regulatory and legislative actions that clarified tax treatment and allowed for the widespread adoption of these types of plans.,"Initial uncertainty accompanied the early introduction of CDHP plan designs because it was not clear whether the personal spending accounts paired with health plans would possess the same tax advantages that health plans enjoy.  Without clarification on the tax-advantaged status of the spending account component, CDHPs would be at a distinct disadvantage from a tax standpoint. In 2002, the Internal Revenue Service (IRS) clarified that HRAs, employee-specific accounts established and funded by an employer from which employees can be reimbursed for medical expenses, could be excluded from the taxable income of employees. Subsequently the passage of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA) created another type of account-based health plan (ABHP)—the HSA. The HSA remedied the lack of portability, which was a drawback of HRAs. The MMA allowed people to establish or contribute to an HSA when they were covered by a high-deductible health plan (HDHP), and the legislation explicitly defined the minimum deductible and the maximum out-of-pocket expenditure for a qualifying plan.  The legislation also created a “preventive care safe harbor,” allowing qualifying HDHPs to exempt preventive services from the deductible.  The ACA mandated that, beginning in 2010, all plans must cover certain preventive care services with no cost sharing."
Explain the favorable tax treatment enjoyed by HSAs.,"HSAs allow for very favorable tax treatment. Both employers and individuals may contribute to an HSA, although neither party is required to make such contributions. Contributions from either party—employer or employee—are not treated as taxable income for the purpose of calculating federal income taxes. The law establishes maximum limits on contribution levels. The total combined contributions from both employer and employee must not exceed the governmental limit. Contributions to HSAs may accumulate over time and account holders may choose to invest the funds. Any interest, earnings or capital gains are also tax-exempt. HSA withdrawals are not subject to income tax if they are used for qualified medical expenses for the account owner or a spouse or dependent. Funds that are withdrawn for nonqualified medical expenses are included in taxable income, and withdrawals before age 65 are subject to an additional penalty tax."
"Is the flexible spending account (FSA), another ABHP, a new variation on the HRA or the HSA?","The FSA actually predated both the HRA and HSA. The FSA had its origin many years before either of these types of plans and its use historically had been much different. The Revenue Act of 1978 gave tax-favorable treatment to flexible spending accounts for medical expenses. In 1984, the Internal Revenue Service issued a ruling that while flexible spending accounts were allowable, employees must elect a certain amount for the plan each year and that any unused amounts would be forfeited at the end of the plan year. While HRAs and HSAs are almost exclusively utilized in connection with CDHPs, medical FSAs are commonly utilized with more traditional health plans, most notably with flexible benefits programs."
Can an FSA accumulate funds from one plan year to the next as do other types of ABHPs?,"Unlike some HRAs and all HSAs, unused funds left in an FSA at the end of a plan year were originally completely forfeited by a plan participant. Some slight accommodations were subsequently allowed for carryovers, but beyond a marginal allowance, excess funds at the end of a plan year are subject to forfeiture. These funds are subject to the so-called “use it or lose it"" rule. The rationale for this practice was that the participant was perceived as “self-insuring” for certain medical expenses not covered in the base medical plan. The argument for forfeiture was embodied in the question: What type of insurance refunds your premium if you fail to experience an insured loss during the period of policy coverage?"
Are there other types of FSAs beyond those offered to reimburse participants for medical expenses?,"Yes. In addition to medical FSAs, there are other types of FSAs permitted under the law. Dependent-care FSAs allow plan participants to set aside funds on a pretax basis to pay for certain expenses in connection with care for dependents while the legal guardian is working. Additionally, there are FSA plans for non-employer sponsored premium reimbursement, parking and transit expense reimbursement, and adoption assistance."
Are all HDHPs identical in terms of their operating provisions?,"There can be varied features within HDHPs. An HDHP provides insurance coverage for health care expenses. The actual delivery model for receiving health care services through HDHPs can be varied. Most service delivery would occur through either a preferred provider organization (PPO), a health maintenance organization (HMO) or a point of service (POS) program. Depending on its plan provisions, an HDHP may offer the choice of using in-network or out-of-network providers. Of course, utilizing in-network providers would result in lower out-of-pocket costs for the participant and for their beneficiaries. With the exception of preventive care, the annual deductible would need to be met before plan benefits would be paid. The HRA or HSA coupled with the plan would allow for the accumulation of savings to assist in funding current and, in the case of an HSA, possibly future period medical expenses. The accumulation of these funds for future time periods permit more expansive flexibility over the spending of health care dollars."
Describe the fundamental characteristics of an HRA.,"All HRAs share certain fundamental characteristics. The HRA is a type of employer-funded health benefit plan whereby employee-specific accounts are created on behalf of employees. Employees can then submit evidence of qualified health expenses to their employer for reimbursement. Employers reimburse employees after employees submit evidence of having incurred approved medical expenses. HRAs only reimburse items such as copays, coinsurance, deductibles, and services agreed to by the employer that are not covered by the employer’s standard insurance plan. Unlike an HSA, the HRA sponsor is not required to link such reimbursements to participation in an HDHP. The HRA plan document must specifically identify at inception the types of medical expenses that will be reimbursed. A variety of items may be designated for reimbursement. Medical services, dental expenses, plan copays, coinsurance amounts, deductibles and other items may be designated. Items may vary from plan to plan, and an employer may have multiple plans in place, allowing much flexibility in the realm of reimbursable expense. An HRA must be funded solely by the employer. Employees are prohibited from making any sort of voluntary contribution to their HRAs. There is no statutory maximum contribution limit on the amount an employer can credit on behalf of an employee."
Summarize the legislative and regulatory measures that resulted in an expansion of HRA applications.,"Various legislative and regulatory measures resulted in an expansion of the use of the HRA concept. In 2016, the Small Business Health Care Relief Act created the qualified small employer HRA (QSEHRA). QSEHRAs allowed small businesses with fewer than 50 employees to reimburse their employees for purchasing health insurance, including such purchases of health insurance through a health insurance Marketplace. Later in 2017, a presidential executive order directed governmental departments to consider proposing regulations to increase the availability of HRAs. On October 29, 2018 the departments issued proposed regulations responding to the executive order. The proposed regulations were then finalized on June 13, 2019. These regulations expanded the means by which an HRA can be used to provide medical insurance coverage by eliminating the prohibition under Notice 2013-54 against the funds in an HRA being utilized to pay or reimburse premiums for individual medical insurance coverage beyond the exception that was previously granted to small employers with the QSEHRA. The regulations also allowed for the use of HRAs to cover excepted benefits."
What must employers do to offer their employees an individual medical insurance coverage HRA (IMC-HRA)?,"Employers must abide by certain rules in order to offer their employees an IMC-HRA. The employer must require participants to enroll in individual medical insurance coverage complying with the Public Health Service Act (PHSA). A balance in an IMC-HRA would be forfeited if the employee loses their individual coverage. An IMC-HRA is subject to Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation if an individual experiences a triggering qualifying event. An employer cannot offer both an IMC-HRA and a traditional general health plan (GHP) to the same class of employees. Prior to the beginning of the plan year, an employer must specify in the IMC-HRA plan document the class or classes of employees eligible to participate in the IMC-HRA. When offering an IMC-HRA to one or more classes of employees, the same terms of coverage must apply for all employees within the covered class or classes."
Describe some of the ongoing operational issues related to maintaining an IMC-HRA.,"There are certain ongoing operational issues related to maintaining an IMC-HRA. For instance, on an annual basis, employees must be given the opportunity to opt out of an IMC-HRA and to waive future reimbursements from the account. The IMC-HRA is subject to annual substantiation and verification procedures to ensure the individual coverage requirement regarding each participant and dependent is in place, as well as to substantiate that the funds claimed for reimbursement have actually been incurred and paid. Finally, at least 90 days prior to the beginning of the plan year an employer must provide eligible employees with a written notice. The written notice must contain information regarding the maximum dollar amount of reimbursement, a description of the individual medical insurance coverage requirement, the right to opt out, an explanation of how participation in the IMC-HRA affects eligibility for the ACA premium tax credit (PTC), and the employee’s need to provide substantiation of enrollment in individual medical insurance coverage. Also, employers must comply with other relevant applicable laws, including the Internal Revenue Code (IRC), the Health Insurance Portability and Accountability Act of 1996 (HIPAA), COBRA and the Medicare Secondary Payer Rules."
What is an excepted benefits HRA (EB-HRA)?,"An EB-HRA allows employers to provide a tax-advantaged benefit beyond the employer’s GHP to employees who choose to be covered by short-term medical insurance or who are seeking to be reimbursed for the cost of copays, deductibles, or other expenses not covered by the GHP or other excepted benefits, such as short-term medical insurance; limited-scope dental or vision expenses; and benefits for long-term care, nursing home care, home health care or community-based care."
What requirements must an employer fulfill to offer an EB-HRA?,"An employer must fulfill certain requirements to offer an EB-HRA. For instance, the employer must provide some other GHP that satisfies the PHSA requirements to the same participants who meet eligibility requirements for the EB-HRA for the same plan year. The eligible employees must have the choice not to elect coverage in the GHP and to solely enroll in the EB-HRA if they so choose. The amount made available through the EB-HRA cannot exceed a legally set level that is indexed annually. The amounts in an EB-HRA cannot reimburse premiums for individual medical insurance coverage under a GHP (other than COBRA) or Medicare Parts B and D. An EB-HRA must be made available to all “similarly situated individuals” under the same terms regardless of any adverse health factors. An EB-HRA cannot be offered only to individuals who have a serious medical condition or, alternatively, offered only to those who can pass a physical examination. An employer with more than 100 EB-HRA participants must file a Form 5500 if it is not including the EB-HRAs as part of the employer’s “medical plan” Form 5500 filing. Other disclosure requirements like distribution of a summary plan description (SPD) are necessary. Unlike the rules for IMC-HRAs, there is no specific exception from the Section 105(h) nondiscrimination rules for an EB-HRA. Accordingly, an EB-HRA providing a richer benefit to more senior employees could be found to be discriminatory."
"What was the aspirational hope for CDHP plan adoption, and has it been realized?","When CDHPs were first introduced, their introduction was heralded as an innovation that would transform and revolutionize the design of employer-sponsored health plans. While CDHPs have received widespread acceptance among employer groups and are utilized by millions of employees, their early explosive growth has moderated over time. While some early prognosticators believed that the majority of employers would drop their traditional health plans and exclusively provide CDHPs, this prediction has failed to materialize. Generally less than 25% of employers solely offer a CDHP. The more typical scenario is for employers, particularly large employers, to offer a CDHP as a choice within a menu of plan offerings from which employees make an annual choice. In this way, plan participants decide the extent to which they prefer to trade off lower premiums in exchange for higher out-of-pocket costs for the health care they actually utilize."
How has the prevalence of CDHP offerings served to reduce the occurrence of overinsurance in the marketplace?,"Among the largest employers it is increasingly rare to find an employer that does not make a CDHP choice available for selection by its workers. In the past, a substantial number of workers may have been overinsured by traditional health plans. The advent of CDHPs may have served to reduce the expenditure of wasted premium dollars for this population. The CDHP introduction also may have educated employees generally regarding the cost of health care and thus brought greater cost transparency into the marketplace."
What conditions may limit the possibility for CDHPs to achieve dramatically greater cost-containment gains?,"Certain conditions may limit the possibility for CDHPs to achieve dramatic cost-containment gains beyond a certain point. These limitations may present certain boundaries beyond which gains from consumerism are constrained. Most market observers highlight the importance of consumers having access to reliable, relevant information allowing for informed choice. Though improvements have been made in supplying cost and quality metrics, an absence of information constrains health care consumers when they are attempting to make informed and well-reasoned decisions. Certainly not all of health care spending is ""shoppable."" While certain procedures can be compared for price, other spending cannot, particularly services required in emergency situations. CDHPs protect the enrollee from catastrophic medical expenses when severe health issues occur. Limits are established within the HDHP on what an individual could incur in terms of maximum out-of-pocket costs. Once the out-of-pocket limit is reached, there is no longer a financial incentive for an employee to procure less expensive care. Accordingly, a CDHP sheds its financial incentives at such extremes when the most costly and resource-intensive use of medical care occurs."
Describe the niche that CDHPs fill when it comes to employee health plan selection.,"CDHP plan designs are destined to continue to occupy a critical niche in plan sponsor medical plan menus. These plans provide a cost-effective medical plan option to many workers, allowing them to assess their own personal health risk and trade off premium costs for either higher out-of-pocket costs or potential health care savings, depending upon medical needs during the coverage period."
What factors are likely to impact the prevalence of employer support for CDHPs and the selection of CDHP plans by employees when given the choice between CDHPs and other medical plan offerings?,"Several factors are likely to impact the prevalence of employer support for CDHPs and the likelihood that employees will choose CDHPs when given a choice of plan selection. Depending upon the escalation in medical cost inflation, general economic prosperity, labor market conditions, and employer willingness and ability to cost-share with employees in underwriting medical expenses, the appeal of CDHPs will likely vary over time. The popularity of the CDHP choice from the perspective of both the plan sponsor and the individual participant will also vary between industries with differing economics and competitive pressures. CDHPs are definitely an enduring type of medical plan that will continue to see future innovation and adaptation to evolving technology and market conditions."
Describe the basic differences between medicine and dentistry.,"There are many differences between medicine and dentistry, including: (a) Physicians typically practice in groups, while many dentists practice almost exclusively in individual offices. This isolation tends to produce a greater variety of dental practice patterns than exist in medicine and doesn’t allow for the same opportunities for peer review and general quality control. (b) Many individuals may require only preventive or no medical care for years but, because of the need for preventive dentistry, the need for regular dental care is almost universal to ensure sound oral hygiene. So individuals routinely visit their dentists for preventive dental care, but in medicine a patient may visit a physician only with certain symptoms. (c) Because of its emphasis on prevention, dental treatment often is considered elective and is sometimes postponed unless there is pain or trauma. Because there is no life-threatening urgency, the patient may postpone treatment. (d) Because the need for major dental care is neither life-threatening nor time-critical, dentists’ charges for major courses of treatment can be discussed in advance of the treatment, allowing the patient the option of deferring the treatment or not having it at all. (e) While medical care is rarely cosmetic, dental care often is. (f) Dentistry often offers a variety of alternative procedures for the treatment of disease and the restoration of teeth that may be equally effective but can vary widely in their degree of complexity and cost. (g) Dental expenses generally are lower, more predictable and budgetable, with the average medical claim being much higher than the average dental claim. (h) There is a greater emphasis on prevention in dentistry than in medicine. Notwithstanding the current trend toward prevention in medicine by managed care medical plans, its value is difficult to quantify, while the advantages of preventive dentistry are clearly documented. This is because preventive care may be more productive in dentistry than in medicine, and the value of preventive dentistry relative to its cost is acknowledged. Candidate Note: Under the Affordable Care Act, dental coverage is not an essential benefit for adults. For children, coverage is not required to be purchased; however, it is an essential health benefit (EHB) that must be made available by those individual policies and group plans subject to the EHB provisions of the health care reform law."
What organizations provide dental care coverages?,"Organizations providing dental care coverage may be separated into three categories: Insurance companies Blue Cross and Blue Shield associations Others, including: State dental association plans (for example, Delta plans) Self-insured, self-administered plans Group practice or health maintenance organization (HMO)-type plans."
Discuss how dental plans resemble today’s medical plans.,"There are three basic approaches: the fee-for-service indemnity approach, the preferred provider organization approach and the dental health maintenance organization approach. As with medical plans, the preferred provider organization is the prevailing dental benefit approach, and the fee-for-service approach is gradually disappearing."
Identify and describe the ten professional treatment categories into which virtually all dental problems are placed.,"The ten professional treatment categories of dentistry are: (1) Diagnostic (2) Preventive (3) Restorative (4) Endodontics (5) Periodontics (6) Oral surgery (7) Prosthodontics (8) Orthodontics (9) Pedodontics (10) Implantology In addition to treatment or services in most of these areas, the typical dental plan includes provisions for palliative treatment (that is, procedures to minimize pain, including anesthesia), emergency care and consultation."
Identify the general groupings of dental procedures that are used in the design of dental plans.,"The ten general treatment categories of dentistry are placed into three, four and sometimes five general groupings for purposes of the design of dental plans. These are: (1) Preventive and diagnostic procedures (2) Minor restorative procedures (3) Often combined with (2), includes major restorative work (for example, prosthodontics), endodontic and periodontic services and oral surgery (4) Orthodontic expenses (5) Today’s typical plans often exclude implantology services because of the expense involved in covering some of these services. Whether and to what extent to cover implantology often is a separate, cost-driven, design decision. If covered, implantology services typically fall into the major restorative grouping, although these services sometimes are covered under a separate, fifth classification. Pedodontic care generally falls into the first two groupings and, as indicated, the second and third groupings often are combined."
"(a) How does a scheduled dental plan operate, and (b) what are the advantages and disadvantages of a scheduled plan?","(a) Scheduled plans pay a fixed allowance for each dental procedure. A scheduled plan may include deductibles. When deductibles are included in scheduled plans, the deductible amounts usually are small or, in some cases, required on a lifetime basis only. Coinsurance provisions are rare in scheduled plans since the benefits of coinsurance can be achieved through the construction of the schedule by setting the level of reimbursement for each procedure to reflect specific reimbursement objectives. (b) The advantages of scheduled plans include: Cost control Uniform payments Ease in understanding the plan Employee relations reasons related to employee appreciation of the plan. Disadvantages of scheduled plans include: Benefit levels must be examined and potentially changed periodically to maintain reimbursement objectives. Plan reimbursement levels will vary in different locations according to cost of dental care in that area unless multiple schedules are utilized. If scheduled benefits are set near the maximum of the reasonable and customary range, dentists who usually charge less than the prevailing rates may be influenced to adjust their charges upward."
Describe the operation of nonscheduled dental plans.,"By far the most common of plan offerings, nonscheduled dental plans cover some percentage of the reasonable (usual) and customary charges, or the charges most commonly made by dentists in the community. For any single procedure, the usual and customary charge typically is set between the 75th and the 90th percentile, with the trend being toward the lower number. This means that the usual and customary charge level will cover the full cost of the procedure for 75% to 90% of the claims submitted in that geographical area. Nonscheduled plans generally include a deductible, typically a calendar year deductible of $50 or $100, and they reimburse at different levels for different classes of procedures. Preventive and diagnostic expenses typically are covered either in full or at very high reimbursement levels. Reimbursement levels for other procedures usually are then scaled down from the preventive and diagnostic level, based on the plan design objectives of the employer."
What are the advantages and disadvantages of nonscheduled dental plans?,"One advantage of nonscheduled plans is that although the dollar payment may vary by area and dentist, the percentage of total cost reimbursed by the plan is uniform. Another is that there is a built-in automatic adjustment for inflation and also for variations in the relative value of specific procedures. There are three distinct disadvantages associated with nonscheduled plans. First, cost control can be a problem because benefit levels adjust automatically for increases in the cost of care in periods of rapidly escalating prices. Second, once a plan is installed on a nonscheduled basis, the opportunities for modest benefit improvements, made primarily for employee relations purposes, are limited. Third, except for claims for which predetermination of benefits is appropriate, it rarely is clear in advance what the specific payment of a particular service will be either to the patient or the dentist."
What is a combination dental plan?,"A combination dental plan is one in which certain procedures are reimbursed on a scheduled basis while others are reimbursed on a nonscheduled basis. These types of plans seek to provide a balance between the need to emphasize preventive care and cost control. The combination approach shares many of the same disadvantages as scheduled and nonscheduled plans, at least for certain types of expenses."
Explain the nature of an incentive dental plan.,"An incentive dental plan is a type of program that attempts to promote, or incent, sound dental hygiene through increasing reimbursement levels. Incentive coinsurance provisions generally apply only to preventive and maintenance (i.e., minor restorative) procedures, with other procedures covered on either a scheduled or a nonscheduled basis. Incentive plans are designed to encourage individuals to visit the dentist regularly, without the plan sponsor having to absorb the cost of any accumulated neglect. Such plans generally reimburse at one level during the first year, with coinsurance levels typically increasing from year to year only for those who obtained needed treatment in prior years. The incentive portion of an incentive plan may or may not be characterized by deductibles. When deductibles are included in these plans, it is not unusual for them to apply on a lifetime basis. Other incentive approaches have been introduced. One approach allows participants to carry over part or all of any unused annual benefit maximums into future periods. The goal is to encourage participants to seek less costly care."
Identify and describe the several design peculiarities of orthodontic benefits within dental plans.,"Orthodontic benefits are almost never written without other dental coverage. Because properly treated orthodontic problems are unlikely to recur once they have been corrected, they generally are rendered only once in an individual’s lifetime. Therefore, maximums typically are expressed on a lifetime basis. There are often no deductibles since a major purpose of the deductible—to eliminate small, nuisance-type claims—is of little consequence for these types of claims. Many plans limit orthodontic coverage to persons under the age of 19. However, a number of plans do include adult orthodontics as well. A common coinsurance level for orthodontia expenses is 50%, but this varies widely among plans. It is common for the orthodontic reimbursement level to be the same as that for major restorative procedures. Unlike most other benefits, orthodontia is often paid for in installments, because the course of treatment typically extends over several years."
Identify (a) the three factors that affect the cost of a dental plan and (b) the issues to be addressed in designing a dental plan.,"(a) The cost of a dental plan is affected by the design of the plan, characteristics of the covered group and the employer’s approach to plan implementation. (b) There are several issues to be addressed in the design of a dental plan. Included are the type of plan, deductibles, coinsurance, plan maximums, treatment of preexisting conditions, whether covered services should be limited and questions concerning orthodontic coverage."
Explain the different opinions on the use of deductibles in dental plans.,"Deductibles may or may not be included in the design of a dental plan. When they are, they usually are written on a calendar year basis, but they sometimes are written on a lifetime basis. Because numerous dental procedures involve very little expense, the deductible eliminates frequent payments for small claims that can be budgeted for, thereby controlling the cost of claims administration. On the other hand, evidence exists that early detection and treatment of dental problems produces fewer claims in the long term. Many insurers believe the best way to promote early detection is to pay virtually all the cost of preventive and diagnostic services, and therefore they do not subject these services to a deductible."
What are the advantages and disadvantages of lifetime deductibles?,"Proponents of a lifetime deductible in dental plans claim that it has the advantage of avoiding the cost to the plan of the accumulated dental neglect of the participants. In addition, they claim that individuals are not denied coverage but merely induced to invest in their own dental health as a condition precedent for adequate dental coverage. Those who oppose the use of a lifetime deductible claim the following four disadvantages: (1) A lifetime deductible promotes early overutilization by those anxious to take advantage of the benefits of the plan. (2) Once satisfied, lifetime deductibles are of no further value for the presently covered group. (3) The lifetime deductible introduces employee turnover as an important cost consideration of the plan. (4) If established at a level that will have a significant impact on claim costs and premium rates, a lifetime deductible may result in adverse employee reaction to the plan."
"Explain (a) the typical levels of coinsurance or reimbursement provided under dental plans for the various types of dental procedures, (b) the use of maximum benefit provisions in dental plans and (c) the treatment of preexisting conditions under dental plans.","(a) Most dental plans are being designed, through either construction of the schedule or the use of coinsurance, so that the patient pays a portion of the costs for all but preventive and diagnostic services. The intent is to reduce spending on optional dental care and to provide cost-effective dental practice. Also, many believe that employees who participate financially in the plan make better use of it. The following are typical reimbursement levels provided under dental plans for the various types of dental procedures. Preventive and diagnostic expenses generally are reimbursed at 80% to 100% of the usual and customary charges, and full reimbursement is quite common. Restorations, and in some cases replacements, may be reimbursed at 70% to 85%. In other cases, the reimbursement level for replacements is lower than for restorative treatment. Orthodontics, implantology (where covered) and occasionally major replacements have the lowest reimbursement levels, and most plans reimburse no more than 50% to 60% of the usual and customary charges for these procedures. (b) Most plans have a calendar year maximum for nonorthodontic expenses and sometimes a separate lifetime maximum. Orthodontic and implantology expenses generally are subject to separate lifetime maximums. Unless established at a fairly low level, a lifetime maximum will have little or no impact on claim liability and only complicates plan design. Calendar year maximums, though, encourage participants to seek less costly care and may help spread out the impact of accumulated dental neglect over the early years of the plan. The typical calendar year maximum is somewhere between $1,000 and $3,000. (c) The major concern about how to treat preexisting conditions in a dental plan concerns the replacement of teeth extracted prior to the date of coverage. Preexisting conditions are handled in several different ways. They may be excluded, treated as any other condition, covered on a limited basis (for example, coverage on one-half the normal reimbursement level) or subject to a lifetime maximum."
Is the wide range of procedures in dentistry important to a dental plan’s design?,"The range of procedures to be covered under a dental plan is an important design consideration. In addition to orthodontics and implantology, other procedures occasionally excluded are surgical periodontics and temporomandibular joint (TMJ) dysfunction therapy. Although rare, some plans cover only preventive and maintenance expenses."
Summarize the impact of various plan designs on dental plan costs.,"Dental plan costs can be sensitive to changes in certain plan design features. The change in dental plan deductibles has the most significant impact on cost. As much as a 12% reduction in cost can be gained by increasing the deductible from $50 to $100. The change in benefit maximums has some impact, but it is minor. Changes in the amount of coinsurance have a definite effect, especially changes in the restoration, replacement and orthodontic portions of the plan, all of which represent about 80% to 85% of the typical claim costs. Finally, the inclusion of orthodontics in the base plan is another item of fairly high cost."
The XYZ Corporation has a dental plan designed as indicated in the CSV set forth below.,"""Treatment Categories"",""Deductibles per Calendar Year"",""Coinsurance (Reimbursement Percentage)"",""Lifetime Dollar Limit"",""Dollar Limits Per Calendar Year"" ""Diagnostic and Preventive Services"",""None"",""100%"",""None"",""None"" ""Basic Restoration, Endodontics, Periodontics and Oral Surgery"",""$50 per person"",""75%"",""$1,500"",""$1,500"" ""Orthodontics"",""$1,500"",""50%"",""$1,500"",""$1,500"" ""Prosthodontics and Orthodontics"",""N/A"",""$1,500"",""$1,500"",""$1,500""  John Doe, a covered worker, received dental treatment on February 21, 20XX and incurred the following expenses: Examination and cleaning $50 Full-mouth x-ray $100. Subsequently, between March 12, 20XX and May 6, 20XX, John Doe had three dental visits for the extraction of several of his teeth and the construction of a bridge, resulting in the following expenses: Full-mouth x-ray $100 General anesthesia ($100 per visit) $300 Extractions $500 Bridge $900. (a) Assuming that the charges for the x-ray are subject to a $75 scheduled limit and the other charges are allowable, what is the total dollar amount of reimbursement for the February 21 expenses? The reimbursement amount is $125. This includes full coverage for the examination and cleaning as preventive care and $75 of the $100 for the preventive care associated with the x-ray. No deductible applies. (b) Assuming only one full-mouth x-ray every three years is covered, and the other charges are allowable, what is the total dollar amount of reimbursement for the expenses between March 12 and May 6? The reimbursement amount is $1,012.50. The full-mouth x-ray is excluded because the limitation of one full-mouth x-ray every three years was met with the February 21 claim. The $800 expenses for extractions are subject to a $50 deductible and reimbursed at 75% [.75 x ($800 - $50) = $562.50]. The remaining $900 expenses for the bridge are reimbursed at 50% (.50 x $900 = $450.00). The benefits calculated do not exceed the dollar limits for the calendar year."
List the characteristics of a dental plan’s covered group that should be considered in the cost of the plan.,"There are several important characteristics of the covered group that should be considered in the cost of a dental plan. These include: (a) Ages of the participants, because average charges usually increase from about ages 35 to 40 (b) The distribution by gender of the group, because females tend to have higher utilization rates than males (c) The location of the group, because dental charges, practice patterns and the availability of dentists vary by locale. Differences exist in the frequency of use for certain procedures as well. Also, the presence of fluoride in the water supply substantially reduces dental costs. (d) The incomes of the participants, because there is a discernible increase in costs at higher income levels (e) The occupations of the group members, because blue-collar workers have decidedly lower dental costs than white-collar employees."
Describe the types of safeguards against adverse selection used by insurance companies in underwriting contributory dental plans.,"Safeguards used by insurance companies to discourage adverse selection in the underwriting of contributory dental plans include: (a) Combining dental plan participation and contributions with medical plan participation (b) Limiting enrollment to a single offering, thus preventing subsequent sign-ups or dropouts (c) Requiring dental examinations before joining the plan, and limiting or excluding treatment for conditions identified in the exam. Health Insurance Portability and Accountability Act (HIPAA) limitations do not apply as long as the dental benefits are “limited in scope” and are available under a separate policy or rider. (d) Requiring participants to remain in the plan for a specified minimum time before being eligible to drop coverage."
How does a predetermination-of-benefits provision in a dental plan operate?,"Predetermination of benefits requires the dentist to prepare a treatment plan that shows the work and cost before any services begin. The treatment plan generally is required only for nonemergency services and only if the cost is expected to exceed some specified level. The carrier processes this information to determine exactly how much the dental plan will pay. Also, selected claims are referred to the carrier’s dental consultants to assess the appropriateness of the recommended treatment. If there are any questions, the dental consultant discusses the treatment plan with the dentist prior to performing the services."
Discuss how dental technology affects dental plan design.,"Dental technology is constantly and rapidly changing. In dental plan design, it is important to differentiate between new techniques and new procedures. A new technique is a different way to provide an already covered service. New techniques, once officially recognized by the American Dental Association, generally are covered as any other service under the plan since they are considered another way to deliver already covered services. New procedures are not covered so readily. Generally, before these services become covered they first must be recognized by the American Dental Association as an accepted procedure and, second, must have a proven track record of success. Procedures are then approved for coverage or tabled for further study. If approved, a separate decision establishes whether the procedure and similar ones will be covered routinely or instead as a design option at the plan sponsor’s discretion."
(a) Vision care plans typically include what benefits? (b) Describe the various approaches to vision care plan design.,"(a) Vision care plans usually cover routine eye examinations and certain ocular tests such as coordination of eye movements, tonometry, depth perception for children, and refraction testing for distance and near vision. The plans also cover certain products such as lenses, standard-type frames and contact lenses. (b) Generally plans use frequency limits on the number of times a participant can receive a benefit such as lenses or exams. Twelve- or 24-month periods are common frequency limits. Vision plans then may use a schedule-of-benefits approach, preferred provider networks and/or flexible benefits approaches in designing a plan. A schedule-of-benefits plan sets maximum dollar limits on the amount that will be paid toward a specific benefit, say $75 for an exam and $60-$140 for lenses depending on their complexity. The plan pays the lesser of the charged amount or maximum. Preferred provider networks for vision benefits are similar to those for medical care. Participants who use a vision care provider in the network pay a minimum copayment for services and discounted charges for products. There is sometimes coverage for services/products when a nonnetwork provider is used, with reimbursement based on a schedule or on usual, customary and reasonable (UCR) charges. Vision benefits can also be included in a flexible benefit plan. Also, if vision benefits are not covered under a plan, under a flexible spending account the employee can fund planned vision care expenses (and also dental expenses) on a pretax basis. (Vision care, hearing care and dental services expenses qualify for reimbursement under a health savings account (HSA) and a health reimbursement arrangement (HRA).) Candidate Note: Adult vision benefits and hearing-related benefits are not covered under the Affordable Care Act; however, pediatric vision and hearing-related services are deemed EHBs and, as such, must be included in nongrandfathered plans for individual and small employer group policies."
"(a) Explain whether hearing care typically is covered by standard surgical and major medical policies, and (b) describe the types of hearing care benefits typically included in separate hearing care benefit plans.","(a) Surgical procedures affecting the ear are normally covered in standard medical policies and generally are included in HMO coverage. In addition, some HMOs and major medical and comprehensive policies include hearing aids. However, more complete coverage is afforded by plans specifically designed to cover hearing care. (b) A common hearing care benefits package includes an 80% reimbursement for services and materials up to a maximum of $500 to $1,000. The frequency of benefit availability is usually between 2 to 5 years. Items that often are covered include (1) otologic examinations (by a physician or surgeon), (2) audiometric examinations (by an audiologist) and (3) hearing instruments (including evaluation, ear mold fitting and follow-up visits). Preferred provider plans in which access to a panel would result in discounts for audiologist fees as well as hearing-aid instruments also are available. Some service plans apply copayments when participating providers are utilized. Material costs can be reimbursed on a cost-plus-dispensing-fee basis. In addition, a flexible spending account is a convenient vehicle to take care of hearing care expenses in the absence of benefit coverage."
What is the difference between a “prior generation” prescription drug plan embedded within a group health policy and today’s “carved-out” plan?,"Before the widespread adoption of carved-out plans, the term prescription drug plan was most often used to describe a prescription drug benefit within a health plan member’s major medical coverage or a separate benefit sold as a rider to the major medical package. Under such a program, plan members submitted receipts to a claims administrator or insurance company and were reimbursed for prescription drugs in the same manner as for medical expenses, often subject to an annual deductible and a 20% coinsurance payment. Under these plans, the participants paid the full cost at the pharmacy and then filed a claim for reimbursement. These plans have been discontinued by most employers for several reasons even though having a carved-out plan presents certain challenges in managing the entire medical benefit. The more modern prescription drug plan usually is “carved out” from the medical benefit and is typically administered by a pharmacy benefit manager (PBM) or third-party administrator (TPA). The plan offers payers discounts on normal pharmacy charges, electronic claims administration according to benefit requirements, and utilization reports. It also offers programs to reduce costs through mail service and the internet and rebates from manufacturers for volume purchasing."
Describe the common elements of a modern-day prescription drug plan.,Among the common elements of today’s prescription plans are: (a) Member eligibility cards (b) Online claims adjudication (c) Tiered copays or deductibles and coinsurance (d) Pharmacy networks providing discounts for branded medications (e) Maximum allowable cost (MAC) pricing for generics (f) Mail service (g) Formularies and/or preferred drug lists (h) Prior authorizations for certain high-cost medications (i) Therapeutic interchange or switching.
"Pharmacies usually buy drugs from wholesalers, which buy them from the drug manufacturer. Within the domain of employer-sponsored prescription drug plans, define the variety of prices involved in the supply chain of pharmaceutical drugs.",(a) Average wholesale price (AWP) (b) Wholesale acquisition cost (WAC) (c) Maximum allowable cost (MAC) (d) Average manufacturer price (AMP)
What design and managment options are available to employers for a pharmacy benefit plan?,"When designing and managing a pharmacy benefit plan, employers have several options. Employers and other payers can (1) manage the benefit and adjudicate claims internally; (2) outsource the benefit management to a health plan, PBM or TPA; or (3) contract directly with pharmacies and adjudicate claims internally. In general, payers covering fewer than 15,000 members usually do not retain the management of the pharmacy benefit in-house, although some large employers do so in the belief that they can negotiate better terms with pharmacies and pharmaceutical manufacturers than can PBMs."
What happens when an employee presents their prescription drug card to a pharmacy that is in the network?,"A prescription drug card program provides its participants with prescription medications from a participating pharmacy at a prenegotiated discount rate. The covered employee presents their prescription to the participating pharmacy. The pharmacist uses a computer network to get answers to a number of questions, such as whether the drug is covered by the plan, whether the individual is eligible for the medication and whether any limitations are associated with the medication before filling the prescription. The employee typically pays a fixed copayment, and the payer is billed at a prenegotiated discount rate. Candidate Note: Under most prescription drug plans, employees are required to share in the costs of their prescription by paying a copayment or coinsurance and/or by satisfying a deductible. As defined in other GBA modules, a copayment (copay) is a predetermined amount that’s paid when the prescription is filled. Coinsurance is a percentage of the covered charges that the employee pays for their prescriptions. For example, a plan may pay 80% of the discounted retail drug cost and the employee pays the remaining 20%. A deductible is a fixed dollar amount that the employee pays out of pocket each plan year for covered prescription drugs before the plan pays any benefits. The employee may need to meet their annual deductible for the copayments or coinsurance to apply. Until recently, plans requiring coinsurance (with or without an annual deductible) had fallen out of favor, replaced with simple-to-administer copays. Today the coinsurance requirement is preferred by many prescription drug plans."
What are some examples of medications excluded under a prescription drug plan?,"Common plan exclusions are medications used for smoking cessation, hair loss, obesity and cosmetic conditions. (Drugs for investigational use, drugs covered under workers’ compensation programs, and immunizing agents are also excluded.) Another special class of drugs is so-called lifestyle drugs—the term applied to prescription products that do not necessarily cure illness but can be used to improve daily life by boosting psychological attitudes, energy levels, sexual performance and body image. These drugs are typically excluded from employer-sponsored prescription drug plans. Over-the-counter (OTC) medications also are a common exclusion. Very few plans cover OTC medications. A few plans cover some OTC medications, such as insulin, needles and syringes, prenatal vitamins, and diabetic devices and test strips. Finally, when biotechnology medications (drugs made from living cells that treat diseases from cancer to anemia to psoriasis) must be administered by a health care professional, they are usually covered under the medical benefit. However, some plans are placing these drugs under the pharmacy benefit for the purpose of applying managed care tools, since this placement allows for more discounted pricing, formulary management, edits and physician profiling for managing the use of these medications. Candidate Note: Prescription drug plan benefits typically include (1) federal legend drugs, (2) state-restricted drugs (in some states, federal nonlegend drugs can only be dispensed with a physician’s prescription), (3) compound items that contain a federal legend drug or state-restricted drug, and (4) injectable insulin. Quantity limitations are often the greater of a 30- or 34-day supply or 100 units. The definition of a federal legend drug is any medicinal substance that bears the legend “Caution: Federal law prohibits dispensing without a prescription.”"
"Today, prescription drugs represent a significant portion of an employer’s overall health care costs. What factors have been cited as contributing to the dramatic increases in prescription drug costs?","The overwhelming majority of increases in expenditures on prescription drugs is attributable to the increased volume, mix and availability of products, as well as cost increases passed on by the pharmaceutical industry. Direct-to-consumer advertising has also increased the demand for drugs. In addition, demographics are driving up prescription medication costs as the population ages. Another contributing factor is that more and more new drug therapies are targeting the “young old” in an effort to prevent certain diseases from progressing. In some cases, prescription drugs are a substitute for other forms of health care. Of note is that biotechnology drug spending is expected to account for an ever-increasing portion of the future growth in drug prices."
Describe the features of a four-tier prescription drug plan.,"In a four-tier prescription drug plan, the lowest tier is for generics and the next tier is for nonpreferred generics and preferred brands. The third tier is for nonpreferred or nonformulary brands. Finally, the fourth tier is intended for specialty drugs. Specialty drugs are expensive medications used in the treatment of rare and serious medical conditions."
Explain the mechanics of (a) a prior authorization program and (b) a quantity limits provision in a drug plan.,"(a) A prior authorization (PA) program restricts coverage under the plan for certain drugs based on the patient’s conditions and maximizes the outcome of the medication. Under this program, the physician must call in to the entity that is administering the PA program (typically the PBM or health plan). The physician answers questions about the patient’s condition and, based on the information, the drug will either be covered under the plan or not. Many drugs that are subject to PA programs have monthly costs that range from $250 to $2,000 per month. Some drugs also have quantity limits in addition to a PA requirement. (b) Quantity limits (QLs) are predefined maximum quantities for specific medications. QLs restrict the number of dosage units (e.g., tablets or capsules) that can be dispensed for a 30-, 60- or 90-day supply of a prescription. Originally established to ensure that certain medications could not be abused or overused, QLs may help in improving compliance with medication therapy. Instead of taking a lower strength of a drug more frequently, QLs prompt patients to obtain and take higher doses less frequently."
Provide a number of reasons for the popularity of standalone prescription drug plans.,"There are a number of reasons for the popularity of standalone prescription drug plans, all of which are motivated by cost management. Such reasons include: (a) Under a medical plan that directly reimbursed drug expenditures, there were typically no discounts for prescription drug coverage. Plan sponsors could pay as much as 10% above the AWP rather than 15% below it. (b) Medical claims processors often did not require detailed receipts for prescription drugs and therefore could not review the prescriptions for coverage as effectively as is done with the PBMs’ online claims processing systems. (c) Limited data was available in report format for reviewing drug trends because of a lack of detailed information from the claims processing systems. (d) Rebates and other cost-savings programs, which are available in prescription benefit plans, are not available through medical claims processors."
What factors influence the cost of prescription drug benefits?,"The cost of a prescription benefit depends on a variety of factors. First, the demographics (age and gender) of the population determine the disease mix that is being treated. Second, benefits, copays and formulary design influence what is covered in the plan. Third, drug cost and the mix of branded products covered by the benefit drive the cost of drugs. Drug mix is a factor of the preferred drug list, which sets the restrictiveness of the formulary. Rebates may mitigate some branded drug cost, particularly if 100% of the rebates are being returned to the plan. Preferred drugs may actually cost more on a monthly basis in terms of the cost of the discounted ingredient costs. But after rebates the “net” costs of the preferred drugs should always be less than those of the nonpreferred drugs within a therapeutic category unless the agent (a particular drug) is clinically superior. A fourth factor is that the utilization (number) of prescriptions used by the members is the multiplier of drug cost. Fifth, the costs charged by the PBM—and the PBM’s ability to gain a profit from retail and mail-order discounts, rebates and other programs—should provide offsetting discounts to the cost of the program. PBMs can increase costs, however, if all earned fees and discounts are not returned to the plan sponsor. Sixth, other factors influencing the cost of a prescription drug plan are fraud (by pharmacies, patients or physicians) and prescription misuse. Seventh, the ability of the plan to manage costs has a definite impact on the cost of the benefit. Tightly managed plans always yield lower costs on a patient-by-patient basis than nonmanaged plans do."
"What are the advantages of a mail service program (MSP) that typically allows a more generous quantity amount to be filled, say a 90-day supply, compared with a 30- to 34-day supply in a retail sale?","A mail service component in a prescription drug plan allows patients to obtain prescription drugs by mail. Mail service prescriptions typically are used for chronic conditions that require maintenance medications for long periods of time, such as high blood pressure, asthma or diabetes. One advantage of MSPs is that they save patients time and money and are popular additions to the benefit design. Mail service typically can save as much as 10% of the cost of traditionally delivered prescription drugs. Also, MSPs offer a lower cost of dispensing and allow quality control through automation that is uncommon in retail pharmacy. MSPs are typically underused because enrollees are not familiar with a plan’s mail service benefit or are not sure how to access the service, but studies indicate that once enrollees are introduced to the convenience, simplicity and safety of an MSP program, perceptions change. Most enrollees then express a high level of satisfaction with the plan. In addition, one industry association cites numerous studies that conclude that managed care MSPs reduce overall prescription costs while maintaining and even improving quality. Candidate Note: Among the disadvantages of MSPs are the possibility of waste if individuals obtain excessive dosage sizes prior to a change in their treatment regimens and the possibility of an employee stocking up on prescriptions prior to employment termination."
List common techniques plan sponsors use to control pharmacy costs.,"Common techniques plan sponsors use to control pharmacy costs include: (a) Review the design of the pharmacy benefit and how it fits into the overall medical program. With flat dollar copayments that may not have increased in several years, many plans are subsidizing the cost of the pharmacy benefit by a substantial amount. (b) Analyze experience to identify areas needing better management. (c) Use the following pharmacy management tools and techniques: (i) Reduce the pharmacy network to the smallest size without compromising access; in addition, offer pharmacy incentive programs aimed at additional reimbursement for increases in generic substitution and formulary compliance to decrease cost trends. (ii) Offer mail service or 90-day retail point-of-service prescriptions as a convenient option to members. Rather than making mail service prescriptions a requirement, make the copayments per day’s supply equal in both retail pharmacies and mail-order pharmacies. (iii) Adopt a plan design that encourages generic drug substitution where patients have to pay the difference between the cost of brand medication and the generic drug if the patient or the physician requires a brand. (iv) Use a formulary that is designed to promote cost-effective and clinical therapeutic drugs coupled with a rebate program that passes on 100% of the rebates to the plan sponsor. (v) Practice utilization management that targets high-cost users and intervenes with physicians and patients to ensure quality outcomes. (vi) Offer physician profiling that highlights high-cost physicians with low-acuity patients coupled with an incentive program to dispense appropriate medications. (vii) Utilize health management programs designed to educate patients about alternatives to high-cost therapies. (viii) Communicate cost trends to plan members to help them become better consumers. (d) Anticipate the financial impact of new drugs and therapies and set policies and procedures for the new drugs before they are released."
What are the three types of drug utilization review (DUR) programs available?,"The three types of DUR programs available are concurrent, retrospective and prospective. Concurrent DUR occurs at the point of service (the pharmacy) and flags potential overuse based on clinical monitoring criteria or “edits” that have been programmed into the PBM’s systems. These edits (referred to as hard edits because the claim will not be adjudicated until they are cleared) are for too-soon refills, duplicate claims, drugs requiring prior authorization, or quantity limits. In retrospective DUR programs (pharmacy case management), pharmacists or nurses review patient profiles to determine whether patients are complying with their drug therapy or to suggest alternative therapies to their physicians that may be better or more cost-effective. Some PBMs have been reluctant to offer these types of programs because PBMs are paid to fill rather than not fill prescriptions by plan sponsors (and drug manufacturers). Many PBMs refer to their therapeutic switching programs as retrospective DUR. However, therapeutic switching programs are aimed more at substituting one drug for another rather than determining whether the therapy is appropriate. Prospective DUR programs educate physicians and patients about drugs or drug therapies."
What is a formulary?,"A formulary is a list of drugs preferred by a health plan or PBM. A formulary is designed by a process of evaluation and analysis that is usually under the auspices of a pharmacy and therapeutics (P&T) committee. A P&T committee is composed of physicians, pharmacists and nurses who may be complemented by pharmacoeconomists, ethicists, the lay public and plan administration. The P&T committee has the responsibility for evaluating all available evidence to choose medications to treat the conditions indigenous in the insured population. If the P&T committee determines that drugs within a therapeutic class are equally effective, a formulary selects drugs within the category that are most cost-effective based on a combination of AWP and rebates that manufacturers are willing to give to the PBM or plan. Although generic drugs may be listed on the formulary as preferred, formulary development typically centers on brand products. Some PBMs contract with generic manufacturers for rebates, although generally this practice is uncommon. It is critical for plan sponsors to ensure that they receive all earned rebates, whether for brand or generic drugs. When plan sponsors purchase formularies developed by health plans, PBMs or TPAs, it is important for them to know the representatives on a PBM’s formulary. The use of formularies is common because formularies, particularly preferred formularies, are very effective at moving patients to lower cost drugs and maximizing rebate potentials. One of the primary drawbacks to formularies, however, is the constant communication to physicians and patients that is necessary regarding the current list of preferred products. When a PBM changes its formulary and does not communicate those changes to members, members may become dissatisfied because their copayment may differ from what they had expected."
"Define open, preferred and closed formularies.","Open formularies allow plan enrollees any covered prescription drug prescribed for them. Since most physicians are primarily familiar with only the handful of prescription medications they use most often, open formularies—which typically include hundreds of possible medications and several options per category—give physicians and patients the chance to make more informed choices. In an open formulary environment, the list of preferred drugs is distributed to patients and physicians for informational purposes only. Preferred formularies have become quite popular. They encourage patients to use the preferred or formulary drugs in return for a reduced copayment. Closed formularies often meet with resistance from plan enrollees. They simply mean that the plan will not cover the nonformulary drug. Closed formularies are typically found in hospital settings and tightly managed HMO programs—employers normally do not use this type of formulary."
What nonformulary cost-management tools are available to contain prescription drug costs?,"In addition to formularies, other tools are available to contain prescription drug costs. Other cost-management tools include: (a) Network management, better discounts with retail and mail-order programs, and monitoring performance to avoid fraud and abuse (b) Designing plans that meet the objectives of the overall benefit program (c) Quantity limits and maximum dollar limits on all prescriptions (d) Step-therapy programs to ensure that prescribing complies with national guidelines for treatment of particular diseases (e) Prospective review of new drugs and early policy determination (f) Clinical management through a thorough pharmacy case management program (g) Other DUR programs, such as concurrent and prospective programs (h) Quality data management that provides early intervention reporting."
Disease state management (DSM) programs are developed to measure and manage all health care outcomes and costs associated with a particular disease across the entire continuum of health care delivery. Describe the two main types of DSM programs and the kind of criticism leveled at them.,"Two types of DSM programs are offered: the medical model and the therapy-directed model. The medical model consists of call centers staffed by nurses and their assistants to triage patients to appropriate levels of care. These centers follow up with patients with select diseases to ensure that the patients are scheduling physician appointments, are receiving appropriate tests and procedures, and understand the importance of taking their medications. The therapy-directed model is administered by PBMs, pharmaceutical manufacturers, health plans and disease management companies. These entities foster improved compliance with medication therapy, patient education and testing for outcomes of care. Critics argue that neither model has any standardized methods to judge success and return on investment (ROI). They have argued that these programs are thinly veiled “advertisements” from the drug manufacturers (as in information distributed to patients of mail-order firms) rather than actively managed DSM programs. Critics of DSM programs also argue that the DSM-targeted diseases are “low-hanging fruit,” in that their treatment can be easily improved with compliance and education programs to properly use medications. They argue that the benefits of these programs are front-loaded, in that the benefits are achieved with initial interventions, and further clinical improvements and cost reductions are marginal or, at best, incremental."
What is evidence-based medicine?,"Evidence-based medicine (EBM) is an approach to medical decision making that emphasizes scientific evidence and statistical methods for evaluating outcomes and risk of treatments. It is also a response to arrive at objective decisions in the face of mass media advertising, direct-to-consumer advertising of drugs, and the promotions of pharmaceutical and device manufacturers."
How does a network system in a prescription drug program operate?,"Typically, to receive coverage, employees participating in a prescription drug program must have their prescriptions filled by a network pharmacy, except in emergencies. Some plan sponsors will pay for prescriptions filled outside the network but may reduce reimbursement up to what would have been paid had the member gone to a participating pharmacy. Pharmacies join networks and provide services at reduced rates in exchange for volume business. It is up to the PBM to design a network that meets the needs of enrollees and is convenient and acceptable. A tight network of pharmacy providers allows PBMs to control costs and quality effectively. Structure of and services provided by pharmacy benefit management (PBM) entities Sources of PBM profits Rebates under PBMs Plan sponsor considerations in PBM selection"
What is a PBM?,"A PBM is an entity that administers managed pharmacy programs. It is defined as an application of programs, services and techniques designed to control costs associated with the delivery of pharmaceutical care by: (a) Streamlining and improving the prescribing and dispensing process through online and real-time claims adjudication (b) Maintaining a retail network of pharmacies and a mail-order option that in turn offer discounts off the cost of prescription drugs and potentially monitor the performance of the network (c) Offering limited DUR online at the point of sale or dispensation (d) Providing data and reporting regarding drug use (e) Controlling the cost of prescriptions dispensed through clinical and financial programs, such as formulary development and rebate contracting with drug manufacturers."
Summarize the common services that PBMs provide.,"A standard portfolio of services is common to all PBMs and includes: (a) Claims processing (b) Account management and support for plan design alternatives, trend analysis and general advice regarding prescription drugs (c) A retail network of pharmacies for the purchase of medication at discounts (d) Dispensing mail-order prescriptions (e) Communication to patients regarding program use (f) Formulary development and rebate administration (g) Some drug utilization management, including prospective, concurrent and retrospective review programs (h) Reporting of drug utilization and industry trends (i) Some educational components for patients and physicians."
How do PBMs generate profits?,"PBMs generate profits in many ways. The typical revenue streams are through claim administration fees, mail service and rebates. The following is a more extensive list of potential PBM revenue streams: (a) Charging payers an administrative fee per transaction based on the number of prescriptions or employees (b) Retaining rebate administrative fees negotiated with manufacturers (c) Filling mail service prescriptions from their wholly owned mail-order pharmacies (d) Disease management, education and value-added programs negotiated with pharmaceutical manufacturers (e) Securing discounts through a contracted network of pharmacies or through direct purchasing when the PBM owns its mail service pharmacy (f) Retaining the pharmacy spread (g) Retaining the spread in MAC list payments for generics that is greater than what is paid to the network pharmacies (h) Reducing payments to pharmacies based on certain package sizes, regardless of the package size dispensed."
Describe the practice of zero-balance billing and its financial impact on both the plan sponsor payer and the individual plan participant.,"Some PBMs allow pharmacies to collect the entire copay even when the cost of the drug is less than the copay. This is called zero-balance billing. PBMs have used zero-balance billing to extract greater discounts from pharmacies for their clients. When the pharmacy keeps the entire copay, the plan sponsor payer does not lose, but the individual plan participant will pay more. Payers should question PBMs as to whether zero-balance billing occurs and whether that is consistent with their benefit philosophy."
Discuss the features of a rebate under a prescription drug program.,"A rebate is an agreement between a PBM and a drug manufacturer to secure significant reductions in the cost of prescription drugs. Some of the savings are passed along to employers. The growth in rebates paid to payers has paralleled the rise of pharmacy benefit inflation and the advent of multitiered copay designs. At one time, manufacturers would discount solely based on utilization; however, manufacturers now often require an increase in market share before giving discounts. With rebates, drug manufacturers reward PBMs that are able to encourage a significant percentage of enrollees to switch to the company’s key products."
What factors should an employer consider in the selection process of a PBM?,"Every employer must develop its own list of objectives before soliciting proposals from PBMs. Cost is a major factor; however, claim administration that is consistent with the plan benefit designs, service delivery, administrative oversight and transparency of pricing also are critical factors. The following specific questions also should be asked: (a) What are the options and pricing of the network of providers that the PBM offers? What support does the PBM provide for customizing the network (adding and deleting pharmacies that are important to the plan)? Does the PBM reimburse pharmacies at a rate different from what it charges to the plan? (b) Does the PBM own the mail-order program? If not, how does the subcontractual relationship work between the two organizations? How are mail-order claims monitored for accuracy and timeliness? (c) Are price guarantees backed by unrestricted audits by the plan sponsor? (d) Are service and performance offerings backed by guarantees and significant financial penalties? (e) What kind of reports does the PBM offer? (f) What types of DUR edits are performed routinely? Can these edits be customized? Are the DUR edits limited to too-soon refills, prior authorization, quantity limits and duplicate claims, or are pharmacists notified of DUR alerts (drug-drug interactions)? (g) Are DUR edits based on criteria that are measurable in the claims detail supporting the invoices? Is the edit performance backed by an ROI that can be independently verified in the claims? (h) How does the PBM work with physicians to educate and modify prescribing patterns? (i) What types of educational programs are offered to patients? (j) If the PBM offers disease management programs, how are the programs designed? Do they emphasize more than prescription drugs? How are the programs funded? (k) What types of ancillary services are provided? Are claims processed in-house? (l) What drugs are preferred by the PBM? Can a client make changes to the preferred list? Are there therapeutic switching programs in mail order or retail edits to flag preferred drugs? Who are the representatives on the PBM’s pharmaceutical and therapeutics committee? What are their affiliations? Do these members accept grant money from drug manufacturers? (m) What are the results of these programs? Does the PBM track savings and the return on investment of programs offered? Finally, the ownership of PBMs should be scrutinized to ensure that the best discounts and oversight of owned pharmacies are available to the payer, since many PBMs are either owned by or have historical relationships with large drug chains or pharmaceutical manufacturers. In addition, smaller PBMs may be owned by chains or independent pharmacy consortiums."
Describe the nature of the most severe mental illnesses.,"The most severe mental illnesses, such as schizophrenia, bipolar disorder and major depressive disorder, are generally considered biologically based disorders that affect the brain, profoundly disrupting a person’s thinking, feeling, mood, ability to relate to others and capacity for coping with the demands of life. Nonbiologically based mental disorders can also severely impact an individual’s functioning."
List the categories into which mental disorders can be loosely categorized.,"Mental disorders can be loosely categorized into the following categories: (a) Adjustment disorders (e.g., situational stress) (b) Anxiety disorders (e.g., panic disorder) (c) Childhood disorders (e.g., autism) (d) Eating disorders (e.g., anorexia) (e) Mood disorders (e.g., major depressive disorder) (f) Cognitive disorders (e.g., dementia) (g) Personality disorders (e.g., antisocial personality disorder) (h) Psychotic disorders (e.g., schizophrenia) (i) Substance-related disorders (e.g., alcohol/drug dependence)."
"Initially, after World War II, hospitalization for mental illness was covered at the same level of benefits as that for nonpsychiatric benefits. For what reasons did insurers start to place limits, particularly on outpatient mental health care, soon after that?",It is believed that insurers started to place limits on outpatient mental health care because treatment often continued for indefinite lengths of time and there was much subjectivity surrounding mental disorders and treatment methods.
What were the typical mental health care benefits of health maintenance organizations (HMOs) as they proliferated in the 1980s?,"Mental health care coverage under the HMOs was extremely limited and differed significantly from non–mental health care coverage. Hospital coverage was restricted to 30-45 days per mental illness or 30 or 60 days per year. For medical illnesses, the number of days was usually unlimited. And for outpatient services, coverage limitations were dramatically lower for mental health treatment than for medical treatment. The most common limitations for mental health outpatient treatment were a maximum dollar limit of $1,000 per year and a maximum reimbursement per visit ranging from $25 to $40. Coinsurance rates also varied dramatically between medical and mental health care coverage."
"What is a behavioral health care carve-out program, and what reasons are given for employers to choose it?","A behavioral health care carve-out program is one that separates, or carves out, mental health and chemical dependency services from a medical plan and provides them separately, usually under a separate contract and from a separate company known as a managed behavioral health care organization (MBHO). Such a program has been viewed as having the potential to produce significant savings because (1) it is usually managed by firms that specialize in behavioral health treatment; (2) it allows large, self-funded employers to offer the same behavioral health benefits across all health plans offered; and (3) it allows a health plan to minimize adverse selection. This practice of carving out behavioral health benefits may become less common given that certain provisions of the Affordable Care Act are promoting integrated, coordinated care and implicitly discouraging the form of segmented care provided by MBHOs."
What are psychotropic medications and what challenge do they pose for MBHOs?,"Psychotropic medications are drugs that affect psychic function, behavior or experience; they are part of the medical benefit and are generally administered by companies contracting with health plans, called pharmacy benefit managers (PBMs). These medications account for a significant part of the overall cost of health care because of the chronic nature of many mental illnesses, but a fractionalized system currently exists that prevents optimum management of these medications. Because MBHOs do not manage the prescription drug benefit but bear the responsibility for managing the behavioral care for their members, they are often unaware of whether the psychotropic medications prescribed to their members are of the appropriate types and dosages or if there are appropriate interventions during treatment to ensure their members are medication-compliant."
Why has the historical MBHO business model come under criticism in recent times?,"The historical MBHO business model has come under criticism because its historical client-vendor contracts are focused on managing cost and utilization instead of improving clinical outcomes and integration with medical health benefits. As a result, there has been an impetus to consider insourcing management of behavioral health and substance use disorder benefit services into health plans."
Describe the legislative and regulatory actions that have “tipped the scales” toward favoring a carve-in versus a carve-out model for delivering behavioral health and substance use disorder benefits.,"In terms of legislative initiatives and regulatory actions “tipping the scales” in favor of one approach rather than another, there are several. For example, the ACA and its emphasis on integrated, holistic health approaches tends to favor a carve-in, rather than a carve-out model. Also the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) may have had an effect that favored the carve-in model. A (presumably unintended) consequence of MHPAEA was the creation of a much larger administrative burden for carve-out plans relative to carve-ins in complying with parity. To comply with parity, carve-outs had to identify all of the medical vendors with whom their customers contracted and then obtain benefit design information from each. This is a more difficult task when the medical vendor is not affiliated with the behavioral health vendor. MBHOs then had to either match the most generous medical benefit across the board or else tailor benefits to each medical plan, leading to a proliferation of plans and heterogeneity in benefit design among employers choosing to retain the carve-out model. As a result of these complexities, a number of employer groups chose to move their employees out of carve-out plans into carve-in plans. Another legislative contributing factor could be the Health Insurance Portability and Accountability Act (HIPAA), along with other policy directives that protect privacy of health information. Constraints on information access/sharing and firewalls restricting the transfer of protected health information create a seemingly insurmountable obstacle for achieving comprehensive clinical integration. Privacy restrictions would tend to disadvantage an outside organization seeking clinical information to a greater extent than another office or department within the same organization.  2.5 Summarize the oscillating trends that have shaped the delivery of behavioral health and substance use disorder benefits over time. Comment on the factors that lead to a successful behavioral health and substance use disorder benefit program. (Text, pp. 93-94) There have been definite trends in terms of whether the carve-in or carve-out model for providing behavioral health care and substance use disorder benefits is favored. Originally, the carve-in approach was utilized, with behavioral health care coverage embedded in the medical plan like any other type of health care service. In the early 2000s, there began a widespread exodus from this approach when mental and behavioral health costs rapidly escalated. Significant cost savings were garnered by carving out behavioral care, providing targeted specialty care and managing costs and utilization. Most recently, the carve-out behavioral health model has been questioned, citing its cost and utilization management practices potentially at the expense of clinical outcomes. Other factors have contributed to declining enthusiasm for the carve-out approach as well. Notably, legislative and marketplace forces encouraging integrated care delivery seem at odds with the carve-out model. Also, constraints imposed by data privacy and mental health parity provisions present operational impediments. The prevailing trend has seen an exodus from the once-popular carve-out model, and the more favored approach in recent times has been a carve-in approach within an integrated health system. Nevertheless, the carve-in model does not remedy all of the previously stated problematic issues. Providing cost-effective and quality behavioral health services that target successful clinical outcomes relies as much on successful execution as it does on the particular plan design selected. Although certain market forces and policy directives may press toward favoring one approach over another—carve-in versus carve-out—only a design whose custodians are cognizant of its likely inherent positive and negative attributes can deliver on its aspirational objectives. In order to deliver on these intended objectives, those directing the plan must effectively execute on intended operational aspects to deliver successful clinical outcomes within reasonable cost parameters."
What were the provisions of the Mental Health Parity Act of 1996 (MHPA) and the reasons it largely failed to accomplish its objective?,"The act was passed to establish parity between mental health benefits and other health benefits. The act’s provisions prevented group health plans (it did not apply to the individual insurance market), insurance companies and HMOs from placing lower annual or lifetime dollar limits on mental health benefits than on medical and surgical benefits offered under the plan. The law, however, did allow for limits on inpatient days, prescription drugs, outpatient visits and raising deductibles which, in fact, had the effect of subjecting mental health benefits to dollar limits. The act applied only to groups that offered mental health benefits and had more than 50 workers. It did not require plan sponsors to include mental health benefits in their benefit packages. The law also did not apply to substance abuse and chemical dependency treatment."
"How does the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) expand on the MHPA? (Text, p. 68 and","MHPA required parity only in annual or lifetime dollar limits and did not extend to substance use disorder benefits. MHPAEA continues the MHPA rules as to limits for mental health benefits and amends them to extend to substance use disorder benefits as well. MHPAEA further requires that financial requirements and treatment limitations applicable to mental health and substance use disorder (MH/SUD) benefits are no more restrictive than those applied to medical/surgical benefits. Mental health and substance use disorder services must be treated in a substantially similar manner to all covered medical and surgical services under the health plan. For purposes of applying these rules: Financial limits or cost-sharing requirements include deductibles, copayments, coinsurance and out-of-pocket maximums. Deductibles and out-of-pocket maximums cannot accumulate separately for medical/surgical benefits and mental health and substance use disorder benefits, as this would be an impermissible financial constraint. Treatment limits refer to the frequency of the treatments, number of visits, days of coverage, days in a waiting period or similar limits. Plans cannot avoid the law by setting up a plan for mental health services or substance use disorder benefits only."
What are the provisions of the MHPAEA and how does the law interact with the Affordable Care Act (ACA)?,"The provisions of MHPAEA are: (a) Plans may not impose financial requirements (such as deductibles and coinsurance) or treatment limitations on MH/SUD benefits that are more restrictive than the “predominant” financial requirements or treatment limits applied to “substantially all” medical/surgical benefits. The law requires parity for both quantitative and nonquantitative treatment limitations. Quantitative treatment limitations include frequency of treatment, number of visits, days of coverage and other similar limits. Examples of nonquantitative treatment limitations include medical management standards, formulary design and methods for determining usual, customary and reasonable (UCR) amounts. (b) The parity requirements apply separately to each of six classifications of benefits: Inpatient in-network Inpatient out-of-network Outpatient in-network Outpatient out-of-network Emergency care Prescription drugs. (c) Separate cost-sharing requirements for MH/SUD benefits are not allowed even if they are equivalent to those for medical/surgical benefits. For example, plans must have a combined deductible that applies to medical/surgical and MH/SUD benefits. (d) The law includes two new disclosure requirements. First, plans must make available their criteria for determining medical necessity for MH/SUD treatment. Second, the reason for claim denials for MH/SUD benefits must be made available. A plan subject to ERISA can satisfy this requirement by following ERISA claim denial procedures for group health plans. As noted earlier, under ACA, mental health and substance use disorder benefits are considered essential benefits. As such, annual limits may not be imposed on these benefits, and lifetime limits are banned under general conditions. Also, ACA requires nongrandfathered group health plans to provide certain preventive services without cost-sharing, including alcohol misuse screening and counseling, depression counseling and tobacco use screening. However, the plans are not required to provide the full range of benefits for MH/SUD to comply with the preventive services requirement."
Describe (a) the plans subject to MHPAEA and (b) those plans that generally are exempt from its provisions.,"(a) MHPAEA generally applies to: • Group health plans sponsored by employers employing 51 or more employees (an increased cost exemption is available for certain large group health plans) • Grandfathered and nongrandfathered individual policies • Small nongrandfathered insured plans subject to the ACA’s essential health benefit provisions, which include coverage for mental health and substance use disorder services, including behavioral health treatment. (b) MHPAEA generally does not apply to certain plans, including: • Retiree-only group health plans • Individual or group health insurance coverage offering only excepted benefits • Self-insured small private employer plans covering 50 or fewer employees • Self-insured nonfederal governmental plans covering 50 or fewer employees • Large self-funded nonfederal governmental employers who opt out of the requirements of MHPAEA."
Provide examples of nonquantitative treatment limitations (NQTL) whose deviation from medical/surgical limits would be prohibited under MHPAEA.,"MHPAEA identifies certain nonquantitative treatment limitations (NQTL) where parity must occur as well. The Compliance Tool provides examples of NQTLs where parity must occur and hence deviations between mental health and substance use disorder benefits and those of medical/surgical limits would be prohibited.  Some examples of the types of NQTLs that would require parity include: Medical management standards that limit or exclude benefits based on medical necessity or appropriateness or based upon whether the treatment is experimental or investigative Prescription drug formulary limits Standards for provider admission to participate in a network, including reimbursement rates. Of particular note, the Compliance Tool provides examples of potential warning signs with regard to provider reimbursement rate setting. Plan methods for determining usual, customary and reasonable charges Requirements to use lower cost therapies in a progression approach, commonly referred to as step therapy, or fail-first policies as they apply to inpatient and outpatient treatment Conditioning the availability of a benefit upon completion of a course of treatment. Specifically, a plan cannot require an individual to exhaust employee assistance program (EAP) counseling—i.e., making the EAP a “gatekeeper”—before benefits are available under the plan, unless the same is required for medical/surgical services. Comparable provider reimbursement rates and network provider participation standards. Certain NQTL limits that vary based on clinically appropriate standards of care are permitted. While plans are not required to use the same limits for both medical/surgical and MH/SUD benefits, the processes or standards of care must still be comparable and applied uniformly."
The Compliance Tool notes that plan sponsors are not required by MHPAEA to establish an internal compliance plan but suggests that doing so constitutes a best practice to ensure compliance with the act. Summarize the recommendations made in the Compliance Tool for developing such an internal compliance plan.,The Compliance Tool provides recommendations for establishing an internal compliance plan. Among the recommendations for developing an internal compliance plan are the following: Conducting training and education Ensuring retention of records and information Conducting internal monitoring and compliance reviews on a regular basis Responding to potential violations and developing corrective actions.
Describe the specific items that the Compliance Tool identifies as likely items that would be requested for a plan sponsor to provide in the event of a Department of Labor (DOL) audit on the parity of MH/SUD benefits to medical/surgical benefits.,"The Compliance Tool outlines the items that a group health plan sponsor would likely be requested to provide in the event of a DOL audit on parity between MH/SUD benefits and medical/surgical benefits. A DOL examiner may request: Documentation of the methodology in the application of NQTLs to both MH/SUD benefits and medical/surgical benefits offered under the plan Documentation and guidelines, claims processing policies and procedures or other standards that the plan has relied upon as the basis for determining its compliance with applying NQTL to MH/SUD benefits and medical/surgical benefits Samples of covered and denied benefit claims relating to MH/SUD benefits and medical/surgical benefits If a plan delegates management of benefits to another entity, such as a third-party administrator or other service providers, documentation of that entity’s compliance with MHPAEA Any MHPAEA testing completed by the plan as it relates to the financial requirements or treatment limits applied to MH/SUD benefits."
What is the market composition of behavioral health care benefits?,"The majority of behavioral health care benefits sold in the United States today are purchased by large groups that buy comprehensive health care and other insurance benefits for their covered members. Behavioral benefits are sold through multiple channels, including large brokerage and consulting firms, large MBHO sales forces and health carrier sales forces."
Describe the typical plan features of behavioral health care benefit plans.,"The vast majority of employer-sponsored plans cover inpatient and outpatient mental health treatment services. They cover intermediate mental health treatment services such as residential treatment and partial (or day) hospitalization as well as intensive outpatient services, which can include psychological rehabilitation, case management and wraparound services for children."
What role does the Health Insurance Portability and Accountability Act (HIPAA) have in data gathering during behavioral treatment?,The Health Insurance Portability and Accountability Act (HIPAA) plays a particularly important part in protecting sensitive patient information gathered during behavioral treatment.
What are the basic types of funding arrangements of an MBHO?,"The three basic types of funding arrangements are fully insured, shared risk and administrative services only (ASO). (1) In fully insured arrangements, MBHOs assume the financial risk for providing behavioral services paying the claims submitted by providers for behavioral services rendered. Financial risk falls on the MBHO. When overall plan costs exceed expected levels, the MBHO absorbs those increased costs. Purchasers pay MBHOs a predetermined, fixed premium for assuming financial risk for behavioral treatment costs. On average, a monthly premium for a fully insured, full-risk behavioral plan, excluding EAP fees, ranges between 3% and 6% of a medical plan’s premium. (2) A variation on a fully insured funding arrangement is a shared-risk one, in which purchasers agree to assume the financial risk for claims payment up to a certain amount. Premiums are based on projected claim costs. If claims exceed a prespecified amount, the MBHO assumes those claim costs or a percentage of those costs. If the claims come in below a prespecified amount, the balance can be shared by the MBHO and the client or refunded to the client. (3) Under an ASO arrangement, an MBHO, for a fee, will handle medical management, utilization review, benefit and other administrative functions, such as claims payments. Often called a self-funded or self-insured arrangement, the purchaser assumes the financial risk of the health care costs for its members. The larger the group, the more likely it is to self-fund because the financial risk is spread across a greater number of employees and its budget is large enough to absorb the risk. A key advantage of an ASO is that employers can offer the same benefit to employees working in different states because ERISA exempts self-funded health plans from compliance with state laws and regulations."
How have employee assistance programs (EAPs) evolved?,"EAPs originally focused on substance abuse problems but today take a comprehensive approach to support members with a range of employee and family issues. Some include proactive prevention and health and wellness programs. Some EAPs also provide human resource support through management consultation, on-site employee and employer seminars, and critical stress management after catastrophic workplace events."
What is involved in providing an effective behavioral health program?,"An effective behavioral health program should include an integrated mental health/chemical dependency benefit that includes inpatient and outpatient services as well as an EAP. Ultimately though, the effectiveness of a behavioral health program depends on (1) employee and employer awareness of the program’s services and value; (2) appropriate use of the benefits; and (3) how well the behavioral vendor and its network providers prevent and manage costly disorders."
List the health professionals that comprise a typical behavioral health specialty network.,"A typical behavioral health specialty network includes individual (solo) practitioners and multispecialty group practices consisting of clinical psychologists, social workers, master’s-level therapists, psychiatric nurses and psychiatrists. A network may also include medical doctors who specialize in addictionology and developmental-behavioral pediatricians to improve access for children with special needs."
"Discuss the differences among the following behavioral health care treatments: inpatient, partial (day) and outpatient.","Acute inpatient facilities are designated for the most acute treatment needs, meaning individuals who are unable to care for themselves and may be suicidal or homicidal. Partial hospital programs (sometimes called day treatment) offer intensive treatment during the day, but patients return home overnight. Finally, intensive outpatient programs are designed for patients who need more intensive treatment than weekly outpatient therapy provides, but they require fewer hours each day than partial or day facilities provide. List of expandable sections. Select each button to expand the content."
Describe the following cost-containment practices of MBHOs:,(a) Care access (b) Predictive modeling and risk assessment (c) Performance measurement (d) Case management (e) Utilization review and management (f) Outcomes management (g) Coordination of care (h) Depression disease management programs (i) Substance abuse relapse programs
Identify three organizations that grant accreditation to MBHOs.,"MBHOs may be accredited by the National Committee for quality Assurance the Utilization Accreditation Review Commission, and the Joint Commission."
What are some innovative approaches that might succeed in meeting the critical needs of mental health patients?,"Innovative approaches that are either in the development stage or already in use to meet the needs of mental health patients include: (a) Proactive disease management programs that operate on several fronts. These programs work with employers to reach out to employees at the workplace and with health plans to identify patients taking psychotropic medications who need additional support; they also reach out to patients with other diseases like diabetes or cardiac conditions who may also suffer from mental illness. (b) Outreach to people who want treatment but do not know how to access it or find a therapist who is best for them (c) Innovative ways of delivering therapy that are most accessible and cost-effective. For example, patients with mild to moderate levels of distress can benefit from a coach who offers counseling over the telephone or via the internet."
What are the three key benefits that a comprehensive workplace wellness program can produce over time?,There are three key benefits that a comprehensive workplace wellness program can produce over time. These are: (1) Fewer absences. (2) Improved productivity. (3) Worker satisfaction and retention.
Does the affordability factor associated with wellness programs restrict their introduction to larger organizations? Explain.,"The affordability factor associated with wellness programs does not restrict their introduction solely to larger organizations. In fact, many small and mid-sized businesses have been shown to be superior at creating a culture of wellness within the workplace. Also, there are many wellness initiatives that can be introduced for free that do not require the expenditure of monetary resources. Amongst possible free initiatives are the following: (a) Holding regular workplace stretch breaks (b) Organizing a walking program (often cited by employees as their favorite wellness activity) (c) Instituting policies against smoking at work (d) Organizing potluck lunches featuring healthy foods (e) Identifying on-site assets available for wellness programs (such as a nearby walking trail or a conference room suitable for wellness classes)."
"What is the “normal” cost range per employee per year for an employer to sponsor a workplace wellness program, and what are the primary cost drivers when introducing a wellness program?","There can be great variability in employer spending to sponsor a workplace wellness program; nevertheless, the cost of workplace wellness programs typically ranges from $0 to $450 per employee, per year. When designing a wellness program, certain elements comprise the largest drivers of cost. The most significant drivers of cost tend to be incentives, equipment and outside service providers like consultants, counselors and gyms. The key is to formulate a budget in advance and then to determine the level of program offerings that can be facilitated with allotted resources. Sharing certain costs with employees is a popular strategy for small businesses, particularly for offerings like classes and memberships."
"What is the primary goal of a wellness program, and what are key decisions that should be made when initially designing a workplace wellness program?","The primary goal of a workplace wellness program is to transform your workplace culture into one that promotes healthy living. In pursuit of this goal, certain initial key decisions should be made. Among these decisions are the following: (a) Who is the program being designed for? (b) Which health issues to address?"
Summarize six key ingredients that typically comprise a well-structured wellness program.,The following six ingredients typically comprise a well-structured wellness program: (1) Health screenings. (2) Educational and self-help tools. (3) Organized activities. (4) Individual follow-up and treatment. (5) Incentives. (6) A supportive environment.
Summarize three federal laws that directly address workplace wellness programs within the context of other broad rules that prohibit discrimination based upon health status.,"Three federal laws directly address workplace wellness programs within the context of other broad rules that prohibit discrimination based on health status. The Employee Retirement Income Security Act (ERISA) prohibits discrimination by group health plans based on an individual’s health status. ERISA makes exceptions for wellness programs to offer premium or cost-sharing discounts based on an individual’s health status in certain circumstances. The Americans with Disabilities Act (ADA) prohibits employment discrimination based on health status and generally forbids employers from inquiring about workers’ health status but makes an exception for medical inquiries that are conducted as part of voluntary wellness programs. Finally, the Genetic Information Nondiscrimination Act (GINA) prohibits employment discrimination based on genetic information and forbids employers from asking about individuals’ genetic information, including information about family members’ health status or family history. Like the ADA, GINA allows an exception for inquiries through voluntary wellness programs."
Identify which federal laws deal with standards for protecting the privacy of personal health information.,"The Health Insurance Portability and Accountability Act (HIPAA) establishes standards to protect the privacy of personal health information, including information that may be collected by some workplace wellness programs. The ADA and GINA also include certain privacy protections."
Explain the evolution of ERISA standards related to “health-contingent” wellness program incentives.,"In 2010, the Affordable Care Act amended ERISA to permit group health plans to adopt wellness program incentives that vary a person’s group health plan premiums or cost sharing based on their health status. Such programs are called health-contingent wellness programs. Some health-contingent programs provide rewards, such as premium discounts, to people who can meet certain health outcomes, such as normal weight or blood pressure. Others might identify people with health problems and then provide rewards if they participate in wellness classes or activities. In 2013, the Department of Labor (DOL) said health-contingent wellness programs can vary group health plan premiums or cost sharing based on health status and will not be considered to discriminate based on health status if they meet certain standards. Among these conditions are the following. (1) The reward amount is limited. (2) The maximum reward is 30% of the total cost (both the employer and employee share) of self-only group health plan coverage. (3) The maximum can be increased to 30% of the cost of family coverage if spouses and dependents are eligible to participate in the wellness program. (4) The maximum can be further increased to 50% if tobacco-related components are included in the wellness program. Health-contingent wellness programs also must be reasonably designed to promote health or prevent disease. Reasonably designed is defined as having a reasonable chance of improving health or preventing disease, not being overly burdensome or a subterfuge for discrimination, and not being highly suspect in the method chosen to promote health. By regulation, this is “intended to be an easy standard to satisfy . . . There does not need to be a scientific record that the method promotes wellness to satisfy this standard.” In addition, reasonably designed health-contingent wellness programs must meet other standards related to providing notice to participants, providing waivers or alternative ways for participants to earn rewards, and making rewards available to participants at least annually. ERISA standards are different for participatory wellness programs. Under the DOL rule, wellness programs that do not base rewards or penalties on health status are called participatory wellness programs. Participatory wellness programs are not required to meet any of the five standards that apply to health-contingent wellness programs and generally are not considered to implicate ERISA nondiscrimination rules. However, the DOL rule notes that other employment discrimination laws, such as ADA and GINA as noted in the next question regarding EEOC rules, also apply and that being in compliance with the ERISA/ACA wellness program standards does not relieve employers from having to comply with other federal laws."
"Discuss the major wellness program policy objectives and resulting pronouncements/regulations made by the Equal Employment Opportunity Commission (EEOC), which was responsible for monitoring ADA and GINA compliance.","(a) ADA and GINA standards for wellness programs. In 2000, the EEOC issued enforcement guidance that a wellness program is considered voluntary under the ADA “as long as an employer neither requires participation nor penalizes employees who do not participate.” In 2010, final regulations to implement GINA restated this definition of voluntary wellness programs. In 2014, EEOC brought enforcement actions against several employers that penalized workers who would not participate in wellness programs that included medical inquiries. One action involved an employer that used financial incentives to encourage participation. Employer groups expressed disagreement with these actions, urging that ADA should be interpreted to permit use of financial incentives similar to those authorized under ERISA/ACA. (b) ADA standards for wellness programs offered through a group health plan. In May 2016, EEOC issued final rules on regulations to reinterpret ADA standards for voluntary wellness programs. The rules require any wellness program that involves medical inquiries to be reasonably designed, as defined under the ERISA/ACA rule. The ADA rule also specifies a reasonably designed wellness program must not be designed mainly to shift costs onto employees based on their health. And if the program collects health information, it must also provide participants with their results, follow-up information, or advice designed to improve health or use collected information to design a program that addresses at least a subset of health conditions identified. In addition, two new standards relating to (1) financial incentives and (2) notices applied to wellness programs.  (1) With respect to incentives, employers cannot deny eligibility for group health plan benefits or take adverse employment action, or retaliate against, intimidate, or threaten employees who refuse to participate in workplace wellness programs. The rule allowed use of financial incentives or in-kind incentives to promote employee participation in wellness programs that include medical inquiries. The maximum financial incentive was 30% of the total cost* (employer and employee share) of self-only group health plan coverage. The rules specified this limit applies to both health-contingent and participatory wellness programs. A wellness program is considered voluntary under ADA if the amount of an incentive offered for participation—alone or in combination with incentives offered for health-contingent wellness programs—did not exceed this maximum. The rule further specifies that incentives need not be conditioned on participating in the group health plan. For example, if an employer offered a wellness program but did not offer group health plan benefits, the maximum incentive would be determined using the cost for self-only coverage meeting certain criteria sold on an ACA marketplace. Finally, the rule specifies that wellness programs cannot condition the incentives on the individual’s agreement to the sale, exchange, sharing, transfer or other disclosure of medical information or to waive confidentiality protections that would otherwise apply. (2) Notice requirements also applied to wellness programs that involved medical inquiries such as HRAs. Programs were required to provide workers notice of what information would be requested, how it would be used, and how the privacy and security of personal information would be protected. Notice requirements also applied to any workplace wellness program, either health-contingent or participatory, that involved medical inquiries. (c) GINA standards for wellness programs. In May 2016, EEOC issued a final rule to make similar changes in workplace wellness standards under GINA as under the ADA. The GINA wellness rule addressed the extent to which an employer could offer inducements to an employee’s spouse to participate in its workplace wellness program. Inducements for the spouse to participate in a wellness program could be made without regard to whether the employer offers group health benefits to the spouse or whether the spouse participates in the employer’s group health plan. Under GINA, genetic information is defined to include not only results of a genetic test, but health information about an individual’s family members, including the spouse. The rule makes an exception to this definition and permits wellness programs to offer incentives to spouses to provide information about their own health status, though not about results of genetic tests. The rule does not permit workplace wellness programs to offer incentives for children of employees to disclose their genetic information or any other health information. The GINA wellness rule adopted the ERISA/ACA definition of a reasonably designed wellness program as modified by the ADA wellness rule. In addition, the GINA wellness rule amended the standard for voluntary wellness programs to permit a maximum incentive for the spouse to participate in the workplace wellness program. The maximum incentive applicable to the spouse was 30% of the cost* of self-only coverage offered by the employer, regardless of whether the spouse participated in the health plan. If the employer did not offer a health plan, the rule specified the type of ACA public exchange plan on which to base the maximum incentive. The rule also included the ADA rule requirement that wellness programs cannot condition incentives on individuals agreeing to the sale, exchange, sharing, transfer or other disclosure of their genetic information. * Candidate Note: This 30% maximum financial incentive level was later rescinded by the EEOC because of a federal district court ruling. The EEOC has expressed an intent to issue further guidance in the future."
What are the federal privacy standards that are applicable to workplace wellness programs?,"(a) Federal privacy protections may also apply to personal information gathered under workplace wellness programs. The ADA establishes privacy standards for covered entities subject to that law— that is, employers with 15 or more workers. Covered employers are required to keep private all medical information that they may obtain about workers, whether such information is collected through a wellness program or gathered for other permitted employment-related purposes. Access to identifiable medical information is restricted and only need-to-know exceptions are allowed, such as for administering a health plan. Identifiable medical information must be kept securely and separate from other employment records. With respect to employer wellness programs, the EEOC rule reiterates that medical information obtained by the program may only be provided to the employer in aggregate terms that do not disclose or are not reasonably likely to disclose the identity of any employee. In case of a suspected violation of ADA privacy rules, individuals may file a complaint with the EEOC and/or initiate a private lawsuit. Similar privacy standards under GINA apply to genetic information. (b) Federal privacy protections under HIPAA also apply to some workplace wellness programs. Covered entities under HIPAA include most health care providers, health care clearinghouses and health plans, including group health plans sponsored by employers, but employers are not covered entities under HIPAA. As a consequence, HIPAA privacy rules do not apply to wellness programs that are offered directly by employers outside of a group health plan. Under HIPAA, a group health plan generally cannot disclose personal health information to a person’s employer without that person’s authorization, but a group health plan is permitted to disclose protected health information to the employer without authorization if the employer certifies to the plan that it will safeguard the information and not use or share it for any employment-related activity or in connection with any other benefit. In case of a suspected violation of HIPAA privacy rules, individuals may file a complaint with the U.S. Department of Health and Human Services (HHS); there is no private right of action under HIPAA. For a complaint involving a covered workplace wellness program, HHS would investigate and verify whether the plan had received the required certifications from the employer. If the group health plan had not obtained the required certification, HHS could seek civil monetary penalties. However, if HHS found that an employer had violated its promise to only use the information that it receives for permitted purposes, HHS could not pursue enforcement against the employer due to the agency’s limited jurisdiction. (c) Interpretive guidance issued with the final ADA wellness rule notes that different privacy standards might apply to worksite wellness programs, depending on whether or not the program is offered as part of a group health plan. Under the EEOC rule, privacy standards established under the ADA will continue to apply to any ADA-covered entity. In addition, when a wellness program is part of a group health plan, its obligation to comply with ADA privacy rules will likely be satisfied by adhering to HIPAA privacy rules. (d) Under all three privacy standards, it is permissible for wellness programs to share participants’ health information with their business partners for purposes of administering the program. Under the “reasonably designed” standard, for example, this could include sharing information with a business partner to market health-related products and services to the enrollee. In summary, the May 2016 EEOC rules for ADA and GINA supplemented existing wellness regulations under HIPAA/ACA and, in some cases, compliance with HIPAA/ACA did not guarantee ADA and GINA compliance. Specifically, HIPAA/ACA rules did not impose any incentive limitation on “participatory” wellness programs, while ADA and GINA rules did impose limits if such programs included health risk assessments (HRAs) or biometric testing. In addition, HIPAA/ACA rules apply only to those wellness programs offered with group health plans; ADA and GINA rules also applied to wellness programs that were “self-standing.” That is, the final EEOC rules made it clear that for purposes of ADA and GINA, there was no distinction as to their applicability between wellness programs offered inside or outside of group health plans. Candidate Note: Candidates are not expected to memorize percentage amounts from the referenced survey results but rather understand the design features commonly utilized in workplace wellness programs."
Do many large employers who sponsor wellness programs request that employees disclose any personal health information?,"Most large employers ask employees to disclose extensive personal health information via a questionnaire, known as a health risk assessment (HRA), or through biometric screening (such as a physical examination or lab test), or both. In 2019, 72% of large firms that offer health benefits, employing 48 million covered employees, offered the opportunity to complete either an HRA, biometric screening or both."
Do large employers offering wellness programs to their employees generally provide incentives for their workers to disclose personal health information?,"Employers that offer health risk assessments in their wellness programs increasingly use financial incentives to encourage workers to disclose health information. In 2019, almost a third (32%) of large firms offering health benefits offered incentives to complete a health risk assessment (HRA), compared to 14% in 2008. A small percent of large offering employers (7%) offer incentives to not only disclose health information but also to achieve biometric outcomes such as a target BMI or cholesterol level."
"Generally, are wellness program incentives effective at inducing employee participation when these incentives reach a certain dollar level?","There is tremendous variation in employer incentives, but at some firms, wellness penalties can be a significant cost for covered workers. Participation in wellness screening programs is not high, even with incentives. An analysis of the Employer Health Benefit Survey found that at large firms with an incentive for completing a health risk assessment, 50% of workers complete the assessment compared to 31% at firms with no incentive. Most large employers (61%) say either that financial incentives are either “not at all effective” or only “somewhat effective” in encouraging employee participation in wellness programs, or they don’t know whether incentives are effective. Workers may opt not to participate in wellness programs to protect the privacy of their health information, because they don’t find the program convenient and/or for other reasons. To the extent that wellness program incentives trigger financial penalties for nonparticipation, workers may find them burdensome, as a legal challenge demonstrates."
"Discuss a.) the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) and how they pose ramifications for voluntary workplace wellness programs, (b.) the rationale for EEOC’s initial regulations and enforcement guidance regarding voluntary wellness programs, and c.) the finding of a federal district court regarding this guidance and its overall impact on EEOC’s regulatory guidance.","(a) Questions about the permissibility of workplace wellness incentives under federal law are ongoing. Two federal employment nondiscrimination laws—the Americans with Disabilities Act of 1990 (ADA) and the Genetic Information Nondiscrimination Act of 2008 (GINA)—prohibit employers from making inquiries about employee health information or genetic information with limited exceptions, including through voluntary workplace wellness programs. (b) Initially, regulations and enforcement guidance defined voluntary wellness programs to be those that neither require participation nor penalize employees for nonparticipation. In 2016, new federal regulations issued by the Equal Employment Opportunity Commission (EEOC) redefined voluntary wellness programs to include those that impose financial incentives up to 30% of the cost of self-only coverage (or more than $2,100, based on the average cost of self-only group health plan coverage in 2019). The agency asserted that it did so to permit wellness program incentives consistent with those permitted under the Affordable Care Act (ACA), but that nonetheless “prevent economic coercion that could render provision of medical information involuntary.” (c) A federal district court found that EEOC did not provide sufficient justification for its wellness program incentives limits, and ruled this change in the definition of “voluntariness” to be arbitrary and capricious. EEOC repealed the financial incentive provisions of its ADA and GINA wellness rules in December 2018. The Agency’s regulatory agenda indicates further rulemaking on wellness is planned. Meanwhile, other provisions of the ADA and GINA wellness rules remain in effect for all workplace wellness programs that make disability-related inquiries or conduct medical examinations. Such programs must be “reasonably designed.” Among other requirements, reasonably designed programs must: Provide employees with advanced notice clearly explaining what medical information will be obtained, How the medical information will be used, Who will receive the medical information, The restrictions on its disclosure, and Methods the employer/wellness program uses to prevent improper disclosure of medical information. In addition, programs must be reasonably designed to promote health or prevent disease."
"In what ways can collected health information be used by employers, and are there uses of such information that are strictly prohibited?","Health information collected through reasonably designed wellness programs can be used to provide meaningful feedback or advice to employees about their health or risk status; health information collected through wellness programs can also be used, in aggregated form, to design effective disease management programs or treatments. However, the EEOC regulations specify that a wellness program is not reasonably designed if it exists mainly to shift costs from the employer to targeted employees based on their health or to simply give an employer information to estimate future health care costs."
Does research conclude that workplace wellness programs effectively promote health and prevent disease?,"Despite the prevalence of workplace wellness programs, numerous studies find limited evidence of their effectiveness in promoting health or preventing disease. There are considerable challenges with measuring the impacts of workplace wellness programs. First, healthier individuals are more likely to participate in wellness programs, making it hard to determine whether differences in health outcomes reflect program effectiveness or the people who elect to participate. Secondly, workplace programs come in many shapes and sizes, with many programs focusing more on health screening than health promotion programs."
"With the EEOC revisiting the issue of incentives in workplace wellness programs, are employers temporarily ceasing to collect employee health information and declining to utilize such information in determining the pricing of health coverage? (Text, pp. 316.-317)","Federal law permits the collection of health information from workers through voluntary workplace wellness programs, and the EEOC has given notice it will revisit the issue of incentives in future rulemaking. How federal standards for wellness incentives will evolve remains to be seen. Even as standards evolve, though, most large employer wellness programs continue to collect personal health information, and most of these screening programs incentivize workers to provide it. When incentives are applied to the premium contribution for group health benefits, failure to participate in wellness programs can substantially increase the cost that workers would otherwise pay for their health coverage."
How can one succinctly conceptualize “financial wellness”?,"Financial wellness means effectively managing your economic life. This simple concept encompasses many factors, including: Keeping spending within one’s means Being financially prepared for emergencies Having access to the information and tools necessary to make good financial decisions Having a plan for the future."
"How are “financial wellness” and “financial security” related, and do most employer-provided financial services and benefits effectively integrate these concepts?","The underlying concept of financial wellness is financial security, one of the most common goals reported by employees across all sectors. However, a minority of employees surveyed report having access to the kinds of financial services and benefits that they feel would be the most helpful in attaining financial security. The Center for Financial Services Innovation echoes this sentiment in its research. Most employer financial health offerings consist of limited employee assistance programs (EAPs) designed for crises, comprising just a small part of an employee’s total health benefits package. In many cases, these EAPs are not included in the benefits package at all."
What is missing from employer initiatives to provide financial well-being to their employees?,"What is missing from employer initiatives is a more comprehensive approach to financial well-being, one that helps employees build lasting financial strength and stability, leading to a more solid organization."
In what ways should financial wellness programs be thought of like programs that facilitate health-related wellness?,"Employer-based financial wellness programs usually are an addendum to other benefits programs. However, it is best to view the financial health of employees through the lens of other health and wellness programs that employers routinely offer. These services do not just take care of employees when they are sick, but also work to prevent sickness in the first place with fitness, smoking cessation, diet and lifestyle management programs. Financial wellness programs should work in the same way, offering holistic support and advice to employees so they can meet short-term needs while working toward long-range goals."
Explain why customization is required when it comes to a successful financial wellness program and what employers can do to accommodate the varied needs of employees and implement a holistic approach.,"Each employee has different financial priorities and obligations, so a successful wellness program requires solutions tailored to an employee’s unique circumstances. This starts with digital engagement, interviews and examination of employees’ pay and benefits records to establish a complete picture of their finances. The aim is to understand employees’ goals when it comes to paying taxes, purchasing a home, establishing and maintaining good credit, health care, emergency preparedness, education costs, paying down debt, saving for retirement and other parts of their financial life. The second part of a holistic approach to financial wellness is teaching the concepts of good financial health and providing the right tools to act on that knowledge. This means employees need not only education, but also the opportunity to put this information into action. For some employees, this simply means using software to keep track of financial goals. For others, having a financial coach or advisor to review their finances and offer suggestions does more to keep them accountable and engaged with their goals."
What is the benefit to employees when employers foster a high level of financial wellness?,"A high level of financial wellness gives employees the ability to make better, more informed decisions and manage a successful long-term strategy."
Do employers reap any benefits or advantages when their employees achieve a high level of financial wellness?,"Employers feel the effects of their staff’s financial health and reap certain benefits and advantages. Employees in stressful financial circumstances are less productive and less likely to remain at their jobs. Many researchers have documented these advantages. A study by Mercer found that 22% of employees report missing at least one day of work to handle financial problems, 15% reported spending at least 20 hours a month working on personal financial tasks at work, and a full 20% have had to resign due to financial stress. Additionally, according to the Journal of Occupational and Environmental Medicine, one day of employee absence costs businesses an average of $348 in lost productivity. From that angle, ensuring workers are free from personal financial stressors can boost a company’s profitability. Unfortunately, many companies—including those polled for the report conducted by the Center for Financial Services Innovation—do not realize their need for a broader approach to their employees’ financial fitness until workers become reliant on emergency EAP services. Such reliance increases the costs of these programs and jeopardizes the company’s ability to sustain them."
How can savings from financial wellness programs be channeled into other productive uses to further enhance employee long-term well-being?,"Financial wellness can help companies reduce unnecessary expenditures due to absenteeism, lost productivity and benefit cost overruns, allowing businesses to expand their benefit options to include: Programs that enhance money management skills and help employees create and build assets Newsletters and other periodic publications Investment, retirement, college, emergency and health care planning seminars Debt- and credit-related programs A more extensive list of benefits can also help businesses attract and retain top-notch staff, because financially content employees are more likely to stay with the company for the long haul. The road to financial health is an ongoing journey. Once financial wellness is near, both employees and employers have a role to play in its continued progress. Establishing and cultivating financial fitness requires individual persistence as well as a supportive environment with accessible, high-quality financial services. This will not only allow companies to realize benefits such as increased loyalty, higher productivity and lower costs—but enable employees to meet the challenge of balancing responsible living today with wise planning for tomorrow."
What are the two primary factors that contribute to the popularity of cafeteria plans?,"The two primary factors that contribute to the popularity of cafeteria plans (often called flexible benefit plans or flex plans) are: (1) The ever-increasing costs of benefits (2) A diverse workforce with vastly differing employee benefit needs. Permitting employees to select those benefits that are most applicable to their personal financial circumstances makes sense for both the employee and the employer. With employee benefits representing a large component of labor costs for most organizations, it is important to spend employee benefit dollars in a cost-efficient way that maximizes value. A cafeteria plan ensures that the employer maximizes the value of its benefit dollars and avoids spending money on duplicated or unneeded benefits. Before the advent of flex plans, optional or supplemental benefits were paid by the employee using after-tax dollars. A flexible benefit plan allows employees to contribute toward benefits on a tax-favored basis. As certain benefit programs have become more costly, notably health care, and more employees are asked to share costs with the employer, the tax advantages and choice in benefits selection become particularly appealing."
Describe the tax doctrine of constructive receipt within the context of cafeteria plans.,"Cafeteria plans operate as an exception to the tax doctrine of constructive receipt. Usually, when an individual has control over how money is spent, it becomes taxable to that individual. However, provided a cafeteria plan is designed in accordance with all applicable tax laws, a cafeteria plan participant can avoid taxation and instead receive tax-free benefits."
Describe the concept of a cafeteria plan and how it operates in connection with other employee benefit plans sponsored by an employer.,"A cafeteria plan operates in connection with other employee benefit plans sponsored by an employer. In fact, an essential concept in understanding a cafeteria plan is recognition that the cafeteria plan really is an umbrella plan under which tax-favored employee benefits are offered. The cafeteria plan is merely a mechanism to pay for employee benefits. Internal Revenue Code (IRC) Section 125 and the regulations related thereto govern cafeteria plan arrangements while other IRC sections apply to the underlying benefits funded within the cafeteria plan. Section 125 was added to the IRC by the Revenue Act of 1978. Prior to the enactment of this section of the IRC, the tax treatment of benefits involving participant choice was quite different. If a participant had any type of choice with respect to available benefits, the tax doctrine of constructive receipt required that the participant be taxed as if they had elected the maximum available taxable benefits. The rationale was that since participants could elect these amounts in cash, they should be taxed as if they had elected the cash. This was the case even if the participants elected benefits that, if paid for by the employer, could be offered to participants on a tax-free basis."
"Explain the tax treatment for employee benefits under IRC Section 125 and the scope of Section 125 (i.e., which benefit plans are included or excluded from preferential tax treatment).","IRC Section 125 significantly changed the tax treatment under prior law, as described previously. Section 125 provided favorable tax treatment to certain benefits funded through a cafeteria plan. It specifically defined a cafeteria plan to mean a plan under which all participants are employees (Note: The plan may only benefit employees, not owners, such as partners paid according to a Form K-1 or 2% or greater shareholders of an S corporation) and under which all participants may choose among two or more benefits consisting of a combination of qualified benefits and cash. If the requirements of IRC Section 125 are met and the benefits are eligible for inclusion in a cafeteria plan, then the benefits are not considered as taxable income to the participant if benefit coverage is chosen. On the other hand, if cash is selected and paid to participants, the cash payment would be fully taxable as compensation. It is important to note that Section 125 has a clearly defined scope, with some benefits that are permissible for cafeteria plan tax treatment and other benefits that may not be included in a cafeteria plan. Candidate Note: Among benefits that cannot be offered in a cafeteria plan are whole life insurance and long-term care insurance. Oddly, though, a health savings account (HSA) funded through a cafeteria plan may be used to pay premiums for long-term care insurance or for long-term care services. HSA contributions permissible under a cafeteria plan are themselves an exception to the Section 125 special rule that prohibits the deferral of compensation."
What are the primary advantages to an employee in receiving benefits under a cafeteria plan?,"There are a number of advantages when an employee receives benefits under a cafeteria plan. However, the most notable advantage is probably the preferential tax treatment afforded to these benefits. Employees directly save money since they pay for their share of benefit expenses on a tax-favored basis. Contributions to a cafeteria plan are exempt from federal income tax and are not subject to the Federal Insurance Contributions Act (FICA-Social Security) and the Federal Unemployment Tax Act (FUTA) taxes. Also, most state and local tax laws follow the federal tax treatment."
What are the primary disadvantages to an employee in receiving benefits under the umbrella of a cafeteria plan?,"From an employee’s perspective, the primary disadvantage of a cafeteria plan is the fact that benefit elections generally must be made prior to the beginning of the plan year and, with limited exception, the election is irrevocable during the entire period of coverage. Another significant disadvantage that applies to a health care FSA is the use-it-or-lose-it rule subjecting unused benefit dollars at the end of the plan year to forfeiture. (Discussed later, the use-it-or-lose-it rule has been liberalized somewhat.) There are other perceived disadvantages to cafeteria plans. An employee—through inertia or lack of knowledge—may be worse off financially by paying for dependent-care expenses through a cafeteria spending account rather than taking the tax credit on their personal tax return. Also, since there is no FICA-Social Security tax on cafeteria plan benefit dollars, an employee who participates in a cafeteria plan may realize a slight reduction in Social Security benefits or in the accumulation of benefits under their employer-sponsored retirement plan."
Discuss the advantages to employers in offering their employee benefits through a cafeteria plan.,"From an employer’s perspective, there are several advantages to offering employee benefits through a cafeteria plan. First, there are significant financial incentives. The employer realizes payroll cost savings because the employer does not pay FICA or FUTA taxes on amounts contributed to the cafeteria plan. In addition, deferral amounts are not considered wages for purposes of determining workers’ compensation premiums and other payroll-based expenses. State and local tax treatment varies, with many states offering the same preferential tax treatment as offered by the federal government. In addition to financial incentives, cafeteria plans create greater employee awareness of the overall value of their benefits. The flexible benefit structure can also serve as a mechanism to control escalating benefit costs, limiting employer contributions and preventing the wasting of benefit dollars on duplicate or unneeded benefits. This is particularly true in the realm of health care costs. To the extent that an employer is considering implementing benefit changes that will result in employees sharing more of the cost or employer caps on benefit plan contributions, a flexible benefit plan is an excellent tool to minimize the financial impact of these changes on individual employees."
What potential disadvantages do employers face in sponsoring a cafeteria plan?,"Even though there are many advantages from an employer’s perspective in sponsoring a cafeteria plan, there also are potential disadvantages for the employer. The primary disadvantage to the employer involves the ongoing cost of administration and operation of such a plan. Although these costs can be offset to a significant extent by payroll tax savings, the employer must be cognizant that establishing and operating a cafeteria plan involves additional administrative complexity and costs. Some of this additional complexity involves compliance with tax law provisions. A flexible benefit plan is required to be operated in accordance with strict adherence to federal tax law via a written plan document. If a health care FSA is offered as a component of the plan, the uniform coverage rules mandate that the full amount of the benefit elected be available during the entire plan year regardless of how much an employee has actually contributed to date. Essentially an employer incurs cash flow risk if claims exceed employee plan contributions early in the plan year. Employers may also incur financial risk if terminating employees’ claims exceed contributions and recoveries of these funds cannot occur. Adverse selection becomes a greater risk when employees can opt in and out of various benefit plans. If all the less healthy participants select the most comprehensive insurance coverage and the more healthy participants select minimum or no health coverage, the overall plan costs may increase. This occurs since utilization increases in the more comprehensive plan with fewer more favorable risks present. Finally, while the Affordable Care Act (ACA) relaxed requirements for small employers, cafeteria plans are subject to complex coverage and nondiscrimination testing in order to comply with federal tax law. Some of these tests apply to the flexible benefit plan as a whole, while others apply to the underlying benefits. Depending upon the demographics of the workforce, some of these tests may be difficult to pass, in which case the favorable tax treatment could be restricted with respect to the owners and other highly paid employees."
"Given that cafeteria plans are not all the same, describe the different types of cafeteria plans allowable under IRC Section 125.","Undoubtedly, cafeteria plans are not all the same, and there are several different types of cafeteria plans that are allowable under Section 125 of the IRC. Although these different plans vary in terms of actual plan features, they are equally considered to be cafeteria plans under the law. Cafeteria plans were given their name because benefits are offered to employees cafeteria-style, with plan participants selecting the benefits they need. These optional benefits are purchased with dollars or credits given to the participant as part of a benefit package. In some instances, employees are not given any employer money to spend but can enhance their overall benefit package by making tax-favored contributions to the cafeteria plan. Subsequently, these tax-favored contributions can be spent on additional benefits that are tax-free when paid out to the participant. Cafeteria plans often are referred to using a variety of terms. Some of these terms generically refer to all types of cafeteria plans, while some terms refer to cafeteria plans possessing certain special characteristics. Generic terms would include such references as flexible benefit programs, flexible compensation, choice plans and flex plans. If a plan includes only pretax premium conversion, it often is referred to as a premium conversion plan, premium-only plan or POP. While the different types of cafeteria plans vary in complexity, at their core they are similar in that employees use the plan as a vehicle for obtaining selected employee benefits on a tax-favored basis."
Discuss the characteristics of a premium conversion plan and why it is perceived as a cafeteria plan in its simplest form.,"In a premium conversion plan, there are no employer contributions and the plan is offered to employees so they may pay for their insurance costs on a tax-favored basis. Because there are no employer contributions or flexible credits, this type of plan is perceived as a cafeteria plan in its simplest form. A cafeteria plan is the only means that can be used for employees to pay for insurance costs on a tax-favored basis. Absent a written cafeteria plan, the tax-free treatment of premium payments will be disallowed. If the employer is going to allow employees to opt out of employer-paid insurance coverage, this must occur through a cash option within a cafeteria plan. For the employee who does not desire the insurance coverage, they would elect the cash benefit. Accordingly, the employer’s contribution to the plan would be paid to the employee as cash compensation (at which point any favorable tax treatment is lost). An employer need not offer a dollar-for-dollar cash option. In other words, the amount credited to an employee for opting out of coverage can be less than the actual cost of the coverage they are forgoing."
"As a general rule, which types of benefits typically provide a premium conversion feature under a flexible benefit plan?","Although there can be variation, as a general rule, a premium conversion feature is only used for medical insurance (including dental, vision and other types of medical coverage) and group term life insurance not in excess of $50,000. Prior to 2014, in some instances, IRS rules allowed for outside, employee-owned policies to be paid for through the premium conversion feature provided that the insurance was not from another employer-sponsored plan. Today, the payment of pretax premiums for individual policies is prohibited under a cafeteria plan whether such policies are purchased through an Affordable Care Act marketplace exchange or on the individual market. Disability policies can be paid by premium conversion under the law but frequently are purchased using after-tax dollars instead of pretax dollars. This occurs because if the premiums are tax-free, any disability payment subsequently made will be considered taxable when paid. Considering the relatively low cost of disability coverage, most employees prefer to have their disability premium payments, if any are made, paid on a tax-free basis."
Describe the workings of a cafeteria plan that includes FSAs.,"Moving from the simplest form of a premium conversion plan to the next level is a cafeteria plan with a medical plan that includes FSAs, also called reimbursement accounts. Most often these are bookkeeping accounts with the actual funds remaining as part of the employer’s general assets. Records are maintained showing the activity in each participant’s individual account. When an FSA is funded purely by salary deferrals, the participant is choosing between two (or more if offered more than medical coverage) benefits consisting of cash and qualified benefits. FSAs offer an employee the ability to fund certain qualified benefits on a pretax basis through a salary reduction agreement or a combination of salary reductions and employer contributions. FSAs are permitted for health care reimbursements, dependent-care assistance and adoption assistance. Both health care and dependent-care reimbursement accounts most often only involve employee contributions on a pretax basis. Throughout the plan year, as expenses are incurred for the participant and their dependents, they submit claims to the plan for reimbursement. The coverage period for an FSA normally is 12 months. A cafeteria plan may include a grace period of up to 2½ months after the end of the plan year, during which employees with unused contributions for a particular benefit may be reimbursed for expenses incurred during the grace period. Grace periods may apply to health care and dependent-care FSAs and adoption assistance plans. (A cafeteria plan may permit the purchase of additional paid time off. There is no grace period for unused “elective” paid time off days.) (Instead of offering a grace period to health care FSA participants, employers have the option of allowing them to roll over up to $570 (for 2022) of unused funds to the following plan year. The rollover has no impact on the new plan year’s allowable election amount.) Also, funds from one account may not be used to reimburse expenses from another account. Employers may also limit the amount carried over during the grace period, as long as the limit is applied uniformly and is not based on a percentage of unused contributions remaining at the end of the plan year."
Explain what is meant by a full flex plan.,"A full flex plan is sometimes called a full choice plan. As both names would suggest, such plans give participants an opportunity to select among a full range of benefits. Under such a plan, the employer determines a dollar value it wishes to earmark for the benefits portion of total compensation. This dollar value is in addition to any salary reductions employees choose to direct to reimbursement accounts or additional benefit purchases. Once an employer has computed the dollar value it wishes to contribute to benefits, either the cash is contributed to the cafeteria plan or a credit system is developed whereby credit amounts are used to fund the similarly credit-priced benefit options."
Discuss the methodology utilized to value credits used by plan participants to purchase benefits under a flexible benefit plan.,The typical methodology utilized to value credits used by plan participants to purchase benefits under a flex plan involves understanding the appropriate pricing parameters of the benefits and developing a pricing matrix. The pricing matrix takes into account several factors. Among these factors are: (a) The number of credits a participant will be given (b) The acceptable level of employee contribution (c) The number of participants expected to select each benefit offered (d) The number of credits that are expected to be paid as a cash benefit (e) The purchase price of benefit options (f) The hidden employer subsidies (g) The total premium cost.
Why do employers develop credit values for use in flexible benefit plans rather than use the actual dollar values associated with premium costs?,"Oftentimes employers develop credit values rather than use the actual dollar values associated with premium costs because such a system can smooth out benefit inequities. This makes it possible for the employer to offer a cash option that is not a dollar-for-dollar value. Accordingly, such pricing makes the benefits more valuable than cash. Sometimes it is thought that providing the full cash value of the benefits will be too appealing to participants and result in employees being underinsured."
"What is a core benefit within a flexible benefit plan, and what purpose does the core benefit serve?","The idea of a core benefit is to establish some minimum level of benefit coverage below which the company will not permit an employee to go. Sometimes a company will allow an employee to cash out of a core benefit if proof of alternate coverage is supplied. For instance, an individual may possess coverage through a spouse’s plan, or someone who qualified for early retirement through a previous employer may be exempted because of retiree coverage through that previous employer. Typically a core benefit may require that the participant select some basic health coverage and a minimum level of life insurance. The core benefit is intended to supply a basic level of protection so that employees cannot be underinsured. Candidate Note: Under the Affordable Care Act (ACA), large employers (those that employed at least 50 “full-time equivalent” employees in the prior year) must offer “minimum value” and “affordable” health coverage to full-time employees and their children under the age of 26. The affordability test applies to the lowest cost option that also meets ACA minimum value requirements. Non-tax-deductible penalties are imposed if employers fail to comply."
Describe the elements of cafeteria plans that appeal to various demographic cohorts within an employer’s workforce.,"Certain elements of a cafeteria plan may have particular appeal to certain demographic cohorts. Some of these features, in essence, are more highly valued by one group of employees than they are by another group of employees. It is essential for the employer to understand what features of the plan may appeal to specific segments of the workforce. Higher paid employees typically value opportunities to reduce personal taxes through flexible benefit plans. Dollar maximums limiting contributions to reimbursement accounts would likely concern higher paid employees. Generally, lower paid employees are not very interested in tax savings; rather, they prefer to maximize their weekly take-home pay. If an employer’s demographics consist largely of lower paid workers, a full flex plan offering a generous cash option could result in employees not being adequately protected unless adequate core benefits were mandated or limits were placed on the cash option. In designing a flex plan, these important issues must be considered, especially in view of the ACA-mandated shared responsibility requirements."
Why is it important for an employer to develop a carefully crafted communication campaign when establishing a cafeteria plan?,"Generally an employer must be prepared for negative reactions and criticism from employees when establishing a cafeteria plan. Without proper communication, including adequate time for questions and answers, the employees could view the cafeteria plan as a way for their employer to pay them less. The carefully crafted communication program should include both the positives and negatives of plan participation. If employee input is solicited, the plan should be customized to meet the needs of the employees and reflect their suggestions and input as much as possible."
"According to tax law, what qualified benefits may be included within a cafeteria plan?","According to tax law, only certain qualified benefits are permitted to be included within a cafeteria plan. Qualified benefits that can be offered in a cafeteria plan include the following: (a) Employer-provided accident or health coverage under Internal Revenue Code (IRC) Sections 105 and 106. This includes health, medical, hospitalization coverage, prescription plans, drugs, dental and vision programs, disability insurance, and coverage under an accidental death and dismemberment policy. In addition, business travel accident plans, hospital indemnity or cancer policies, and Medicare supplements can be funded, as can short- and long-term disability (although there are good reasons to fund disability policies outside of the cafeteria plan). This also includes reimbursement for health care expenses under a health care flexible spending account (FSA). (b) As of 2014, individually owned accident or health insurance policies may no longer be offered under a cafeteria plan. Also, the plan may not reimburse the health insurance premiums under a health care FSA or reimburse policies maintained by another employer. (c) Employer-provided group term life insurance coverage excludable from income under IRC Section 79 or includable in income solely because the benefit exceeds the $50,000 limit of IRC Section 79. Only the first $50,000 of coverage is nontaxable; income is imputed on amounts in excess of $50,000. (d) Employer-provided dependent-care assistance under IRC Section 129 (e) Employer-provided adoption assistance under IRC Section 137 (f) A 401(k) plan or purchase of retiree group term life insurance by participants employed by certain educational institutions described in IRC Section 170(b)(1)(A)(ii) (g) Contributions to a health savings account (HSA) under IRC Section 223."
Are there any benefits available under a cafeteria plan that are taxable benefits?,"Some benefits paid through a cafeteria plan are taxable benefits. A taxable benefit is a benefit that results in taxable income for the employee when it is received and a tax deduction for the employer when it is paid. While the most common taxable benefit is cash, paid-time-off days and group term life insurance in excess of $50,000 are examples of taxable benefits that can be paid from a cafeteria plan."
List components of total compensation that are not considered to be qualified benefits and therefore are prohibited from being funded through a cafeteria plan.,"The following components of total compensation are not considered qualified benefits and therefore are not permitted to be funded through a cafeteria plan: (a) Contributions to medical savings accounts under IRC Section 106(b) (b) Qualified scholarships under IRC Section 117 (c) Educational assistance programs under IRC Section 127 (d) Certain fringe benefits under IRC Section 132 (e) Qualified long-term care insurance under IRC Section 7702B (f) Archer medical savings accounts (g) Athletic facilities (h) De minimis (minimal) benefits (i) Dependent life insurance (j) Employee discounts (k) Lodging on the business premises (l) Meals (m) Moving expense reimbursements (n) No-additional-cost services (o) Parking and mass transit reimbursement (p) Contributions to an IRC Section 529 college savings account (q) Legal assistance (r) Financial assistance (s) Elective deferrals to a Section 403(b) plan (t) Health reimbursement arrangements (HRAs) (clarified by August 6, 2007 regulations) (u) In addition, a qualified health plan offered through a health insurance marketplace (exchange) established to facilitate the purchase of health insurance in accordance with the Affordable Care Act."
"What is a salary reduction agreement as used in the context of a cafeteria plan, and how is it entered into in order to be valid under tax law?","A salary reduction agreement is an agreement made between an employee and an employer allowing the employee to defer salary and thus avoid constructive receipt of the compensation. In lieu of paying the compensation to the employee, the employer contributes the amount agreed upon toward the cost of certain benefits. The employer can pay for the benefits on a tax-favored basis. Under this arrangement, the employee is in essence buying the employee benefits on a pretax basis without the monies being considered constructively received. Therefore, because the participant has entered into an agreement to forgo salary in lieu of benefits, the amounts that are deferred as contributions to the cafeteria plan are not considered wages for federal income tax purposes. As noted, the deferred sums generally are also not subject to Federal Insurance Contributions Act (FICA-Social Security) or Federal Unemployment Tax Act (FUTA) taxes. However, sometimes state and local taxes apply. For a salary reduction agreement to be valid, it must be entered into between the employer and the employee prior to the beginning of the period of coverage, which usually is the plan year."
"(a) What requirements must be met in order to have a valid negative election, and (b) what is an evergreen election under a cafeteria plan?","(a) Sometimes employers provide for automatic enrollment of their employees in certain benefits under a cafeteria plan. This automatic enrollment is known as a negative election since no positive action is required on the part of the employee to effect enrollment in the benefit plan. In order for a negative election to be valid, employees must receive reasonable notice of the automatic deferral and have the option to decline coverage each plan year. (b) An evergreen election is similar to a negative election. When a plan uses an evergreen election, a participant makes a one-time election. Once made, the evergreen election stays in force from plan year to plan year unless the participant elects to make a change during the applicable election period (most often, this would be the plan’s annual open enrollment period). While an evergreen election technically could be offered with respect to all benefits under a cafeteria plan, it is seldom used for reimbursement accounts, particularly for dependent-care assistance, since expenditures in these types of accounts tend to change annually depending upon family circumstances. In addition, the ACA imposes some limitations on this option in the case of health coverage."
"(a) What is the general rule regarding a participant’s ability to revoke a benefit election during a coverage period, and (b) what are some notable exceptions (excluding Section 125 change-in-status rules) to the general rule?","(a) In general, a cafeteria plan participant may not revoke a benefit election during the period of coverage unless the revocation is attributable to the occurrence of certain permitted events. (b) Although a cafeteria plan participant generally is restricted from revoking a benefit election in the absence of the occurrence of certain permitted events, there are some notable exceptions to this general rule. The Health Insurance Portability and Accountability Act (HIPAA) sets forth special enrollment rights. HIPAA requires group health plans, including those offered under a cafeteria plan, to permit individuals to make midyear benefit changes following the loss of other health coverage or if a person becomes the spouse or dependent of an employee through birth, marriage, adoption or placement for adoption. If a participant has a right to enroll in an employer’s group health plan or to add coverage for a family member under HIPAA, the participant can revoke an existing election and make a new election under the cafeteria plan that conforms with the special enrollment right. If HSA contributions are made through salary reduction under a cafeteria plan, employees may prospectively elect, revoke or change salary reduction elections for HSA contributions at any time during the plan year with respect to salary that has not become currently available at the time of the election."
Discuss the pre–Affordable Care Act special change-in-status rules within Section 125 regulations under which a participant may revoke a cafeteria plan benefit election and make a new election.,"Within IRC Section 125 regulations, there are special change-in-status rules. Under the change-in-status rules, a plan may permit participants to revoke an election and make a new election. These rules allow changes with respect to accident and health coverage, dependent-care expenses, group term life insurance or adoption assistance if a permissible change in status occurs and the election change is “consistent” with the change in status. For this purpose, acceptable change-in-status events include changes related to the following: (a) Legal marital status (b) Number of dependents (c) Employment status (d) Place of work or residence (e) Cases where the dependent satisfies, or ceases to satisfy, the requirements for eligibility (f) Commencement or termination of an adoption proceeding for purposes of adoption assistance."
"Discuss the new post–Affordable Care Act special events under which participants may revoke their cafeteria plan election in midyear. (Text, p. 222, Footnote d)","In 2014, the IRS expanded the events that allow participants to revoke their cafeteria plan elections to include the following two situations: (a) Participants may revoke their elections because of a reduction in hours even if the reduction does not result in the employee becoming ineligible for benefits under the cafeteria group health plan. The revocation is only permitted if the individual receives coverage under another plan that provides ACA minimum essential coverage and the coverage commences within a certain stipulated period. (b) If an employee qualifies for enrollment in the ACA Exchange under the Special Enrollment Period and coverage commences within a certain stipulated period."
What is meant by a “consistent” benefit election change according to IRC Section 125 regulations?,"According to IRC Section 125 regulations, an election change is considered to be “consistent” if that change is on account of and corresponds with a change-in-status event that affects eligibility for coverage. If a change in status results in an increase or decrease in the number of an employee’s family members or dependents who may benefit from coverage under the plan, the eligibility requirement is satisfied. Election changes must be made on a prospective basis only. No retrospective changes generally are permissible. Candidate Note: The textbook states on page 199, third paragraph, that under the Affordable Care Act, dependent coverage is extended through the end of the calendar year. Please note that employer plans required to provide dependent coverage for adult children are only required to do so until the end of the month in which the individual turns age 26. There are plans that may extend the coverage through the end of the plan year or calendar year in which the individual turns 26. Note that according to the Centers for Medicare & Medicaid Services (https://www.cms.gov/CCIIO/Resources/Files/adult_child_faq.html (Accessed 08/22/2019)), under the law, the requirement to make adult coverage available applies only until the date that the child turns 26. However, if coverage extends beyond the 26th birthday, the value of the coverage can continue to be excluded from the employee’s income for the full tax year (generally the calendar year) in which the child had turned 26. For example, if a child turns 26 in March but is covered under the employer plan of their parent through December 31 (the end of most people’s taxable year), the value of the health care coverage through December 31 is excluded from the employee’s income for tax purposes. If the child stops coverage before December 31, then the premiums paid by the employee up to the time the plan was stopped will be excluded from the employee’s income."
"What changes to cafeteria plan elections may be made by a participant (a) who takes unpaid Family and Medical Leave Act (FMLA) leave, (b) under the Uniformed Services Employment and Reemployment Rights Act (USERRA), and (c) according to the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act)?","(a) A participant who takes unpaid FMLA leave must be allowed by the cafeteria plan sponsor to revoke an existing election for all health plan coverage for the remainder of the coverage period notwithstanding any contrary rules stated in the cafeteria plan document. A participant who takes FMLA leave may revoke elections for nonhealth benefits only under the same rules that apply to participants taking non-FMLA leave. In either case, the participant may choose to be reinstated in the plan upon return from FMLA leave on the same terms and conditions as were in force prior to the taking of FMLA leave. (b) A participant who takes a leave of absence under USERRA may elect to continue participation in the plan during the period of leave. Amounts previously deferred that would otherwise continue to be deferred under this section, if the participant were still employed, may be paid to the plan as a single lump sum at the beginning of each year or at the beginning of the expected leave-of-absence period or in the form of monthly payments. (c) The HEART Act enhanced the USERRA protections. Among its enhancements, it permits plan sponsors to allow an employee called to active duty for a certain duration to receive a distribution of the unused balance of their health care FSA."
"(a) What is a health care FSA, and (b) what requirements must such an account meet in order to qualify for special tax treatment under a cafeteria plan?","(a) A health care FSA is a plan that meets the qualification requirements under IRC Section 105. If the plan is maintained as part of a cafeteria plan, additional requirements set forth in the regulations also must be satisfied. (b) For a health care FSA to qualify for special tax treatment under a cafeteria plan, it must meet all of the requirements of IRC Sections 105 and 106 that apply to accident and health plans as well as the requirements of IRC Section 125 and the regulations thereunder. To qualify as an accident or health plan, a health care FSA must exhibit the risk shifting and risk distribution characteristics of medical insurance. Account participants must be reimbursed specifically for medical expenses they have already incurred during the coverage period. The coverage period cannot be less than a year unless the plan is new or terminating on a short plan year because of an administrative change in the plan year. The FSA cannot eliminate all or substantially all risk of loss to the employer maintaining the plan. In addition, the plan document must set forth the maximum contribution established by the employer, which may be lower than the statutory maximum contribution limit implemented by the Affordable Care Act ($2,850 in 2022). There are certain rules concerning ongoing plan operation. Also, before a plan reimburses an expense under a health care FSA, an independent third party must substantiate the claim. The third party may be an insurance company. If a canceled check evidences an expense has been paid, the substantiation may take the form of an explanation of benefits (EOB) certificate or receipt from the doctor’s office. The written statement must include, at a minimum, the date the expense was incurred as well as the amount and nature of the expense. The statement also must certify that the expense will not be reimbursed by any other health coverage. Unused funds in excess of $570 (in 2022), left by participants in their accounts at the end of the plan year, may not be refunded to plan participants by the plan sponsor. Up to $570 (in 2022) in unused funds can be carried over into the following plan year without affecting the allowable contribution amount for the new plan year."
What alternatives does an employer have regarding the use of forfeited funds in health care FSAs?,"Funds in a health care FSA that are unused during the plan year are forfeited by plan participants and then become the property of the employer. There are various alternatives regarding the use of these funds by the employer. Some employers keep the money, others use it to pay plan expenses and some give it to a charity. While it would be allowable for an employer to equally divide these funds among all employees, the money cannot be refunded solely to the employees who incurred the forfeitures. Money forfeited by employees under the use-it-or-lose-it provision is called an experience gain. Experience gains may be: (a) Retained by the employer, (b) Used to reduce administrative expenses of the cafeteria plan, (c) Returned to employees (subject to the stipulation in the preceding paragraph), or (d) Used to reduce employees’ required salary reduction amounts. The regulations describe procedures for allocating experience gains on a “reasonable and uniform basis.”"
"(a) What is a dependent-care assistance plan, and (b) what stipulations are imposed for dependent-care expenses to qualify for reimbursement under such a plan?","(a) A dependent-care assistance plan is a plan that meets the qualification requirements set forth under IRC Section 129. Dependent-care assistance is defined as the payment for or provision of services which, if paid for by the participant, would be considered employment-related expenses. To claim benefits under a dependent-care assistance plan, the participant’s spouse also must be employed, a full-time student, or physically or mentally incapable of self-care. Dependent-care assistance plans can be offered either on a standalone basis or as part of a cafeteria plan. When offered under a cafeteria plan, they must meet all the requirements of both IRC Sections 125 and 129. A dependent-care assistance plan offers participants the ability to pay for the first $5,000 of dependent-care assistance on a tax-free basis. The $5,000 limit is reduced by other dependentcare assistance provided by the employer, such as on-site day care offered at a reduced rate or subsidized by the employer. A dependent-care assistance plan must be in writing. The plan must disclose the availability and terms of the dependent-care assistance plan. To claim the expense as an exclusion from income, the participant must report to the plan administrator the name, address and taxpayer identification number of the dependent-care provider. Lastly, on or before each January 31, the expenses incurred by the employee for dependent-care assistance benefits in the preceding calendar year must be reported on the employee’s Form W-2. (b) For expenses to qualify for reimbursement under a dependent-care assistance plan, the expenses must be eligible reimbursement expenses. Eligible reimbursement expenses are defined as those expenses that enable the participant and the participant’s spouse to work or look for work. (Regulations also allow a spend-down period following termination of plan participation following the cessation of employment. During the spend-down period, participants may draw down elected amounts for eligible expenses. This rule does not apply to health care FSAs.) Eligible expenses include child-care centers that care for six or more children, caregivers for a disabled spouse, babysitters, nursery schools, day camps and household expenses provided that a portion of these expenses is incurred to ensure a qualifying dependent’s well-being and protection. Care cannot be provided by a person for whom a personal tax exemption is taken on the participant’s tax return. If the caregiver is a child of the participant, they must be at least 19 years old. Expenses cannot be submitted for baby-sitting for social events, educational expenses, overnight camp or expenses that the participant will claim on their tax return. In order to be reimbursed, the participant must provide a written statement signed by an independent third party confirming that the dependent-care expense has been incurred and citing the amount of the expense. Also, the participant must declare that the expense has not been and will not be reimbursed under any other coverage. Reimbursement cannot be made in advance of the expense being incurred. The name, address and employer identification number of the service provider must also be provided."
What is the distinction between an elective and a nonelective paid-time-off option in a cafeteria plan?,"A cafeteria plan that offers paid time off must make a distinction between an elective and a nonelective paid-time-off option. Nonelective paid time is for those days that are not subject to an election by the employee. For example, if an employee’s total paid time off is two weeks but they can sell back only one week, this employee has one week of nonelective paid time off and one week of elective paid time off. The reason for prohibiting paid-time-off days from being carried over from one year to the next is because doing so would be an impermissible deferral of compensation."
"Discuss what would qualify as adoption expenses under a cafeteria plan adoption assistance program, and describe generally what requirements these plans must meet.","Qualifying adoption expenses are those expenses that are reasonable and necessary adoption fees, including attorney fees, travel expenses and other expenses that are directly related to a legal adoption. All adoption assistance programs must meet certain requirements including that the program be set forth in writing. In addition, the plan must be nondiscriminatory and maintained for the exclusive benefit of employees. The employees must be given reasonable notice of the plan’s existence. There exists a maximum reimbursement with respect to adoption expenses, and this limit applies per adoption, not on a year-by-year basis. In addition, these benefits are subject to an income limit."
Define health savings accounts (HSAs).,"Health savings accounts (HSAs), employee-owned trusts or custodial accounts for reimbursement of medical expenses may be funded with employee salary deferrals or employer contributions through a cafeteria plan. Employers may contribute to HSAs but may be limited by the cafeteria plan nondiscrimination rules. Contributions to an HSA are only permitted in months that the participant has, as their only health coverage, a qualified high-deductible health insurance plan. The overall limits on contributions to an HSA are the same whether or not the HSA is funded inside or outside a cafeteria plan."
Explain the meaning of cash in the context of IRC Section 125 plans.,"The term cash has a broader meaning in the context of an IRC Section 125 plan that goes beyond the actual receipt of dollars. Two conditions must be met in order for a payment to be considered cash within a cafeteria plan. First, the benefit must be one that is not specifically prohibited by IRC Section 125. Second, the benefit must be provided on a taxable basis. This can be accomplished in one of two ways: Either the participant can pay for the benefit on an after-tax basis or the employer can pay for the benefit and report the cost of the benefit as taxable income to the employee."
"What are “other employee benefit plans” (as opposed to retirement plans) called under the Employee Retirement Income Security Act (ERISA)? (Text, pp. 324 and 336, Footnote 2)","Under ERISA, “other employee benefit plans” are called welfare plans, and these plans are established and maintained to provide health benefits, disability benefits, death benefits, prepaid legal services, vacation benefits, day-care centers, scholarship funds, apprenticeship and training benefits, or other similar benefits."
How does ERISA regulate health plans?,"ERISA regulates health plans by requiring the plans to meet certain minimum standards with respect to the following four provisions: (a) Providing participants with plan information, including material about plan features and funding (b) Exercising fiduciary responsibilities while administering a plan and managing its plan assets (c) Establishing a grievance and appeal process for participants to get benefits from their plans (d) Allowing participants the right to sue for benefits and breaches of fiduciary duty."
What major amendments to ERISA predated the Patient Protection and Affordable Care Act (ACA)?,"Major ERISA amendments enacted prior to the federal health care reform law of 2010 include the following: (a) Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) (b) Health Insurance Portability and Accountability Act of 1996 (HIPAA) (c) Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), as amended (d) Newborns’ and Mothers’ Health Protection Act of 1996 (NMHPA), as amended (e) Women’s Health and Cancer Rights Act of 1998 (f) Michelle’s Law, effective in 2010. List of expandable sections. Select each button to expand the content."
Summarize the following pre-ACA benefit improvements:,(a) MHPAEA (b) NMHPA (c) The Women’s Health and Cancer Rights Act of 1998 (d) Michelle’s Law
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) continues to fill coverage gaps in the post-ACA environment. What does COBRA require of health plans?,"COBRA requires most group health plans to provide a temporary continuation of group health coverage that otherwise might be terminated. COBRA requires continuation coverage to be offered to covered employees, their spouses, their former spouses and their dependent children when group health coverage would otherwise be lost because of certain specific events."
What events entitle an individual to COBRA coverage?,The events that entitle an individual to COBRA coverage include: (a) The death of a covered employee (b) Termination or reduction in the hours of a covered employee’s employment for reasons other than gross misconduct (c) Divorce or legal separation from a covered employee (d) A covered employee’s becoming entitled to Medicare (e) A child’s loss of dependent status (and therefore coverage) under the plan.
Describe some of the disadvantages of COBRA benefits.,One disadvantage of COBRA benefits is that employers may require individuals who elect continuation coverage to pay the full cost of the coverage plus a 2% administrative charge. The required payment for continuation coverage is often more expensive than the amount active employees are required to pay for group health coverage since the employer usually pays part of the cost of employee coverage and all of that cost can be charged to the individuals receiving continuation coverage. Another disadvantage of COBRA coverage is that it lasts only for a limited period of time.
Which type of employers must offer COBRA benefits?,"Generally, COBRA applies to all group health plans maintained by private-sector employers (with at least 20 employees) or by state and local governments. The law does not apply, however, to plans sponsored by the federal government or by churches and certain church-related organizations."
Describe which group health benefits are subject to COBRA.,"Under COBRA, a group health plan is any arrangement that an employer establishes or maintains to provide employees and their families with medical care, whether it is provided through insurance, by a health maintenance organization, out of the employer’s assets on a pay-as-you-go basis or otherwise. “Medical care” typically covered by a group health plan for this purpose includes: Inpatient and outpatient hospital care Physician care Surgery and other major medical benefits Prescription drugs Dental and vision care."
Which common benefits found in employee benefits packages are not subject to COBRA?,"Life insurance is not considered “medical care” nor are disability benefits; consequently, neither of these benefits is subject to COBRA continuation requirements."
Discuss the maximum periods of COBRA continuation coverage.,The length of maximum periods of COBRA continuation coverage depends on the qualifying event that triggers COBRA rights.
Summarize the notification requirements under COBRA.,"There are a host of COBRA communication requirements, including employer notification to covered employees and their spouses of their COBRA rights at the time that coverage under the plan commences. In addition, when a qualifying event is known to the company, there is employer notification to the qualified beneficiary of the right to choose continuation of coverage. In the event of a divorce, legal separation, disability or a child losing dependent status under the plan, the covered employee or family member has the responsibility to provide notification to the employer or plan administrator."
In what ways does the Health Insurance Portability and Accountability Act (HIPAA) offer protection to workers and their families?,"HIPAA offers protection for workers and their families by: (a) Providing additional opportunities to enroll in group health plan coverage when they lose other health coverage, get married or add a new dependent (b) Prohibiting discrimination in enrollment and in premiums charged to employees and their dependents based on any health factors (c) Preserving the states’ role in regulating health insurance, including the states’ authority to provide greater protection than those available under federal law. List of expandable sections. Select each button to expand the content."
What are the two special enrollment rights under HIPAA?,"HIPAA special enrollment rights allow individuals who previously declined health coverage to enroll for coverage outside of a plan’s open enrollment period. There are two types of special enrollment rights: (1) Loss of eligibility for other coverage (2) Certain life events For both types, the employee must request enrollment within 30 days of the loss of coverage or life event triggering the special enrollment."
What are the major policy objectives of the Affordable Care Act (ACA)?,"The major policy objectives of ACA are to: (1) improve quality and lower health care costs for individuals and government programs, (2) provide new consumer protections and (3) expand access to health care."
Describe the ramifications of the Supreme Court decision National Federation of Independent Business v. Sebelius?,"Title II of ACA deals with the role of public programs. When ACA was enacted, it expanded and improved Medicaid for lower income adults and families. The 2012 National Federation of Independent Business v. Sebelius Supreme Court decision upheld the Medicaid expansion but precluded the federal government from withholding all Medicaid federal funding if states failed to accept and comply with the ACA Medicaid expansion requirements."
Explain the ACA preexisting provisions.,"ACA prevents insurance companies from denying coverage due to a preexisting condition. It initially applied only to children; today, insurance companies are prohibited from refusing to sell coverage or renew policies because of an individual’s preexisting conditions. Also, in the individual and small group market, the law eliminates the ability of insurance companies to charge higher rates due to gender or health status."
Summarize which categories of benefits are deemed essential health benefits (EHBs) under ACA.,"Under ACA, the EHBs that nongrandfathered individual and small group plans must provide include: (1) Ambulatory patient services (outpatient care provided without being admitted to a hospital) (2) Emergency services (3) Hospitalization (like surgery and overnight stays) (4) Pregnancy, maternity and newborn care (both before and after birth) (5) Mental health and substance use disorder (SUD) services, including behavioral health treatment (this includes counseling and psychotherapy) (6) Prescription drugs (7) Rehabilitative and habilitative services and devices (services and devices to help people with injuries, disabilities or chronic conditions gain or recover mental and physical skills) (8) Laboratory services (9) Preventive and wellness services and chronic disease management (10) Pediatric services, including oral and vision care (but adult dental and vision coverage aren’t essential health benefits). Candidate Note: The terms essential health benefits (EHBs) and minimum essential coverage (MEC) have specific meanings under ACA. EHBs are the ten core benefits that plans offered on the ACA exchanges—called qualified health plans—must cover. Furthermore, the only individual or small group plans not required to cover EHBs are grandfathered plans sold outside the ACA exchanges. MEC is the term ACA uses as a designation for those types of coverages that qualify for satisfying the shared responsibility provisions for individuals and employers discussed in Objective 4. Employer-sponsored coverage (including COBRA coverage and retiree coverage) has been designated as MEC under ACA."
"Under ACA, can plans place lifetime or annual limits on the dollar value of essential benefits? (Text, pp. 329 and 337, Footnote 9)","Under ACA, generally, group health plans are prohibited from offering coverage that establishes any lifetime or annual limits on the dollar value of EHBs. While self-insured plans of any size and large plans are not required to offer EHBs, if they do, they are prohibited from imposing these types of limits. Most of these plans do cover a majority of the ten EHBs. Thus, this provision applies to all group health plans regardless of grandfathered status."
How does ACA strive to make health insurance more affordable?,"ACA strives to make health insurance more affordable by providing tax credits to people with income between 100% and 400% of the poverty line who are not eligible for other affordable coverage. The tax credit is advanceable, so it can lower premium payments each month rather than making the individual wait for tax time. It’s also refundable, so even moderate-income families can receive the full benefit of the credit. These individuals may also qualify for reduced cost sharing which covers copayments, coinsurance and deductibles."
Define the ACA mandate known as shared responsibility for employers.,"The shared responsibility mandate is sometimes referred to as the employer mandate or the play-or-pay provision. The law amended the tax revenue code by adding Internal Revenue Code (IRC) Section 4980H requiring employers—referred to as applicable large employers (ALEs)—to offer health coverage to their full-time employees or pay a penalty. That is, ALEs must either offer minimum essential coverage that is “affordable” and provides “minimum value” to their full-time employees and their dependents or potentially make an employer shared responsibility payment to the IRS. Whether an employer is an ALE in a particular calendar year depends on the size of the employer’s workforce in the preceding calendar year. To be an ALE for a particular calendar year, an employer must have had an average of at least 50 full-time employees (including full-time-equivalent employees) during the preceding calendar year."
Describe the penalties an ALE employer faces if it fails to provide affordable and minimum value benefits?,"An ALE member may be subject to one of two potential employer shared responsibility payments. An ALE member will owe the first type of employer shared responsibility payment if it does not offer minimum essential coverage to at least 95% of its full-time employees (and their dependents) and at least one full-time employee receives the premium tax credit for purchasing coverage through the Health Insurance Marketplace. Even if an ALE member offers minimum essential coverage to at least 95% of its full-time employees (and their dependents), it may owe the second type of employer shared responsibility payment for each full-time employee who receives the premium tax credit for purchasing coverage through the Marketplace. In general, a full-time employee could receive the premium tax credit if: (1) the minimum essential coverage the employer offers to the employee is not affordable, (2) the minimum essential coverage the employer offers to the employee does not provide minimum value or (3) the employee is not one of at least 95% of full-time employees offered minimum essential coverage. For either type of employer shared responsibility payment to apply to an ALE member, at least one full-time employee must receive the premium tax credit for purchasing coverage through the Marketplace."
"In general, a full-time employee is one employed on average at least how many hours? (Text, p. 337, Footnote 11)","In general, for purposes of the employer shared responsibility provisions, a full-time employee is, for a calendar month, an employee employed on average at least 30 hours of service per week, or 130 hours of service per month."
Explain the role of the Health Insurance Marketplace established by ACA.,"ACA established the Health Insurance Marketplace—also known as ACA exchanges—to allow private insurance companies to offer qualified health plans for purchase by individuals who lack insurance through an employer or who do not qualify for government programs such as Medicare or Medicaid. ACA, with a few exceptions, requires individuals to obtain basic health insurance."
How does ACA impact employers with fewer than 50 employees?,"Most employers have fewer than 50 full-time employees or full-time equivalent employees and are not subject to the ACA employer shared responsibility provision. If an employer has fewer than 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer is not an ALE for the current calendar year. Therefore, the employer is not subject to the employer shared responsibility provisions or the employer information reporting provisions for the current year. Employers with 50 or fewer employees can purchase health insurance coverage for their employees through the Small Business Health Options Program—better known as the SHOP Marketplace. Employers that have fewer than 25 full-time equivalent employees with average annual wages of less than $50,000 may be eligible for the small business health care tax credit if they cover at least 50% of their full-time employees’ premium costs and they purchase coverage through the SHOP."
What is meant by a “grandfathered” status under ACA?,"Generally, grandfathered plans are plans that were in existence, and in which at least one individual was enrolled on March 23, 2010. Grandfathered health plans are exempt from many but not all ACA market reforms. They must disclose in their plan materials that they consider themselves to be grandfathered plans."
Under what circumstances can plans lose their grandfathered status? (p. 332),"A plan loses its grandfathered status if the plan makes one of the following six changes: (1) Elimination of all or substantially all benefits to diagnose or treat a particular condition (2) Increase in a percentage cost-sharing requirement (e.g., raising an individual’s coinsurance requirement from 20% to 25%) (3) Increase in a deductible or out-of-pocket maximum by an amount that exceeds medical inflation plus 15 percentage points (4) Increase in a copayment by more than the greater of $5 or a percent equal to medical inflation plus 15% (5) Decrease in an employer’s contribution rate toward the cost of coverage by more than 5 percentage points (6) Imposition of annual limits on the dollar value of all benefits below specified amounts. Additionally, plans must include a statement in any plan materials provided to a participant or beneficiary describing the benefits provided under the plan that the plan or coverage believes it is a grandfathered health plan, and it must provide contact information for questions and complaints."
Which provisions of ACA apply to grandfathered health plans?,"Grandfathered health plans are exempt from many, but not all, ACA market reforms. Some of the provisions applicable to grandfathered plans include: (a) Prohibition on preexisting condition exclusions (b) Prohibition on excessive waiting periods (c) Prohibition on lifetime/restricted annual limits (d) Prohibition on rescissions (e) Extension of dependent coverage (f) Summary of benefits and coverage and uniform glossary. Some of the provisions not applicable to grandfathered plans include: (a) Coverage of preventive services without cost sharing (b) Internal claims and appeals and external review (c) Patient protections."
Describe the benefits available to eligible employees under the Family and Medical Leave Act (FMLA).,"FMLA entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons with continuation of group health insurance coverage under the same terms and conditions as if the employee had not taken leave. For most cases, eligible employees are entitled to up to 12 weeks of leave in a 12-month period."
Summarize under which circumstances an eligible employee may take FMLA leave.,"An eligible employee may take up to 12 weeks of leave in a 12-month period under the following circumstances: (a) The birth of a child and to care for the newborn child within one year of birth (b) The placement with the employee of a child for adoption or foster care and to care for the newly placed child within one year of placement (c) To care for the employee’s spouse, child, or parent who has a serious health condition (d) A serious health condition that makes the employee unable to perform the essential functions of their job (e) Any qualifying exigency arising out of the fact that the employee’s spouse, son, daughter or parent is a covered military member on “covered active duty.” Candidate Note: Under certain conditions or medical situations, FMLA leave can be taken intermittently or on a reduced leave schedule. For example, an eligible employee who is recovering from cancer may work a two-day week on a reduced work schedule leave."
What are the key elements of the Americans with Disabilities Act of 1990 (ADA)?,"The Americans with Disabilities Act of 1990 prohibits private employers, state and local governments, employment agencies and labor unions from discriminating against qualified individuals with disabilities in job application procedures, hiring, firing, advancement, compensation, job training and other terms, conditions and privileges of employment. ADA covers employers with 15 or more employees, including state and local governments. Disability is defined as an impairment that substantially limits one or more major life activities, a record of such an impairment or being regarded as having such an impairment."
What aspect of ADA is of major concern to employer-sponsored health plans?,A major concern to employer-sponsored health plans has been the ADA applicability to wellness programs that are part of these plans. ADA generally restricts employers from obtaining medical information from employees but allows medical examinations of employees and inquiries about their health if they are part of a “voluntary” employee health program. There has been uncertainty as to whether employers may offer incentives to encourage employees to participate in such programs or whether offering incentives would make participation involuntary.
Describe the individuals covered by the Uniformed Services Employment and Reemployment Rights Act (USERRA) and the protection the act affords them.,"USERRA covers virtually every individual in the country who serves in or has served in the uniformed services and applies to all employers in the public and private sectors, including federal employers. USERRA establishes five years as the cumulative length of time that an individual may be absent from work for military duty and retain reemployment rights. The law provides that returning service members are reemployed in the job that they would have attained had they not been absent for military service, with the same seniority, status and pay, as well as other rights and benefits determined by seniority. Individuals performing military duty of more than 30 days may elect to continue employer-sponsored health care for up to 24 months; however, they may be required to pay up to 102% of the full premium. For military service of less than 31 days, health care coverage is provided as if the service member had remained employed."
"Under the Age Discrimination in Employment Act (ADEA), are employers permitted to offer retiree health benefits that vary depending on whether the retiree is eligible for Medicare?","Yes, employers are not presumed to be violating ADEA when offering retiree benefits that vary on whether the individual is eligible for Medicare or not."
Describe the Medicare Secondary Payer (MSP) rules for when Medicare coverage is available alongside other health insurance through a group plan.,"The MSP rules for the most common situations when Medicare coverage is available alongside other health insurance through a group plan are: (a) Individual is aged 65 or older, is covered by an employer group health plan through current employment or spouse’s current employment AND the employer has fewer than 20 employees: Medicare pays primary; group health plan pays secondary. (b) Individual is aged 65 or older, is covered by a group plan through current employment or spouse’s current employment AND the employer has 20 or more employees: Group health plan pays primary; Medicare pays secondary. (c) Individual is aged 65 or older, is self-employed and covered by an employer group health plan through current employment or spouse’s current employment AND the employer has 20 or more employees: Group health plan pays primary; Medicare pays secondary. (d) Individual is disabled, is covered by a group health plan through their own current employment (or through a family member’s current employment) AND the employer has 100 or more employees: Group health plan pays primary; Medicare pays secondary. Medicare, however, remains the primary payer for individuals aged 65 or over who are also covered under an employer retirement plan."
Summarize the permanent changes in the law affecting employee benefits that arose as a result of the COVID-19 pandemic.,"There were several changes in the law affecting employee benefits that arose as a result of the COVID-19 pandemic.  Among these changes are the following: Prohibitions on surprise medical billing Transparency requirements Mental Health Parity and Addiction Equity Act (MHPAEA) compliance No-cost coverage, reimbursement standards for COVID-19 testing Pretax reimbursement of over-the-counter (OTC) drug costs and menstrual products is allowed Health Insurance Portability and Accountability Act (HIPAA) guidance is required Confidentiality changes for substance use disorder (SUD) records Individual income tax deduction for qualified medical expenses"
Detail the steps in conducting a return on investment (ROI) evaluation.,"Ideally, the evaluation is planned and prospective, which makes it possible to identify the data needed beforehand and to set up systems to gather or extract the data. (1) Define the change that the investments will be used to make. (2) List the time and other resources needed (a) to make the change and (b) to sustain the change once it is made. (3) Define the investment and the investor. (4) Define the returns to be valued. (5) Decide the ROI study design and data. (6) Collect and analyze the data and present (a) investment costs and time period of investment, (b) returns at year one from start of investment and at years two and three, and (c) ROI at three years. (7) Specify assumptions, limits and degree of certainty of the evaluation."
Is a return on investment (ROI) evaluation the same as a business case assessment?,"An ROI evaluation is part of many business case assessments. A business case also involves other statements about why the investment comes within the mission of an organization and why it contributes to strategic objectives or to other changes being made at the same time. A business case is where the justification, plan and expected results are laid out in one document. It might include statements about: (a) Current problems and opportunities (b) How and why a change will solve the problem facing the organization and contribute to strategic objectives (c) The time, money and other resources needed from the organization and from others to make the change successfully (d) Expected benefits, especially in relation to the current problem or strategy, and expected ROI at one, three and five years (e) Risks and risk management strategies (f) The expected situation if the change is not undertaken and the possible alternative use of the resources proposed for the change (g) An outline draft plan for next steps."
How are value improvements (a) evaluated and (b) predicted?,"(a) Evaluating value improvements: Value improvements are changes that both improve quality and reduce waste and that usually reduce the costs of producing a service. Evaluations are needed to assess whether promised changes do, in fact, improve quality and reduce waste. They are also needed to assess whether the cost of the change is worth the improved quality and reduced waste that the change may produce. Evaluations of value improvements thus assess the costs of a supposed improvement and the quality results and resource results. One type of evaluation of a value improvement is a cost-quality return on investment (CQROI)evaluation. Such a calculation is broader than the ROI evaluation described above because it considers both the quality returns and the resource returns. ROI evaluations usually only consider the payback for the investor, in terms of the money they get back for the money they put in, at a certain payback date. (b) Predicting value improvements: This is a way of assessing from previous research or information whether a change will be a value improvement. The method used to make value improvement estimates is as follows: Problems: waste and costs (1) For studies with evidence of problems, select those that quantify the problems or a problem. Use these to estimate the possible waste or costs to providers or health systems, showing the basis for the estimate and limitations. Emphasize that the figure is an estimation by giving a range estimate (i.e., “unlikely that this would cost a provider less than . . . or more than . . .”). Solutions: their cost and likely savings (or loss) (2) For intervention studies, exclude those interventions and studies with inadequate evidence of quality improvements (i.e., the evidence is not sufficiently strong, or there is strong evidence of no improvement for intermediate or final outcomes such as patient experience/satisfaction or effective care practices/processes and clinical outcomes). (3) Identify studies with acceptable evidence of quality improvement and also some evidence of resources or cost, and include and summarize these in the review. (4) For studies with evidence of quality improvements only, identify whether they provide any data to allow some estimate of resources used for the intervention and/or resources saved (e.g., number of emergency department visits, physician office visits, hospital days or length of stay, medications supplied or other consumable or equipment costs). Then make an estimate of the extra time saved or spent."
How is value improvement estimated for local service providers?,"Value improvement is estimated for local service providers by asking and answering the following questions: (1) Does previous research or information give “strong enough” evidence of quality improvement? If yes, then continue with points (2)-(7). (2) How much does the intervention cost (investment)? (3) Is there any evidence of reductions in waste and more efficient use of resources (e.g., fewer visits/admissions, fewer medications/tests, shorter length of stay, time saved)? (4) What is the money value of these reductions and efficiencies? (5) If there is no evidence from research for points (2) or (3), then use theory or estimations for deciding a cost range (e.g., it is likely that the spend cost would not be less than X and not more than Y). (6) Overall, what is the ROI, if any, for a particular stakeholder? (The stakeholder ROImeans: What is the cost of the change and savings or extra cost for different stakeholders (patient, providers, payer or integrated health system)?) (7) Time to pay off: How are the spending and savings distributed between different parties at year one, year two, year three, year five or year ten?"
What constitutes a “good” ROI evaluation?,"Remember, a good ROI evaluation does the following: (a) Specifies the user(s) of the evaluation and the decisions the evaluation will inform (b) Identifies all the costs and benefits that are important to the users’ decisions, and measures in financial terms those that are feasible to measure (c) Distinguishes in the findings the theoretical ROI and also the actual or likely monetized ROI (based on actual cash savings) at different times after the intervention starts (d) Specifies the limitations, assumptions and range of certainty of the results.""Differentiate between the wide perspective and the narrow perspective of employee benefits.", "The wide perspective sees employee benefits as almost any form of compensation other than direct wages given to employees. This includes both government-mandated benefits and private plans. Therefore, things like the employer's portion of Social Security tax on behalf of an employee, paid holidays, and pension schemes are considered employee benefits under the wide perspective. The narrow perspective, however, can be defined as any type of plan sponsored or initiated unilaterally or jointly by employers and employees and engaged in providing benefits that result from the employment relationship and that are not underwritten or paid directly by government. While this textbook and course mainly focus on the narrow definition of employee benefits, it does not mean that legally required benefits are not significant. In fact, these benefits are very important and must be taken into account when creating employee benefit programs. This is particularly true since integrating private employee benefit plans with the benefits provided by governmental entities results in the most comprehensive coverage. In a time when governmental deficits and economic pressures are leading to considerations of reductions in social insurance benefits, the need to consider the interplay of private and governmental coverages is more crucial than ever. The tripod, or three-legged stool, of economic security is built upon governmental benefit programs, benefits provided to employees by their employers through the employment relationship, and benefits provided by an individual for their own welfare and for the welfare of their dependents."
"Differentiate between the wide perspective and the narrow perspective of employee benefits.", "The wide perspective of employee benefits includes almost all forms of compensation other than direct wages that are paid to employees. This includes both government-mandated benefits and private plans. Therefore, things like the employer's contribution to an employee's Social Security tax, paid holidays, and pension schemes are considered employee benefits under the wide perspective. The narrow perspective, however, is defined as any type of scheme initiated or sponsored either unilaterally or jointly by employers and employees that provides benefits resulting from the employment relationship and that are not directly underwritten or paid by the government. While this course and textbook primarily focus on the narrow definition of employee benefits, it does not mean that legally required benefits are not significant. In fact, these benefits are crucial and must be taken into account when creating employee benefit programs. This is particularly true as the integration of private employee benefit plans with the benefits provided by government entities results in the most comprehensive coverage. In a time when government deficits and economic pressures are leading to considerations of reductions in social insurance benefits, the need to consider the interplay between private and governmental coverages has never been more important. The three-legged stool, or tripod, of economic security is built on government benefit programs, benefits provided to employees by their employers through the employment relationship, and benefits provided by an individual for their own welfare and for the welfare of their dependents."
"Identify the types of benefits that are typically included in a comprehensive view of employee benefits.", "A comprehensive view of employee benefits typically includes: (a) Legally mandated benefits such as employer contributions to Social Security for retirement, survivor and disability insurance, and medical insurance (Old-Age, Survivors, Disability, and Insurance (OASDI)); workers’ compensation (WC); unemployment insurance (UI); and state temporary disability income insurance (b) Compensation for time not worked, such as breaks, lunch periods, vacations and holidays (c) Employer contributions to medical and health-related benefits (d) Employer contributions to retirement and savings plans (e) Various other benefits, such as employee discounts, severance pay, education expenses, and child care, among others."
"Which benefits are usually not included when the term 'employee benefits' is interpreted in a restricted manner?", "The benefits usually not included when the term 'employee benefits' is interpreted in a restricted manner are those that are legally required, such as employer contributions to Social Security and Medicare, unemployment insurance, and workers’ compensation benefits."
"Describe the business or HR motivations behind companies implementing employee benefit plans.","Companies implement employee benefit plans for a variety of business and HR reasons. These include attracting and retaining skilled employees, maintaining employee satisfaction, and promoting efficiency and productivity within the company. Additionally, these plans are often put in place out of concern for employee welfare and to achieve social objectives."
"How have labor unions influenced the development of employee benefit plans historically?", "Historically, labor unions have significantly influenced the expansion of employee benefit plans through collective bargaining. A key instance was in 1948 when the National Labor Relations Board (NLRB) decided in the Inland Steel case that the obligation to negotiate in good faith over wages also encompassed insurance and fringe benefits like pension plans. Soon after, in the W. W. Cross & Co. case, the NLRB determined that wages also comprised a health and accident plan."
"Describe the role of the Taft-Hartley Act in the establishment of employee benefits.", "The Taft-Hartley Act, also known as the Labor-Management Relations Act, is instrumental in setting the standards for collective bargaining over employment terms, including wages, hours, conditions, and employee benefits. It differentiates between retirement benefits and welfare benefits as per the Internal Revenue Code (IRC), and provides the regulatory structure for managing these benefits in a collective bargaining agreement. Therefore, it forms the legislative foundation for jointly trusteed benefit plans."
"Can you list three primary federal tax benefits linked with employee benefit plans?", "The three primary federal tax benefits linked with employee benefit plans include: (1) Employer contributions to employee benefit plans are usually deductible as long as they are reasonable business expenses. (2) These employer contributions are generally not considered income to employees within certain limits. (3) In some retirement and capital accumulation plans, benefits accumulate tax-free for the employee until they are distributed."
"What makes employment-based insurance a beneficial method for obtaining coverage?", "It is beneficial because it saves employees the hassle of finding individual coverage and is usually more cost-effective. It also makes it easier for providers and suppliers to market and communicate about employee benefits through an employer."
"Discuss how historical events and legislative measures have influenced the attractiveness of employee benefits.", "Historical events such as the wage freeze during World War II and the Korean War led to an increase in employee benefits as employers could not increase wages. The potential for government-mandated benefits also encouraged private employers to take action, as seen with the Patient Protection and Affordable Care Act (PPACA) which encouraged private employers to provide health care benefits. Legislative and regulatory measures have also allowed for the integration of private plans with government programs, creating comprehensive benefit plans through a public/private partnership. The PPACA is also referred to as the Affordable Care Act (ACA) or Obamacare in some contexts."
"What is the initial step in creating an employee benefit plan?", "The first step in creating an employee benefit plan is to establish overall goals from the perspectives of both the employer and the employees. This ensures that the plan is meaningful and well-thought-out. The plan's rationale and sustainability should consider both the current situation and future strategic planning."
"Identify the key questions that need to be considered when establishing benefit objectives.", "When establishing benefit objectives, the following key questions need to be considered: (a) What types of benefits should be offered? The reasons or objectives for the types of benefits provided should be clearly stated. Both governmental programs and individual employee benefits should be taken into account. (b) Who should be eligible for the benefit plan? (c) Should there be options in the benefit plan for employees? (d) What should be the financing strategy for the benefit plan? (e) What should be the administration method for the benefit plan? (f) How should the benefit plan be communicated to the employees?"
"What are the benefits of using the functional approach in employee benefit planning?", "The benefits of using the functional approach in employee benefit planning include a systematic analysis of the employer's total employee benefits program, the ability to meet various employee needs, manage loss exposures within the employer's overall compensation goals and cost parameters, and effective communication of the employer's total benefits program to its employees. It is useful in both the initial conceptualization and design of a comprehensive benefit program and in evaluating proposals for new or revised benefits. It aligns a total compensation philosophy with strategic business objectives."
"Explain why the functional approach is deemed suitable for the efficient planning, design, and management of employee benefits.", "The functional approach is deemed suitable for the efficient planning, design, and management of employee benefits due to several reasons. Firstly, employee benefits form a crucial part of the total employee compensation and are generally a tax-effective method of compensating employees, hence they should be planned and structured to effectively meet employee needs. Secondly, employee benefits typically constitute a significant portion of labor costs for employers. As such, efficient planning and waste avoidance can be a crucial cost-control measure for employers. Thirdly, in the past, employers often adopted employee benefits on an ad hoc basis, without coordinating them with existing employee benefit programs. Therefore, using the functional approach to review these plans or proposed changes can eliminate overlaps and fill gaps. Fourthly, a systematic approach to benefits planning helps maintain an employee benefit plan that is current, competitive, and compliant with regulatory requirements. (This can be exemplified by the enactment of the ACA, which demonstrates the potential demands that may be placed on private employers' benefit plans to address perceived societal issues.) Lastly, the functional approach enables proper integration of benefits with each other. *Throughout this course and in other courses, the health care reform law of 2010, officially known as the Patient Protection and Affordable Care Act (PPACA), will also be referred to by its shortened name of Affordable Care Act (ACA) and, in some course readings, as Obamacare."
"What factors should be considered by a company when creating a comprehensive compensation plan?", "When creating a comprehensive compensation plan, a company should consider factors such as basic cash wages and salary, current incentive compensation like cash bonuses and company stock bonuses, long-term incentive plans, and employee benefits. These elements should be balanced to meet the needs and desires of the employees and align with the company's compensation philosophy and objectives. The planning and design of an employee benefit plan should be consistent with the company's overall compensation philosophy."
"Name and explain three general approaches to total compensation/benefits that companies can implement.", "Companies can choose from three general types of total compensation strategies. (1) Average compensation/benefits strategies align with the typical compensation/benefits level in the company's industry or local area, or both. (2) High-compensation/benefits strategies aim to attract superior management, technical, and general employee talent. (3) Low-compensation/benefits strategies are more modest and below average."
"Discuss how a company's industry type can influence its overall compensation strategy and approach to employee benefits.", "The type of industry a company operates in can significantly influence its compensation strategy and approach to employee benefits. For instance, larger, mature companies, financial institutions, or nonprofit organizations may adopt a more liberal approach to meeting their employees' benefits needs. On the other hand, companies in growth industries with high capital needs may lean more towards short-term incentive-based compensation. Additionally, companies in highly competitive or cyclical industries, or those currently experiencing a downturn, may be reluctant to increase their fixed labor costs by expanding or enhancing employee benefits, even if there is a functional need to do so. Such companies may even look for ways to reduce their commitments to employee benefits when possible."
"Discuss the differences between a needs-oriented benefit philosophy and a compensation/service-oriented benefit philosophy.", "A needs-oriented benefit philosophy is primarily focused on the needs of employees and their dependents when designing benefit plans. On the other hand, a compensation/service-oriented benefit philosophy is more concerned with relating employee benefits to compensation or service, or both, within the constraints of any nondiscrimination rules. This means that the level of benefits is usually linked to the salary or pay levels of employees and their years of service."
"Explain the process involved in the functional approach to designing, reviewing, and revising an employee benefit plan.", "The functional approach to designing, reviewing, and revising an employee benefit plan involves the following steps: (a) Identifying the needs or objectives of employees and their dependents and categorizing them into functional groups. (b) Identifying the groups of people the employer wishes to benefit. (c) Evaluating the current benefits offered under the plan in terms of the functional needs or objectives, the groups of people the employer wishes to benefit, and any regulatory requirements or mandatory coverages. (d) Identifying any gaps or overlaps in benefits provided from all sources under the plan and other benefit plans, in terms of functional needs and the people to be protected. (e) Proposing changes to the employer’s current employee benefit plan to address any gaps in benefits and to correct any overlaps in benefits, including the potential use of the flexible benefit (cafeteria plan) approach. (f) Estimating the costs or savings associated with each of the proposed changes in step (e). (g) Evaluating alternative methods of financing or securing the recommended benefits as well as the existing benefits of the employee benefit plan. (h) Considering other cost-saving techniques in connection with the recommended benefits or existing benefits (i.e., developing potential cost-containment strategies). (i) Deciding on the appropriate benefits, financing methods, and sources of benefits based on the previous analyses. (j) Implementing the changes. (k) Communicating the changes in benefits to employees. (l) Regularly reevaluating the employee benefit plan."
"Can you list the various employee needs and potential losses that can be addressed through employee benefit plans?", "Employee benefit plans can cover a wide range of needs and potential losses, including: (a) Medical expenses for active, retired, or temporarily out of service employees and their dependents (b) Losses due to short-term and long-term disability (c) Death benefits for employees and their dependents (d) Retirement needs (e) Short-term and long-term capital accumulation goals (f) Unemployment or temporary termination of employment (g) Financial, retirement, and other counseling services (h) Property and liability losses (i) Dependent-care assistance, such as child-care or elder-care services (j) Educational assistance for employees and their dependents (k) Long-term custodial-care expenses for employees or their dependents (l) Other benefits such as participation in corporate stock plans or other long-term incentive programs."
"Who are the different categories of individuals that a company might want to include in its employee benefit plans, given the constraints of the law and considerations of cost and adequate protection?", "The different categories of individuals that a company might consider for its employee benefit plans include: (a) Active full-time employees (b) Dependents of active full-time employees (c) Retired former employees (d) Dependents of retired former employees (e) Disabled employees and their dependents (f) Surviving dependents of deceased employees (g) Terminated employees and their dependents (h) Employees (and their dependents) who are temporarily separated from the employer’s service, such as during layoffs, leaves of absence, military duty, strikes and so forth (i) Individuals other than full-time active employees (for example, part-time employees, directors and so forth)."
"Discuss how the replacement ratio concept can be utilized by companies to determine the benefit levels of retirement and disability plans. Also, explain how the length of service or probationary periods can differ for protection-oriented benefits and accumulation-oriented benefits.", "The replacement ratio concept can be used by companies to set the benefit levels of retirement and disability plans by considering it as a percentage of the employee's final estimated pay. The retirement plan design would take into account income from Social Security, various capital accumulation benefits, and the retirement plan itself. This same analysis can be applied when designing a disability income plan, considering the replacement ratio of average or normal earnings and income from all sources under the total compensation package, including the disability income plan. The use of length of service or probationary periods can vary for protection-oriented benefits, such as medical expense benefits, life insurance benefits, and short- and long-term disability income benefits, which protect employees and their dependents against serious loss exposures. These benefits may have a relatively short probationary period due to the need for immediate coverage. On the other hand, accumulation-oriented benefits like pension plans, profit-sharing plans, savings or thrift plans, etc., reward an employee for long service with an employer and usually involve a longer probationary period as they are seen as a reward for long service and the longer probationary period is not a disadvantage for long-term employees."
"Explain how making a plan contributory affects the level of employee involvement.", "The level of employee involvement can be significantly influenced by making a plan contributory. If the plan is mandatory, it could potentially lead to issues with employee relations. Therefore, most contributory plans are optional, and many adjust the levels or types of benefits based on the extent of employee contributions."
"Discuss the debates surrounding the flexibility of an employee benefit plan in relation to the functional approach to benefit planning.", "One side of the debate argues that increased flexibility allows employees to choose a benefit program that aligns with their personal needs and objectives. This is facilitated by flexible plan designs that offer optional participation, varying coverage amounts, and different coverage options, thus supporting the functional approach. On the other hand, critics argue that too much flexibility can undermine the functional approach as employees may overlook certain essential needs for themselves or their families, leaving these needs unaddressed."
"Outline the process for conducting an audit or review of an existing employee benefit program to better align the benefit plans with the company's strategic goals and improve business outcomes.", "To better align benefit plans with strategic goals and improve business outcomes, a systematic process should be followed. This includes: a. Identifying any gaps or overlaps in benefits. b. Making suggestions for modifications to the current plan. c. Calculating the costs or savings associated with each suggestion. d. Exploring different ways to finance benefits. e. Looking into techniques to save costs or contain costs. f. Choosing the right benefits and financing methods. g. Implementing any changes. h. Informing employees about changes to benefits. i. Regularly reassessing the plan to ensure it is helping to achieve the desired outcomes."
"Explain the role of risk in the process of planning employee benefits.","Risk plays a significant role in planning employee benefits. It refers to the unpredictability regarding potential losses. This uncertainty arises from the inability to accurately predict the number and cost of claims a benefit plan will need to cover."
"Explain how peril, hazard, and risk are interconnected in insurance terminology.", "In insurance terms, risk refers to the uncertainty about a potential loss. Peril is the specific event or cause that leads to this loss, such as fire, theft, or illness. A hazard, on the other hand, is a condition that enhances the likelihood of a peril happening or that can amplify the severity of the loss resulting from a peril."
"Define physical hazard, moral hazard, and morale hazard and provide examples.", "Physical hazard refers to a tangible condition that increases the likelihood of a loss, such as a building with faulty wiring or lacking fire safety equipment. An example of a moral hazard is when an individual's dishonesty or character traits increase the risk of loss, such as arson. This type of hazard often results in higher insurance premiums for all insured, including those who are honest. Insurers try to manage moral hazards through careful underwriting and policy provisions like deductibles, waiting periods, exclusions, and riders. Morale hazard is when individuals become careless or indifferent due to their insurance coverage protecting them against loss. An example of this can be seen in the benefits area where employees or medical providers might schedule or receive unnecessary medical tests or medications because they are covered by insurance. It's important to note that some fields of study, like economics, do not distinguish between moral and morale hazards, using the term 'moral hazard' to describe both."
"Can you differentiate between pure risk and speculative risk in terms of potential outcomes?", "Pure risk only has two potential outcomes: either the risk event occurs, leading to a financial loss, or it does not occur, resulting in no financial loss. Examples of pure risks include fire, auto accidents, illness, unemployment, disability, theft of property, and earthquakes. These risks are typically insurable. On the other hand, speculative risk has three potential outcomes: a loss, no loss, or a gain. This type of risk is often associated with investment activities such as buying stocks or starting a new business venture, as well as gambling. Unlike pure risks, speculative risks may result in a gain."
"From the viewpoint of employee benefits, which category of pure risk is crucial to address? Please elaborate.", "Personal risk is the most crucial category of pure risk to address from an employee benefits perspective. This is because personal risks directly affect an individual's life or health, and many risks associated with employee benefit plans fall under this category. Examples of personal risks include death, illness, disability, unemployment, and old age."
"Describe the types of property and legal liability risks.", "Types of property risks include potential damages to one's real or personal property due to events like fire, flood, earthquake, wind, theft, and auto collisions. This could involve property such as houses, furniture, automobiles, and jewelry. Legal liability risks, on the other hand, are losses that occur due to negligent or wrongful actions that cause harm or losses to others. These risks often result in lawsuits by the injured parties seeking damages from the negligent individuals. Common sources of legal liability include negligent behavior related to the ownership and use of automobiles, the operations of one's home or business, the manufacture and/or sale of products, job performance, and professional misconduct."
"Do employee benefit plans include coverage for personal risks? Provide an explanation.", "Yes, employee benefit plans often emphasize on personal risks. These can include life insurance, health insurance, disability insurance, and retirement plans. These plans are designed to provide financial security for employees in the event of personal hardships such as illness, injury, or retirement. However, they may also include aspects of property and legal liability risks, such as homeowner insurance, auto insurance, and group legal services plans."
"Can you outline the primary strategies for managing risk?", "The main strategies for managing risk include: (a) Avoidance (b) Control (c) Retention (d) Transfer (e) Insurance"
"Can you explain the concept of insurance?", "Insurance is a system where losses are pooled and transferred to an insurer who agrees to compensate the insured for these losses or provide services related to the risk."
"Explain the role of insurance in an employee benefit plan from the perspective of an employer.", "From the perspective of an employer, insurance plays a crucial role in an employee benefit plan. The employer, as the insured, pays premiums into a fund managed by an insurance company. In the event of a loss, the insurance company provides reimbursement, thereby reducing or eliminating the risk for the employer. Large companies may use a combination of insurance and self-funding to finance their employee benefit plans, often layering stop-loss coverage to protect against risks exceeding expected losses. However, smaller firms, lacking the necessary pooling of exposure units for self-insuring, typically rely almost exclusively on insurance to support their employee benefit plans."
"Explain the difference between the risk involved in insurance and gambling.", "In insurance, the risk already exists and is transferred to another party, while in gambling, the risk is created where none existed before. For instance, health insurance is bought to manage the risk of getting sick, while betting on a sports game creates a financial risk for the fan. Additionally, insurance deals with pure risks, while gambling involves speculative risks. In gambling, one party's gain is another's loss, while insurance involves a collective sharing of losses. Lastly, a gambler who loses stays in a negative situation, while an insured person who suffers a loss is financially restored, either partially or fully, to their original state."
"Describe the concept of indemnification in insurance.", "Indemnification in insurance refers to the principle where the insurer compensates the insured to the extent of the loss suffered, restoring them to the position they were in before the loss. This could include payments for property damage, medical expenses, disability income, etc."
"Which risk management strategy is unique and cannot be combined with other strategies? Explain why?", "Avoidance. This is because when you avoid a risk, there are no losses, hence no need for other risk management methods."
"Explain how different risk management strategies can be applied to the personal risk associated with aging and the requirement for long-term care.", "The risk of requiring long-term care, particularly in later life, is a personal risk that individuals and families need to address. This risk can be significant due to the high costs associated with long-term care services, hence, it is crucial to decide how to handle this risk. Potential risk management strategies include insurance (transfer), maintaining good health and living conditions (control), and planning for care costs through savings or income (retention). While accumulated liquid assets may be sufficient to cover such costs, the high expense of these services could significantly reduce family wealth. Strategies such as insurance, Medicaid planning, planning with potential caregivers, and increasing savings are some options families may consider. Employers, aware of this risk and its impact on their employees, are increasingly helping their employees plan for this risk. They do this by providing access to insurance and long-term care planning services through employee assistance programs."
"Explain the requirements for a risk to be ideally insurable from an insurer's perspective.","An insurer would consider a risk to be ideally insurable if it meets six criteria. (1) The risk should be part of a large group of similar risks (exposure units). (2) The loss should be verifiable and quantifiable. (3) The loss should not be catastrophic. (4) The probability of loss should be calculable. (5) The premium should be economically viable. (6) The loss should be accidental and unintentional from the perspective of the insured."
"Describe the principle of the law of large numbers in insurance", "In insurance, the principle of the law of large numbers indicates that the more exposures (risks) are considered, the closer the actual outcomes will align with the expected outcomes, as predicted from an infinite number of exposures."
"Describe how employee benefit plans manage the risk of potential catastrophic losses","Employee benefit plans typically cover risks such as life, hospital, dental, and disability income losses. While these are generally not prone to catastrophic events due to geographic dispersion, there can be exceptions like a factory explosion or a toxic gas leak causing mass casualties or injuries, or a cluster of specific diseases due to exposure to certain elements unique to a particular employee group. However, these are usually not a major factor in underwriting standard benefit plans. Techniques like policy limitations, reinsurance, and restrictions on insured groups can be employed to mitigate the issue as much as possible."
"Can you describe what is meant by adverse selection in insurance?", "Adverse selection refers to a situation where individuals with a higher risk profile than the average group member join a group or make up a larger proportion of the group than expected due to the presence of insurance or other benefits. These individuals are said to 'select against' the insurer because they have a higher likelihood of loss and therefore have a greater need for insurance coverage."
"What strategies do insurance companies employ to manage the issue of adverse selection from individual insurance applicants?", "Insurance companies aim to have a diverse range of insureds, with varying levels of risk. To manage adverse selection, they utilize advanced underwriting techniques and supportive policy provisions. Underwriting is a standardized process through which insurers select and categorize insurance applicants. Policy provisions traditionally used to manage adverse selection include clauses for preexisting conditions in health insurance policies, suicide clauses, limits on coverage amounts, and restrictions on open enrollment periods. However, some of these provisions are less applicable today due to changes in health care reform legislation."
"Can you explain how the group insurance underwriting method in employee benefit plans manages the issue of adverse selection differently than individual insurance?", "In contrast to individual insurance, group insurance underwriting for employee benefit plans is based on the collective group, not on individual eligibility criteria. This group technique is utilized to mitigate the issue of adverse selection, making its management inherently different from that of individual insurance."
"Can you explain the features of the group technique that allows coverages like life and health insurance to be provided as employee benefit plans while reducing the risk of adverse selection? (Text, pp. 6-8)","The group technique allows coverages like life and health insurance to be provided as employee benefit plans while reducing the risk of adverse selection through several features: (a) Only specific groups are eligible, and the group should not be formed solely for insurance purposes. (b) There should be a continuous influx and outflow of individuals in the group to maintain a fairly constant mortality or morbidity ratio. (c) The group should have a minimum number of members to prevent unhealthy individuals from dominating the group and to distribute the benefit plan expenses over a larger number of individuals. (d) A minimum portion of the group must participate to reduce the risk of adverse selection and to distribute the administrative expenses of the plan. (e) Eligibility requirements are often imposed under group plans to prevent adverse selection. (f) Maximum limits on the amount of benefits may be imposed to prevent an unhealthy individual from having excessive coverage. (g) Automatic determination of benefits is used to prevent unhealthy individuals in a group from obtaining an extremely large amount of a particular benefit, as coverage is determined for all individuals in the group on an automatic basis."
"How has the evolution of the group technique impacted the handling of group employee benefits? (Text, p. 8)","The evolution of the group technique, through its liberalization over the years, has allowed providers of employee benefits to gain experience and adapt to the competitive environment. This has influenced how employee benefits work on a group basis and how potential issues can be addressed."
"Can you explain how self-insurance differs from traditional insurance in the context of employee benefit plans?","In self-insurance, the organization itself bears the risks associated with the employee benefit plans, unlike traditional insurance where an insurance company assumes the risks in exchange for a premium. The organization needs to be large enough to allow for a significant number of exposure units to make losses predictable, based on the law of large numbers. However, not all organizations are large enough to meet the criteria for an ideally insurable risk without some agreement with an insurance company. Many self-insured employee benefit plans partially transfer some of the pure risks to an insurer. This is often done through stop-loss insurance, where plan sponsors transfer some of their risk to insurers while self-insuring certain risks in their employee benefit plans."
"Explain the fundamental characteristics of traditional indemnity plans.", "Traditional indemnity plans, also known as fee-for-services or conventional plans, were the first employment-based medical plans that covered catastrophic losses, primarily inpatient hospital expenses. They later included coverage for outpatient, diagnostic, and physician services. These plans pay a percentage of the cost of treatment, up to 100% for emergency/preventive care and 80% for most other services. They do not require insureds to get permission from their physician to access specialty or diagnostic services."
"Explain the principle of managed care in health insurance.", "Managed care in health insurance refers to a system where insurance providers play a part in directing health services and care, often prepaying a part of the health care services. This model, seen in health maintenance organizations (HMOs) and similar entities, has largely supplanted traditional indemnity plans."
"Can you list the typical kinds of health plans that employers provide either as a single plan or among multiple plan choices?", "Typical kinds of health plans that employers provide either as a single plan or among multiple plan choices are: (a) An HMO plan (b) A preferred provider organization (PPO) plan (c) A point-of-service (POS) plan (d) A high-deductible health plan (HDHP) linked to a tax-advantaged individual savings account."
"Explain the role of a primary care physician (PCP) in an HMO plan and how it affects the individual's access to healthcare.", "In an HMO plan, a primary care physician (PCP) is chosen by the individual from a network of providers. The PCP is in charge of managing the individual's healthcare. If the individual needs care that is beyond the PCP's expertise, the PCP can authorize access to additional or specialty care through referrals. Except for emergency situations, care received outside the HMO network is not covered. The individual usually pays a flat fee, known as a copay, for visits to the PCP and specialists. In most cases, there is no need for the individual to file claims for reimbursement as this is handled by the HMO."
"Explain the benefits and drawbacks of a PPO plan and how it differs from an HMO plan.", "A PPO plan, unlike an HMO, allows for some coverage for care received outside of the preferred network and does not require a referral to see a specialist. This flexibility is often appreciated by plan participants. However, the out-of-pocket costs for care received outside of the network can be significantly higher due to higher cost-sharing rates and potential misunderstandings about how benefits are determined. In contrast, an HMO plan typically requires referrals for specialists and only covers care within its network, but it often has lower out-of-pocket costs."
"Explain how a POS plan merges features of both HMO and PPO plans.", "A POS plan merges features of both HMO and PPO plans by providing both in-network and out-of-network benefits. A primary care physician may be required for referrals to in-network specialists or other services. The out-of-pocket costs for in-network services are copays, similar to those in HMO plans, and there is no need to submit a claim for reimbursement. However, for out-of-network services, the out-of-pocket costs are a percentage (often 40%) of the insurer's set prevailing fees, rather than a fixed dollar amount."
"Discuss the challenges in contrasting PPO and POS health insurance plans.", "The difficulty in contrasting PPO and POS plans arises from the significant variations and overlaps in their designs, features, and provider payment methodologies. For instance, a POS plan may require a primary care provider, unlike a PPO. Also, a POS plan may have lower copay amounts for preferred care than a PPO, and a more limited network of providers. These differences can exist even within the same employee benefits program, whether the plan options are offered by the same or different insurance carriers."
"Explain the concept of HDHPs with personal savings options and why many companies are adopting them. What are the key characteristics of these plans?", "HDHPs are designed to provide coverage for catastrophic health events, offering lower premiums in exchange for higher deductibles. The idea behind HDHPs is that by having a larger financial responsibility in their healthcare, individuals will make more informed decisions about their healthcare needs. This means that the individual is responsible for a large deductible, but they also have the opportunity to save for healthcare expenses in a tax-advantaged personal account. The account associated with the HDHP must comply with certain regulations to qualify for tax benefits, and the type of account determines whether contributions can be made by the employer, the employee, or both."
"Can you name the three main types of accounts that can be used in conjunction with High Deductible Health Plans (HDHPs) to cover medical expenses?", "The three main types of accounts that can be used with HDHPs are flexible spending accounts (FSAs), health reimbursement arrangements (HRAs), and health savings accounts (HSAs). These accounts offer tax advantages and can be used to pay for medical expenses not covered by the health plan, such as copays, coinsurance, and deductibles."
"Explain the features of: (a) FSAs, (b) HRAs and (c) HSAs.", "FSAs are flexible spending accounts that allow individuals to elect a certain amount to be deducted from their paycheck on a pretax basis for IRS-qualified medical expenses. However, there are restrictions on unspent money at the end of the plan year. HRAs, or health reimbursement accounts, are employer-funded accounts for health care expenses as determined by the employer. Employers are not required to roll over unused contributions from one year to another. HSAs, or health savings accounts, are tax-advantaged accounts associated with high-deductible health plans. They are owned by the employee and funded with tax-free contributions from either the employee, the employer or both. Unused contributions can be rolled over from year to year and are available for future use even if the individual changes jobs or retires. However, penalties apply for money used for nonmedical expenses before age 65. After age 65, withdrawals made for nonmedical expenses are subject to ordinary income taxes."
"Explain the difference between a preferred provider and a non-preferred provider in terms of health insurance plans.", "A preferred provider, also known as an in-network provider, has an agreement with the health insurance plan to provide services to its members at a discounted rate. Some plans may have a “tiered” network with varying out-of-pocket expenses for members. A non-preferred provider, also known as an out-of-network provider, does not have a contract with the health insurance plan to provide services to its members. If a plan offers benefits for out-of-network care, it will typically cost the member significantly more than in-network services."
"Can you define the term 'out-of-pocket maximum' in health insurance?", "The 'out-of-pocket maximum' in health insurance refers to the highest amount a policyholder is required to pay within a plan year (typically a calendar year) before the insurance starts covering 100% of the permitted costs. This limit does not include the insurance premiums, balance-billed charges, or costs for health services that the plan does not cover."
"Explain the concepts of allowed amount and usual, customary or reasonable (UCR) fee in health plans.", "Allowed amount and usual, customary or reasonable (UCR) fee are terminologies used by health insurance plans to establish the highest amount they will cover for a particular health care service. These terms can also be referred to as eligible expense, payment allowance, or negotiated rate. In cases where out-of-network providers charge more than the allowed amount set by the health plan, the difference can be billed to the member."
"Explain the unique treatment given to services classified as preventive care.", "Preventive care services such as immunizations, mammograms, and cholesterol screenings are covered by health insurance plans without the application of deductibles, copayments, or coinsurance, provided they are offered by in-network providers. However, plans that are considered grandfathered, i.e., those that existed on or before March 23, 2010, under the Affordable Care Act, may require cost sharing for certain preventive care."
"Can you explain how prescription drug coverage has evolved over time?","Initially, prescription drug expenses were a minor part of overall health expenditures and were not covered by employer-sponsored health plans. As coverage became available, these expenses were subject to the same deductibles and coinsurance rates as other outpatient services like office visits and lab work. Nowadays, prescription drug coverage is usually separated from medical health plans and managed by pharmaceutical benefit managers (PBMs). PBMs are third-party administrators hired by plan sponsors to process prescription claims, reimburse pharmacies for dispensing drugs, and perform other functions such as cost containment and chronic care management."
"Can you explain how the Affordable Care Act has influenced the coverage of mental health and substance abuse (MH/SA) benefits?", "The Affordable Care Act has played a significant role in reducing the disparities between the coverage of MH/SA benefits and medical and surgical care. Previously, MH/SA benefits were covered at lower rates, with fewer allowed visits and lower lifetime and annual out-of-pocket maximums. However, a series of state and federal parity and equity-in-coverage laws have gradually eliminated these inequities, with the Affordable Care Act being a major contributor to this change."
"Explain the evolution of delivery models for MH/SA benefits and the reasons behind the changes.", "MH/SA benefits delivery models have undergone significant changes over time. Initially, many organizations chose to separate behavioral benefits and have them managed by managed behavioral health care organizations (MBHOs). This approach, known as carving out, began in the 1980s and peaked in popularity in the early 2000s. The main goal of this separation was to better manage costs through case management and early intervention. However, with the introduction of the Affordable Care Act and the push for more holistic care, delivery models have shifted towards integrating MH/SA benefits more closely with physical care."
"Can you list the key reforms brought about by the Patient Protection and Affordable Care Act (ACA) in relation to health care coverage and insurance?", "The ACA brought about several key reforms such as: (a) Broadening the eligibility for medical benefits under the federal government’s program for low-income, financially needy individuals (b) Banning the denial of insurance benefits for pre-existing physical or mental illnesses or conditions (c) Imposing restrictions on variation in premium rates by insurers and providing tax credits/subsidies for low-income individuals purchasing individual coverage (d) Setting up marketplace exchanges to offer standardized medical plans (e) Implementing group health insurance mandates that directly and indirectly affect employer-sponsored health plans."
"Outline the key ACA provisions affecting employers who provide group health insurance.", "Key ACA provisions affecting employers who provide group health insurance include: (a) The play-or-pay rules which mandate medium and large employers to provide health insurance to full-time employees as defined by ACA or face a penalty (b) The creation of a list of “essential health benefits” (c) The removal of lifetime maximums and the limitation of out-of-pocket maximums (d) The broadening of coverage for preventive services (e) Temporary tax subsidies for small employers that offer group health (f) New administrative and reporting obligations."
"Explain the changes in preventive services coverage brought about by the ACA.","The ACA mandates that group health plans must cover services like mammograms and colonoscopies without imposing a deductible, copay or coinsurance."
"Explain the purpose of the No Surprises Act and outline the safeguards it provides for healthcare consumers.", "The No Surprises Act aims to provide extensive protections against unexpected medical bills. It safeguards patients from receiving surprise bills from out-of-network providers for emergency services (including air ambulances, but not ground ambulances) and non-emergency services at in-network facilities (unless the patient agrees to be treated by an out-of-network provider). Patients who receive treatment from an out-of-network provider are only responsible for cost-sharing amounts that would apply to in-network services, and providers are prohibited from billing for any additional amounts. The act sets up an arbitration process to settle payment disagreements between insurers and out-of-network providers. It also includes some protections for temporary continuity of care when a provider's status changes from in-network to out-of-network."
"Explain the impact of legislative measures on 'gag clauses' in health insurance.", "Legislative measures have prohibited insurers and group health plans from forming agreements with providers or third-party administrators that include a 'gag clause'. These clauses limit or prohibit the disclosure of price or quality information to patients or other third parties. Agreements that restrict the disclosure of provider-specific cost or quality data are also banned. Patients, employers, referring providers, and business associates cannot be denied this information. Furthermore, group health plans and insurers cannot contractually give up their right to electronically access de-identified claims and encounter information or data for enrollees. While providers can impose reasonable restrictions on the public disclosure of this information, insurers and group health plans must maintain access to it."
"How does the enforcement of the prohibition on gag clauses work, and has Congress previously intervened in the use of gag clauses in health-related agreements?", "The enforcement of the prohibition on gag clauses is carried out through yearly attestations that insurers and group health plans must submit. Before this prohibition was enacted for insurers and group health plans, Congress had already implemented similar bans in contracts between pharmacies and insurers or Pharmacy Benefit Managers (PBMs). These gag clauses had previously stopped pharmacists from sharing cost information with patients."
"How does the mode of payment influence the provision of healthcare services?","The mode of payment significantly influences the provision of healthcare services. For instance, it can determine the duration of hospital stays, the frequency of home health care visits, the extent of coordination between physicians and hospitals, and the use of diagnostic imaging in physician offices. Financial incentives are especially influential in situations where clinical decisions are ambiguous, such as in the case of diagnostic tests, follow-up visits, and certain procedures."
"Explain the different payment methods applicable to all types of health care providers.", "There are eight fundamental payment methods that apply to all health care types. Each method is characterized by the payment unit (per time period, beneficiary, recipient, episode, day, service, cost dollar, or charges dollar). These methods are more detailed than general terms like capitation, fee for service, global payment, and cost reimbursement. They also correspond to the division of financial risk between the payer and the provider, with each method reflecting a risk factor within the health care spending identity. The financial risk gradually shifts from being mainly on the providers when the payment is per time period to being mainly on the payers when the payment is per dollar of charges."
"Can you explain the primary ways health care providers are compensated?", "Health care providers are typically compensated through eight primary methods, which include: (1) Per time period (2) Per beneficiary (3) Per recipient (4) Per episode: (5) Per day (6) Per service (7) Per dollar of cost (8) Per dollar of charges"
"Discuss the impact of changes in Medicare's payment methods on healthcare costs and service delivery.", "The shift in Medicare's payment methods in the early 1980s and 1990s had significant effects on healthcare costs and service delivery. The transition from cost-based to diagnosis-related group (DRG) payments in the 1980s led to a reduction in hospital costs, shorter hospital stays, and a slowdown in the growth of Medicare payments. It also resulted in an increase in hospital margins as hospitals became more efficient. However, this change also led to a surge in outpatient and post-acute care services, potentially leading to more fragmented care. In the early 1990s, Medicare changed physician payment from per dollar of charges to per service. While this protected Medicare from charge inflation, it did not shield it from the growth in service volume. Over an eight-year period, Medicare spending per beneficiary for physician services grew at more than double the rate of spending for other services, driven entirely by an increase in volume."
"Explain the process of creating an effective payment policy.","Creating an effective payment policy involves finding the perfect equilibrium without causing a confusion of conflicting incentives. The most significant incentives are those that directly impact the clinical decision maker."
"What are some of the measures put in place to balance the financial motivations in different payment methods and ensure the quality of care?", "To ensure quality of care, payers set up mechanisms outside each payment method to monitor the efforts by providers to maximize units and minimize cost per unit. There are also professional norms that have been developed to balance financial motivations in the health care market, which is often marked by asymmetrical information, significant uncertainty, and life-and-death consequences. These mechanisms and norms include utilization review, provider profiling and credentialing, public reporting, appeals to professional ethics, licensure and certification, peer review, litigation and other disciplinary action, and prohibitions against self-referral."
"Identify three characteristics typically associated with Consumer Driven Health Plans (CDHPs).","Typically, CDHPs are characterized by a high deductible, a personal spending account, and the provision of information tools for enrollees. The high deductible is designed to promote responsible health care consumption by making enrollees aware of the financial implications of their decisions. To compensate for the reduced risk protection due to the high deductible, CDHPs usually pair the high-deductible plan with a personal spending account. Information tools are provided to equip enrollees with the necessary resources to make informed decisions."
"Describe the reasons behind the creation of CDHPs.","The development of CDHPs was a response to the dissatisfaction with managed care plans and the increasing health care costs. The aim was to manage expenses and encourage more value in health care expenditure by transferring the decision-making power from insurance companies to the consumers. Additionally, they were designed to cater to a variety of consumer needs."
"Explain the main criticisms of Consumer Directed Health Plans (CDHPs).","The main criticisms of CDHPs are threefold. Firstly, there is a concern that consumers may not be able to effectively distinguish between necessary and unnecessary care due to lack of medical knowledge. Secondly, there is a risk of segmentation in health insurance markets as CDHPs may attract healthier individuals due to their lower premiums and higher cost sharing, leaving traditional plans with a higher risk pool. Lastly, there are doubts about whether CDHPs can actually bring down overall healthcare costs."
"Can you explain the three components of cost sharing in CDHPs?","In CDHPs, cost sharing involves three components. The first is the annual deductible, which is the amount the enrollee must pay out of pocket before the plan covers any expenses, except for certain preventive services that are exempt from the deductible. For instance, if a plan has a $2,000 deductible, the enrollee must spend $2,000 on covered services before the plan starts to pay for care. The second component is the plan’s cost-sharing requirements that apply after the enrollee meets the deductible. Cost sharing can be complex as it varies in level and form across services. A simple example is a 20% coinsurance rate where the enrollee would pay 20% of the fees for services used after meeting the deductible. The third component is the annual out-of-pocket maximum, which is the maximum amount an enrollee must pay for covered services during a plan year. Once the enrollee reaches the out-of-pocket maximum, the plan fully covers services for the rest of the plan year."
"Compare the characteristics of health reimbursement arrangements (HRAs) and health savings accounts (HSAs) in terms of (a) who can contribute to the account, (b) the maximum annual contribution, (c) the policy on fund rollovers, and (d) the rules for nonmedical withdrawals. (Text, pp. 251-252, Table 1)","(a) HRAs can only be contributed to by the employer, while HSAs can be contributed to by either the employer, the employee, or both. (b) There is no federal limit on contributions to HRAs, whereas HSAs have a set maximum annual contribution limit for both individuals and families. (c) In HRAs, the employer has the discretion to allow or disallow fund accumulation from year to year, and can also choose to withdraw any unused funds after the employee leaves the company. In HSAs, all funds, whether contributed by the employer or the employee, accumulate over time and cannot be forfeited. (d) HRAs do not permit nonmedical use. HSAs do allow nonmedical withdrawals, but these are subject to income tax and penalties if the account holder is under 65 years old."
"Assess the influence of the Affordable Care Act (ACA) on the growth of CDHPs.", "The ACA's implementation brought about significant uncertainty for CDHPs due to worries that they might not fulfill the act's minimum actuarial value requirements. The ACA also implemented regulatory changes that made CDHPs less appealing. Despite these issues, CDHPs have established a significant presence in the health insurance market post-ACA. The future market share of these plans under the ACA's regulations largely depends on the price sensitivity of individuals and how they compare high-deductible coverage to other low-premium plans, such as those with very narrow networks or strict care management."
"Explain the initial confusion surrounding the early CDHP plan designs and the key regulatory and legislative measures that clarified their tax status, leading to their widespread adoption.", "The early stages of CDHP plan designs were marked by uncertainty, primarily due to the ambiguity surrounding the tax benefits of the personal spending accounts associated with health plans. Without a clear understanding of the tax benefits of the spending account component, CDHPs would be at a significant tax disadvantage. In 2002, the IRS clarified that HRAs, which are employee-specific accounts set up and funded by employers for reimbursing medical expenses, could be excluded from employees' taxable income. The Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA) then introduced another type of account-based health plan (ABHP)—the HSA. The HSA addressed the portability issue, a major drawback of HRAs. The MMA allowed individuals to establish or contribute to an HSA if they were covered by a high-deductible health plan (HDHP), and the legislation clearly defined the minimum deductible and the maximum out-of-pocket expenditure for a qualifying plan. The legislation also introduced a “preventive care safe harbor,” allowing qualifying HDHPs to exempt preventive services from the deductible. The ACA further mandated that, starting in 2010, all plans must cover certain preventive care services without any cost sharing."
"Describe the tax benefits associated with Health Savings Accounts (HSAs).","Health Savings Accounts (HSAs) offer significant tax advantages. Both employers and individuals can contribute to an HSA, with no obligation for either party to do so. These contributions are not considered taxable income when calculating federal income taxes. There are set maximum limits on the amount of contributions. The total contributions from both the employer and the employee must not surpass these limits. HSA contributions can be accumulated over time and the account holder has the option to invest these funds. Any interest, earnings or capital gains from these investments are also exempt from tax. Withdrawals from HSAs are tax-free if they are used for eligible medical expenses for the account holder, their spouse or dependent. However, funds withdrawn for non-eligible medical expenses are taxable, and if withdrawn before the age of 65, an additional penalty tax is applied."
"Can the flexible spending account (FSA) be considered a newer version of the HRA or HSA?", "No, the FSA is not a newer version of either the HRA or HSA. In fact, the FSA was established before both of these plans. The Revenue Act of 1978 provided tax benefits for FSAs for medical expenses. In 1984, the IRS ruled that while FSAs were permitted, employees had to choose a specific amount for the plan each year, and any unused funds would be lost at the end of the plan year. Unlike HRAs and HSAs, which are primarily used with CDHPs, FSAs are often used with more conventional health plans, particularly flexible benefits programs."
"Is it possible for unused funds in an FSA to roll over to the next plan year like in other ABHPs?", "No, FSAs are different from some HRAs and all HSAs in that they originally forfeited any unused funds at the end of a plan year. There have been some minor changes allowing for carryovers, but any remaining funds beyond a small allowance are forfeited at the end of a plan year. This is due to the 'use it or lose it' rule. The idea behind this is that the participant is essentially self-insuring for certain medical expenses not covered by the base medical plan. The argument for forfeiture is encapsulated in the question: Would an insurance company refund your premium if you didn't experience an insured loss during the policy coverage period?"
"Can FSAs be used for expenses other than medical reimbursements?", "Yes, FSAs can be used for a variety of expenses beyond medical reimbursements. This includes dependent-care FSAs for expenses related to dependent care while the legal guardian is working, non-employer sponsored premium reimbursement FSAs, parking and transit expense reimbursement FSAs, and adoption assistance FSAs. All these are permitted under the law."
"Does the service delivery model for receiving health care services through HDHPs remain the same across all plans?", "No, the service delivery model can vary across different HDHPs. It could be through a preferred provider organization (PPO), a health maintenance organization (HMO), or a point of service (POS) program. The choice of using in-network or out-of-network providers may also be offered by an HDHP, with in-network providers typically resulting in lower out-of-pocket costs. Except for preventive care, the annual deductible must be met before plan benefits are paid. An HRA or HSA associated with the plan can help accumulate savings to cover current and potentially future medical expenses, providing greater flexibility in health care spending."
"Explain the basic features of a Health Reimbursement Arrangement (HRA).","A Health Reimbursement Arrangement (HRA) is a type of employer-funded health benefit plan that sets up individual accounts for employees. Employees can submit proof of eligible health expenses to their employer for reimbursement. The employer reimburses the employees after they provide evidence of approved medical expenses. HRAs only cover items such as copays, coinsurance, deductibles, and services agreed upon by the employer that are not covered by the employer’s standard insurance plan. Unlike a Health Savings Account (HSA), the HRA sponsor does not need to link reimbursements to participation in a High Deductible Health Plan (HDHP). The HRA plan document must clearly state the types of medical expenses that will be reimbursed from the start. A range of items can be designated for reimbursement, including medical services, dental expenses, plan copays, coinsurance amounts, deductibles, and other items. These items can vary from plan to plan, and an employer can have multiple plans in place, providing a lot of flexibility in terms of reimbursable expenses. An HRA must be solely funded by the employer, and employees are not allowed to make any voluntary contributions to their HRAs. There is no statutory maximum contribution limit on the amount an employer can credit on behalf of an employee."
"Describe the impact of the Small Business Health Care Relief Act and subsequent regulations on the use of HRAs.", "The Small Business Health Care Relief Act of 2016 and subsequent regulations greatly expanded the use of Health Reimbursement Arrangements (HRAs). The Act introduced the qualified small employer HRA (QSEHRA), which enabled small businesses with less than 50 employees to reimburse their employees for health insurance purchases, including those made through a health insurance Marketplace. In 2017, a presidential executive order led to the proposal and finalization of regulations in 2018 and 2019 respectively, which further expanded HRA applications. These regulations removed the restriction on using HRA funds to pay or reimburse premiums for individual medical insurance coverage, beyond the exception previously granted to small employers with the QSEHRA. They also permitted the use of HRAs to cover excepted benefits."
"What are the requirements for an employer to provide an IMC-HRA to their employees?", "To provide an IMC-HRA, employers must follow certain guidelines. They must ensure that participants are enrolled in individual medical insurance coverage that complies with the Public Health Service Act (PHSA). If an employee loses their individual coverage, their IMC-HRA balance would be forfeited. The IMC-HRA is subject to COBRA continuation if a qualifying event occurs. An employer cannot offer both an IMC-HRA and a traditional general health plan (GHP) to the same class of employees. The employer must define the eligible employee classes in the IMC-HRA plan document before the start of the plan year. The same terms of coverage must be offered to all employees within the covered class or classes when providing an IMC-HRA."
"Can you outline the continuous operational challenges associated with managing an IMC-HRA?", "Managing an IMC-HRA comes with continuous operational challenges. For example, employees must be given the chance to opt out of an IMC-HRA and to waive future reimbursements from the account every year. The IMC-HRA must undergo annual substantiation and verification procedures to ensure the individual coverage requirement for each participant and dependent is met, and to verify that the funds claimed for reimbursement have indeed been incurred and paid. Furthermore, a written notice must be provided to eligible employees at least 90 days before the start of the plan year. This notice must include information about the maximum reimbursement amount, a description of the individual medical insurance coverage requirement, the right to opt out, an explanation of how participation in the IMC-HRA affects eligibility for the ACA premium tax credit (PTC), and the employee’s obligation to provide proof of enrollment in individual medical insurance coverage. In addition, employers must adhere to other relevant laws, including the Internal Revenue Code (IRC), the Health Insurance Portability and Accountability Act of 1996 (HIPAA), COBRA and the Medicare Secondary Payer Rules."
"Can you explain the purpose of an EB-HRA (Excepted Benefits Health Reimbursement Arrangement)?","The purpose of an EB-HRA is to allow employers to offer a tax-advantaged benefit in addition to the employer’s Group Health Plan (GHP). This benefit is for employees who opt for short-term medical insurance or those who want reimbursement for costs like copays, deductibles, or other expenses not covered by the GHP or other excepted benefits. These excepted benefits can include short-term medical insurance, limited-scope dental or vision expenses, and benefits for long-term care, nursing home care, home health care, or community-based care."
"Can you list the conditions an employer needs to meet to provide an EB-HRA?", "To provide an EB-HRA, an employer must meet several conditions. They must offer another GHP that meets the PHSA requirements to the same participants who are eligible for the EB-HRA for the same plan year. The employees should have the option to decline coverage in the GHP and only enroll in the EB-HRA if they wish. The amount available through the EB-HRA cannot exceed a legally determined level that is indexed annually. The EB-HRA cannot reimburse premiums for individual medical insurance coverage under a GHP (except COBRA) or Medicare Parts B and D. The EB-HRA must be offered to all “similarly situated individuals” on the same terms, regardless of any adverse health factors. It cannot be offered only to individuals with a serious medical condition or only to those who pass a physical examination. If an employer has more than 100 EB-HRA participants, they must file a Form 5500 if they are not including the EB-HRAs as part of the employer’s “medical plan” Form 5500 filing. Other disclosure requirements, such as distributing a summary plan description (SPD), are also necessary. Unlike the rules for IMC-HRAs, there is no specific exception from the Section 105(h) nondiscrimination rules for an EB-HRA. Therefore, an EB-HRA that provides a richer benefit to more senior employees could be considered discriminatory."
"Has the initial expectation for the widespread adoption of CDHP plans been met, and how are they typically offered by employers?", "The initial expectation that CDHPs would become the dominant form of employer-sponsored health plans has not been fully realized. While they have gained significant acceptance and are used by a large number of employees, their growth has slowed down compared to the initial surge. It was initially predicted that most employers would replace their traditional health plans with CDHPs, but this has not happened. Less than a quarter of employers only offer a CDHP. More commonly, especially among large employers, a CDHP is offered as one of several options in a range of plan offerings. Employees then choose annually whether they prefer lower premiums with higher out-of-pocket costs for the health care they use."
"Can the introduction of CDHPs in the marketplace help in minimizing the issue of overinsurance among employees?", "Yes, the introduction of CDHPs has helped in reducing overinsurance. Previously, many employees were overinsured by traditional health plans, leading to unnecessary expenditure on premiums. With CDHPs, employees have become more aware of the cost of healthcare, bringing more transparency into the marketplace. It is now uncommon to find a large employer that does not offer a CDHP option to its employees."
"What are the factors that may restrict the potential for CDHPs to achieve significant cost-containment benefits?", "There are several factors that may restrict the potential for CDHPs to achieve significant cost-containment benefits. One of the main factors is the lack of access to reliable and relevant information that allows consumers to make informed decisions. Despite improvements in providing cost and quality metrics, the absence of information limits health care consumers in making informed and rational decisions. Not all health care spending is 'shoppable', especially services required in emergency situations. CDHPs protect the enrollee from catastrophic medical expenses when severe health issues occur. Limits are set within the HDHP on what an individual could incur in terms of maximum out-of-pocket costs. Once the out-of-pocket limit is reached, there is no longer a financial incentive for an employee to procure less expensive care. Therefore, a CDHP loses its financial incentives at such extremes when the most costly and resource-intensive use of medical care occurs."
"Explain the role of CDHPs in the selection of employee health plans.", "CDHPs play a significant role in the selection of employee health plans. They offer a cost-effective alternative for many employees, enabling them to evaluate their personal health risks and balance premium costs with either increased out-of-pocket expenses or potential health care savings, depending on their medical requirements during the coverage period."
"What are the potential influences on the popularity of CDHPs among employers and employees when compared to other healthcare plan options?", "The popularity of CDHPs among employers and employees can be influenced by a variety of factors. These include the rate of increase in medical costs, the overall state of the economy, the conditions of the labor market, and the willingness and ability of employers to share the cost of medical expenses with their employees. The attractiveness of CDHPs can also vary across different industries due to varying economic conditions and competitive pressures. CDHPs are a lasting type of healthcare plan that will continue to evolve and adapt to changes in technology and market conditions."
"Explain the fundamental distinctions between the fields of medicine and dentistry.", "Several distinctions exist between medicine and dentistry, such as: (a) Doctors often work in group practices, whereas dentists frequently operate in solo practices. This results in a wider range of dental practice styles and less opportunity for peer review and quality control. (b) While some people may not require medical care for extended periods, preventive dentistry necessitates regular dental visits for most people to maintain good oral health. Therefore, people often see their dentists for preventive care, whereas they might only see a doctor when they have specific symptoms. (c) Dental treatments, which often focus on prevention, are frequently viewed as elective and may be delayed unless there is pain or trauma. Since these treatments are not life-threatening, patients can choose to postpone them. (d) Dentists can discuss the costs of major treatments with patients before they are carried out, giving patients the option to delay or decline the treatment. (e) Dental care is often cosmetic, while medical care is usually not. (f) Dentistry provides a range of equally effective treatment options for diseases and tooth restoration, which can vary significantly in complexity and cost. (g) Dental costs are typically lower, more predictable, and easier to budget for, with the average medical claim being much higher than the average dental claim. (h) Dentistry places a greater emphasis on prevention than medicine. Despite the recent trend towards prevention in medicine through managed care medical plans, its benefits are harder to measure, while the benefits of preventive dentistry are well-documented. This is because preventive care may be more effective in dentistry than in medicine, and the cost-effectiveness of preventive dentistry is widely recognized. Note: Under the Affordable Care Act, adult dental coverage is not a mandatory benefit. For children, coverage is not required, but it is a mandatory health benefit (EHB) that must be offered by individual policies and group plans subject to the EHB provisions of the health care reform law."
"Can you list the types of organizations that offer dental care insurance?", "Insurance companies, Blue Cross and Blue Shield associations, and other organizations such as State dental association plans (like Delta plans), self-insured/self-administered plans, and group practice or health maintenance organization (HMO)-type plans are all providers of dental care insurance."
"Explain the similarities between dental plans and current medical plans.","Like medical plans, dental plans also follow three fundamental approaches: the fee-for-service indemnity approach, the preferred provider organization approach, and the dental health maintenance organization approach. The preferred provider organization is the most common dental benefit approach, while the fee-for-service approach is slowly fading away."
"List and explain the ten main categories of dental treatments that most dental issues fall under.", "The ten main categories of dental treatments are: (1) Diagnostic - involves identifying dental issues (2) Preventive - focuses on preventing dental problems (3) Restorative - involves restoring damaged teeth (4) Endodontics - deals with the tooth pulp and tissues surrounding the root of a tooth (5) Periodontics - focuses on the structures supporting and surrounding the teeth (6) Oral surgery - involves surgical procedures in the mouth (7) Prosthodontics - deals with the replacement of missing teeth (8) Orthodontics - involves correcting teeth and jaw alignment issues (9) Pedodontics - pediatric dentistry (10) Implantology - involves dental implants. Besides these, a typical dental plan also includes palliative treatment (procedures to minimize pain, including anesthesia), emergency care, and consultation."
"Explain the different categories of dental procedures that are considered when creating dental plans.", "When designing dental plans, dental procedures are typically divided into three to five general categories. These include: (1) Preventive and diagnostic procedures (2) Minor restorative procedures (3) Major restorative work such as prosthodontics, endodontic and periodontic services, and oral surgery, which is often combined with minor restorative procedures (4) Orthodontic procedures (5) Implantology services, which are often excluded from typical plans due to their high cost. If covered, they usually fall under the major restorative category, but sometimes they are covered under a separate, fifth category. Pedodontic care is usually included in the first two categories, and the second and third categories are often combined."
"(a) Can you explain the workings of a scheduled dental plan, and (b) what are the pros and cons of such a plan?", "(a) A scheduled dental plan operates by providing a predetermined allowance for each dental procedure. These plans may incorporate deductibles, which are typically minimal or only required once in a lifetime. Coinsurance is not common in scheduled plans as the benefits can be achieved by adjusting the reimbursement level for each procedure to meet specific objectives. (b) The pros of scheduled plans are: Control over costs, Consistent payments, Simplicity in understanding the plan, Positive impact on employee relations due to appreciation of the plan. The cons include: The need to regularly review and possibly adjust benefit levels to meet reimbursement goals. Reimbursement levels may differ in various locations based on the local cost of dental care unless multiple schedules are used. If the scheduled benefits are set at the higher end of the reasonable and customary range, dentists who usually charge less may be encouraged to increase their rates."
"Explain how nonscheduled dental plans work.", "Nonscheduled dental plans are the most prevalent type of dental plans. They cover a certain percentage of the usual and customary charges, which are the charges most frequently made by dentists in a particular area. The usual and customary charge for a single procedure is usually set between the 75th and 90th percentile, with the trend leaning towards the lower number. This implies that the usual and customary charge level will cover the full cost of the procedure for 75% to 90% of the claims submitted in that geographical area. Nonscheduled plans often include a deductible, usually a calendar year deductible of $50 or $100, and they reimburse at different levels for different classes of procedures. Preventive and diagnostic expenses are typically covered either in full or at very high reimbursement levels. Reimbursement levels for other procedures are usually scaled down from the preventive and diagnostic level, based on the plan design objectives of the employer."
"What are the pros and cons of unscheduled dental plans?", "Pros of unscheduled plans include uniform percentage of total cost reimbursement, automatic adjustment for inflation and variations in the value of specific procedures. Cons include difficulty in cost control due to automatic adjustment for care cost increases, limited opportunities for minor benefit improvements once the plan is installed, and lack of clarity in advance about the specific payment for a particular service to the patient or dentist."
"Can you explain the concept of a combination dental plan?", "It's a dental plan where some procedures are paid for based on a set schedule, while others are paid for on a nonscheduled basis. This type of plan aims to balance the focus on preventive care and cost control. However, it also shares some of the drawbacks of both scheduled and nonscheduled plans, particularly for certain types of expenses."
"Describe the structure and purpose of an incentive dental plan.", "Incentive dental plans are structured to promote good dental hygiene by increasing reimbursement levels, typically for preventive and maintenance procedures. The purpose of these plans is to encourage regular dental visits without the plan sponsor bearing the cost of neglected dental care. The reimbursement levels usually increase yearly for those who have sought necessary treatment in previous years. Deductibles may or may not be a part of these plans, and when they are, they often apply on a lifetime basis. Some plans also allow participants to roll over unused annual benefit maximums to future periods, aiming to motivate participants to opt for less expensive care."
"Explain the unique characteristics of orthodontic coverage in dental insurance plans.", "Orthodontic coverage is usually not offered without other dental insurance. Orthodontic issues, once treated properly, are unlikely to reoccur, hence, they are usually provided once in a person's lifetime. This is why maximums are often set on a lifetime basis. Deductibles are usually not included as they are not significant for these types of claims. Many insurance plans restrict orthodontic coverage to individuals below 19 years, although some do cover adult orthodontics. The coinsurance level for orthodontic expenses is commonly 50%, but this can vary among different plans. The reimbursement level for orthodontics is often the same as that for major restorative procedures. Unlike other benefits, orthodontic benefits are often paid in installments as the treatment usually spans several years."
"List (a) the three elements that influence the pricing of a dental plan and (b) the considerations to be made when creating a dental plan.","(a) The pricing of a dental plan is influenced by the plan's structure, the traits of the insured group, and the employer's strategy for plan execution. (b) Several considerations need to be made when creating a dental plan, such as the plan type, deductibles, coinsurance, plan caps, handling of preexisting conditions, whether to limit covered services, and issues related to orthodontic coverage."
"Discuss the varying views on the application of deductibles in dental insurance plans.", "Deductibles can be a part of a dental insurance plan's structure, but this is not always the case. They are typically set on an annual basis, but can occasionally be set for a lifetime. Deductibles can help manage the cost of claims administration by preventing frequent payouts for minor procedures. However, there is also evidence to suggest that early detection and treatment of dental issues can lead to fewer claims over time. Some insurance providers encourage early detection by covering almost all costs associated with preventive and diagnostic services, thus exempting these services from deductibles."
"Can you explain the pros and cons of implementing lifetime deductibles in dental plans?", "Supporters of lifetime deductibles in dental plans argue that it helps to prevent the plan from bearing the cost of accumulated dental neglect of the participants. They also argue that it encourages individuals to invest in their own dental health as a prerequisite for adequate dental coverage. However, critics of lifetime deductibles point out several disadvantages: (1) It can lead to early overutilization by those eager to benefit from the plan. (2) Once met, lifetime deductibles offer no further value for the currently covered group. (3) It makes employee turnover a significant cost factor for the plan. (4) If set at a level that significantly affects claim costs and premium rates, a lifetime deductible could lead to negative employee reactions to the plan."
"Does the variety of dental procedures impact the structure of a dental plan?", "Yes, the variety of dental procedures significantly impacts the structure of a dental plan. It is crucial to consider the range of procedures, including orthodontics, implantology, surgical periodontics, and TMJ dysfunction therapy, that will be covered under the plan. Some plans, although rare, only cover preventive and maintenance expenses."
"Discuss the effect of different plan designs on the cost of dental plans.", "The cost of dental plans can be significantly influenced by modifications in certain plan design elements. The most substantial impact on cost comes from alterations in dental plan deductibles. A cost reduction of up to 12% can be achieved by raising the deductible from $50 to $100. Benefit maximums also affect the cost, but their impact is relatively minor. Changes in coinsurance amounts can have a definite impact, particularly changes in the restoration, replacement, and orthodontic sections of the plan, which account for approximately 80% to 85% of typical claim costs. Lastly, incorporating orthodontics into the base plan is another high-cost item."
"Identify the factors of a dental plan's covered group that can influence the cost of the plan.", "Several factors of the covered group can influence the cost of a dental plan. These factors include: (a) The age range of the participants, as average charges typically rise from around ages 35 to 40 (b) The gender distribution of the group, as women usually have higher utilization rates than men (c) The geographical location of the group, as dental charges, practice patterns, and dentist availability can vary by location. There can also be differences in the frequency of use for certain procedures. Additionally, the presence of fluoride in the water supply can significantly lower dental costs. (d) The income levels of the participants, as costs tend to increase at higher income levels (e) The occupations of the group members, as blue-collar workers generally have lower dental costs than white-collar employees."
"Explain the measures taken by insurance companies to prevent adverse selection in the underwriting of contributory dental plans.", "To prevent adverse selection in the underwriting of contributory dental plans, insurance companies take measures such as: (a) Merging dental plan participation and contributions with medical plan participation (b) Restricting enrollment to a single offering to avoid subsequent sign-ups or dropouts (c) Mandating dental examinations prior to joining the plan, and limiting or excluding treatment for conditions identified in the exam. HIPAA limitations are not applicable as long as the dental benefits are “limited in scope” and are provided under a separate policy or rider. (d) Mandating participants to stay in the plan for a certain minimum period before they are eligible to drop coverage."
"Can you explain the process of a predetermination-of-benefits provision in a dental insurance plan?", "The dentist must first prepare a treatment plan detailing the work and cost before any nonemergency services begin, especially if the cost is expected to surpass a certain amount. This plan is then processed by the carrier to determine the dental plan's contribution. Selected claims may be referred to the carrier’s dental consultants for review of the recommended treatment. If there are any queries, the dental consultant will discuss the treatment plan with the dentist before the services are performed."
"Explain the impact of advancements in dental technology on the structure of dental plans.", "The evolution of dental technology plays a significant role in shaping dental plans. The introduction of new techniques, once approved by the American Dental Association, are typically covered under the plan as they are seen as alternative methods to deliver existing services. However, new procedures face a more rigorous process before being covered. They must first be acknowledged as a valid procedure by the American Dental Association and demonstrate a consistent success rate. Once these criteria are met, the procedure may be approved for coverage or set aside for further investigation. If approved, a separate decision is made to determine if the procedure and similar ones will be covered as a standard or as a design option at the discretion of the plan sponsor."
"What are the key differences between the traditional prescription drug plan integrated within a group health policy and the contemporary 'carved-out' plan?", "In the past, prescription drug plans were typically part of a health plan member's major medical coverage or sold as an additional benefit to the major medical package. Participants would pay the full cost at the pharmacy, then submit receipts to a claims administrator or insurance company for reimbursement, often subject to an annual deductible and a 20% coinsurance payment. However, most employers have phased out these plans due to various reasons, despite the challenges that come with managing a 'carved-out' plan. The modern prescription drug plan is usually 'carved out' from the medical benefit and is often managed by a pharmacy benefit manager (PBM) or third-party administrator (TPA). This plan provides payers with discounts on regular pharmacy charges, electronic claims administration according to benefit requirements, and utilization reports. It also offers cost-reducing programs through mail service and the internet, and rebates from manufacturers for bulk purchasing."
"Can you outline the typical features of a contemporary prescription drug plan?", "Typical features of a contemporary prescription drug plan include: (a) Member eligibility cards (b) Online claims adjudication (c) Tiered copays or deductibles and coinsurance (d) Pharmacy networks offering discounts on branded medications (e) Maximum allowable cost (MAC) pricing for generic drugs (f) Mail service (g) Formularies and/or preferred drug lists (h) Prior authorizations for certain expensive medications (i) Therapeutic interchange or switching."
"Explain the different pricing structures involved in the pharmaceutical supply chain, particularly in the context of employer-sponsored prescription drug plans.","(a) Average wholesale price (AWP) (b) Wholesale acquisition cost (WAC) (c) Maximum allowable cost (MAC) (d) Average manufacturer price (AMP)"
"What are the different ways employers can handle the management and design of a pharmacy benefit plan?", "Employers have a few different methods for handling a pharmacy benefit plan. They can (1) manage the benefit and process claims in-house; (2) delegate the management of the benefit to a health plan, PBM or TPA; or (3) directly contract with pharmacies and process claims in-house. Typically, payers with less than 15,000 members do not manage the pharmacy benefit internally, although some large employers choose to do so with the expectation that they can negotiate better deals with pharmacies and pharmaceutical manufacturers than PBMs can."
"Can you explain the process that occurs when a covered employee uses their prescription drug card at a network pharmacy?", "When a covered employee presents their prescription drug card at a network pharmacy, the pharmacist uses a computer network to verify several details. These include whether the drug is covered by the plan, if the individual is eligible for the medication, and if there are any restrictions related to the medication. Once these details are confirmed, the prescription is filled. The employee usually pays a predetermined copayment, and the payer is billed at a prenegotiated discount rate. It's important to note that most prescription drug plans require employees to contribute towards the cost of their prescriptions through a copayment or coinsurance, and/or by meeting a deductible. A copayment is a fixed amount paid when the prescription is filled, while coinsurance is a percentage of the covered charges that the employee pays for their prescriptions. A deductible is a fixed dollar amount that the employee pays out of pocket each plan year for covered prescription drugs before the plan pays any benefits. The employee may need to meet their annual deductible for the copayments or coinsurance to apply. While plans requiring coinsurance had fallen out of favor, they are now preferred by many prescription drug plans."
"Can you list some common exclusions in a prescription drug plan and explain why they are excluded?", "Typically, prescription drug plans exclude medications for smoking cessation, hair loss, obesity, and cosmetic conditions. They also exclude drugs for investigational use, drugs covered under workers’ compensation programs, and immunizing agents. Lifestyle drugs, which are used to enhance daily life rather than cure illnesses, are also commonly excluded. Over-the-counter (OTC) medications are usually not covered, with a few exceptions like insulin, needles and syringes, prenatal vitamins, and diabetic devices and test strips. Biotechnology medications, which are made from living cells and treat various diseases, are usually covered under the medical benefit, but some plans place them under the pharmacy benefit for better management and discounted pricing. Prescription drug plan benefits generally include federal legend drugs, state-restricted drugs, compound items that contain a federal legend drug or state-restricted drug, and injectable insulin. Quantity limitations are often the greater of a 30- or 34-day supply or 100 units. Federal legend drugs are defined as any medicinal substance that bears the legend “Caution: Federal law prohibits dispensing without a prescription.”"
"Which elements are responsible for the significant rise in the cost of prescription drugs, which make up a large part of an employer's total health care expenses?", "The primary reasons for the surge in prescription drug expenses are the increased volume, mix, and availability of products, as well as price hikes implemented by the pharmaceutical industry. Direct-to-consumer advertising has also boosted the demand for drugs. Furthermore, as the population ages, demographics are pushing up the cost of prescription medications. More and more new drug therapies are focusing on the 'young old' to prevent certain diseases from progressing. In some instances, prescription drugs are replacing other types of health care. It's worth noting that spending on biotechnology drugs is predicted to make up an increasingly large portion of future drug price growth."
"Explain the structure of a four-tier prescription drug plan and its implications.", "A four-tier prescription drug plan is structured in a way that the first tier includes generic drugs, the second tier comprises nonpreferred generics and preferred brand-name drugs. The third tier includes nonpreferred or nonformulary brand-name drugs. The fourth and final tier is reserved for specialty drugs, which are high-cost medications used for treating rare and severe health conditions."
"Can you explain why standalone prescription drug plans are often preferred over other options?", "Standalone prescription drug plans are often preferred due to their cost management benefits. These include: (a) Unlike medical plans that directly reimburse drug expenditures, standalone plans often offer discounts for prescription drug coverage, potentially saving plan sponsors up to 25% on costs. (b) Standalone plans use PBMs’ online claims processing systems, which require detailed receipts and can review prescriptions for coverage more effectively than medical claims processors. (c) Standalone plans provide detailed data reports, allowing for effective review of drug trends, something not possible with the limited information from medical claims processing systems. (d) Standalone plans offer access to rebates and other cost-saving programs, which are not available through medical claims processors."
"What are the key elements that affect the pricing of prescription drug benefits?", "Several elements play a role in determining the pricing of prescription drug benefits. Firstly, the demographics such as age and gender of the population being treated can affect the types of diseases being treated. Secondly, the design of the benefits, copays, and formulary can impact what is covered under the plan. Thirdly, the cost of drugs and the mix of branded products covered by the benefit can drive up the cost. The restrictiveness of the preferred drug list can influence the drug mix. Rebates can help offset some of the cost of branded drugs, especially if all the rebates are returned to the plan. Preferred drugs might have a higher monthly cost in terms of discounted ingredient costs, but after rebates, the net costs should always be lower than nonpreferred drugs within the same therapeutic category unless a specific drug is clinically superior. Fourthly, the number of prescriptions used by the members can multiply the drug cost. Fifthly, the charges by the PBM and their ability to profit from retail and mail-order discounts, rebates, and other programs can provide discounts to the cost of the program. However, if all earned fees and discounts are not returned to the plan sponsor, PBMs can increase costs. Sixthly, fraud by pharmacies, patients, or physicians and prescription misuse can also influence the cost. Lastly, the ability of the plan to manage costs can significantly impact the cost of the benefit. Plans that are tightly managed usually have lower costs on a per-patient basis than nonmanaged plans."
"What are the benefits of using a mail service program (MSP) for prescription drugs, especially for chronic conditions that require long-term medication?", "Mail service programs (MSPs) for prescription drugs offer several benefits. They are particularly useful for patients with chronic conditions like diabetes, asthma, or high blood pressure who need maintenance medications for extended periods. MSPs save patients both time and money, making them a popular feature in benefit designs. They can reduce the cost of traditionally delivered prescription drugs by up to 10%. MSPs also offer lower dispensing costs and enable quality control through automation, which is not common in retail pharmacies. Despite their benefits, MSPs are often underutilized because enrollees are either unfamiliar with the plan's mail service benefit or unsure how to use it. However, once introduced to the convenience, simplicity, and safety of MSPs, enrollees' perceptions often change, and they express high satisfaction with the plan. An industry association has cited numerous studies showing that managed care MSPs lower overall prescription costs while maintaining or even improving quality. However, MSPs do have some disadvantages, such as potential waste if individuals get excessive dosage sizes before a change in their treatment regimen or stock up on prescriptions before ending their employment."
"Identify the strategies used by plan sponsors to manage and reduce pharmacy costs.", "Strategies used by plan sponsors to manage and reduce pharmacy costs include: (1) Evaluating the design of the pharmacy benefit and its integration into the overall medical program, especially in cases where flat dollar copayments have not been updated for several years, leading to the plan covering a significant portion of the pharmacy benefit cost. (2) Conducting experience analysis to pinpoint areas that require improved management. (3) Implementing pharmacy management tools and techniques such as: (a) Minimizing the pharmacy network size without compromising access and introducing pharmacy incentive programs for increased generic substitution and formulary compliance to reduce cost trends. (b) Providing mail service or 90-day retail point-of-service prescriptions as a convenient alternative for members, with equal copayments per day’s supply in both retail and mail-order pharmacies. (c) Encouraging generic drug substitution through a plan design where patients pay the difference between the cost of brand medication and the generic drug if a brand is requested by the patient or physician. (d) Using a formulary promoting cost-effective and clinical therapeutic drugs along with a rebate program that passes on all rebates to the plan sponsor. (e) Practicing utilization management targeting high-cost users and intervening with physicians and patients to ensure quality outcomes. (f) Offering physician profiling to identify high-cost physicians with low-acuity patients and an incentive program to dispense appropriate medications. (g) Using health management programs to educate patients about alternatives to high-cost therapies. (h) Communicating cost trends to plan members to help them become better consumers. (4) Forecasting the financial impact of new drugs and therapies and establishing policies and procedures for these new drugs before they hit the market."
"Can you explain the different types of Drug Utilization Review (DUR) programs and how they function?", "There are three main types of DUR programs: concurrent, retrospective, and prospective. Concurrent DUR is implemented at the point of service, such as a pharmacy, and it identifies potential overuse of drugs based on pre-set clinical monitoring criteria or 'edits' in the PBM's systems. These 'edits' can flag issues like early refills, duplicate claims, drugs that need prior authorization, or quantity limits. Retrospective DUR, also known as pharmacy case management, involves pharmacists or nurses reviewing patient profiles to check if patients are adhering to their drug therapy or to suggest alternative, potentially more effective or cost-efficient, therapies to their physicians. Some PBMs are hesitant to offer these programs as they are paid to fill prescriptions, not to prevent them from being filled. Therapeutic switching programs, often referred to as retrospective DUR, aim to replace one drug with another rather than assessing the appropriateness of the therapy. Prospective DUR programs aim to educate physicians and patients about drugs or drug therapies."
"Can you explain the purpose and composition of a P&T committee in relation to a formulary?", "A P&T (Pharmacy and Therapeutics) committee is responsible for the design of a formulary. It is composed of physicians, pharmacists, and nurses, and may also include pharmacoeconomists, ethicists, the lay public, and plan administration. The P&T committee evaluates all available evidence to choose medications to treat the conditions prevalent in the insured population. If the committee determines that drugs within a therapeutic class are equally effective, a formulary selects the most cost-effective drugs within the category based on a combination of AWP and rebates that manufacturers are willing to give to the PBM or plan. The committee also ensures that all earned rebates, whether for brand or generic drugs, are received by plan sponsors."
"Explain the differences between open, preferred, and closed formularies.", "Open formularies offer plan members access to any covered prescription drug. This allows physicians and patients to make informed decisions as they typically include a wide range of medications. The list of preferred drugs in an open formulary is shared with patients and physicians for informational purposes. Preferred formularies are quite common and incentivize patients to use preferred or formulary drugs by offering a lower copayment. Closed formularies, on the other hand, do not cover nonformulary drugs. These are usually found in hospital settings and tightly managed HMO programs, and are not typically used by employers."
"What are some strategies to manage prescription drug costs outside of formularies?", "Strategies to manage prescription drug costs outside of formularies include: (a) Network management, securing better discounts with retail and mail-order programs, and monitoring performance to prevent fraud and abuse (b) Creating plans that align with the goals of the overall benefit program (c) Implementing quantity limits and maximum dollar limits on all prescriptions (d) Using step-therapy programs to ensure that prescribing adheres to national treatment guidelines for specific diseases (e) Conducting prospective review of new drugs and making early policy decisions (f) Clinical management via a comprehensive pharmacy case management program (g) Other DUR programs, such as concurrent and prospective programs (h) Quality data management that enables early intervention reporting."
"Differentiate between the medical model and the therapy-directed model of Disease state management (DSM) programs and discuss the criticisms they face.", "The medical model of DSM programs involves call centers manned by nurses and their assistants who triage patients to suitable levels of care. They ensure patients with select diseases are scheduling doctor appointments, receiving appropriate tests and procedures, and understand the importance of their medication. The therapy-directed model is run by PBMs, pharmaceutical manufacturers, health plans, and disease management companies. They promote improved compliance with medication therapy, patient education, and testing for care outcomes. Critics of these models argue that there are no standardized methods to measure success and ROI. They claim these programs are more like “advertisements” from drug manufacturers rather than actively managed DSM programs. Critics also argue that the diseases targeted by DSM are “low-hanging fruit,” as their treatment can be easily improved with compliance and education programs for proper medication use. They believe the benefits of these programs are front-loaded, with the benefits achieved with initial interventions, and further clinical improvements and cost reductions are marginal or, at best, incremental."
"Can you define evidence-based medicine and its purpose?", "Evidence-based medicine (EBM) is a method used in medical decision making that heavily relies on scientific evidence and statistical methods to assess the results and risks associated with various treatments. It is also a strategy to make unbiased decisions amidst the influence of mass media advertising, direct-to-consumer advertising of drugs, and the marketing strategies of pharmaceutical and device manufacturers."
"How does a prescription drug program's network system function and what are the roles of PBMs?", "In a prescription drug program, employees must use a network pharmacy to get coverage for their prescriptions, except in emergency situations. Some plans may cover prescriptions filled outside the network, but the reimbursement may be reduced to the amount that would have been paid if the member had used a network pharmacy. Pharmacies become part of these networks and offer services at lower rates to attract more business. The Pharmacy Benefit Management (PBM) is responsible for creating a network that caters to the needs of the enrollees and is both convenient and acceptable. A well-structured network of pharmacy providers enables PBMs to effectively manage costs and quality. PBMs also generate profits from various sources and offer rebates. When selecting a PBM, plan sponsors need to consider the structure and services provided by the PBM."
"Can you explain the role of a Pharmacy Benefit Manager (PBM)?","A Pharmacy Benefit Manager (PBM) is responsible for managing pharmacy programs. This involves implementing programs, services, and techniques to control the costs related to pharmaceutical care. This includes: (a) Enhancing the prescribing and dispensing process through online and real-time claims adjudication (b) Maintaining a network of retail pharmacies and a mail-order option that offer discounts on prescription drugs and potentially monitor the network's performance (c) Providing limited Drug Utilization Review (DUR) online at the point of sale or dispensation (d) Supplying data and reports on drug usage (e) Managing the cost of dispensed prescriptions through clinical and financial programs, such as formulary development and rebate contracting with drug manufacturers."
"Can you list the typical services provided by Pharmacy Benefit Managers (PBMs)?","Typical services provided by PBMs include: (1) Processing of claims (2) Account management and support for plan design alternatives, trend analysis and general advice regarding prescription drugs (3) A retail network of pharmacies for the purchase of medication at discounts (4) Mail-order prescription dispensing (5) Patient communication regarding program use (6) Formulary development and rebate administration (7) Drug utilization management, including prospective, concurrent and retrospective review programs (8) Reporting of drug utilization and industry trends (9) Educational components for patients and physicians."
"Can you list the ways in which Pharmacy Benefit Managers (PBMs) earn their revenue?", "Pharmacy Benefit Managers (PBMs) have several revenue streams. These include: (a) Administrative fees charged to payers per transaction, based on the number of prescriptions or employees (b) Retention of rebate administrative fees negotiated with manufacturers (c) Profits from mail service prescriptions filled by their own mail-order pharmacies (d) Earnings from disease management, education and value-added programs negotiated with pharmaceutical manufacturers (e) Discounts secured through a contracted network of pharmacies or through direct purchasing when the PBM owns its mail service pharmacy (f) Retention of the pharmacy spread (g) Retention of the spread in MAC list payments for generics that is greater than what is paid to the network pharmacies (h) Reduction of payments to pharmacies based on certain package sizes, regardless of the package size dispensed."
"Explain the concept of zero-balance billing and how it affects the financial responsibilities of both the plan sponsor payer and the individual plan participant.", "Zero-balance billing is a practice where pharmacies, permitted by some PBMs, retain the full copay even if the drug's cost is lower than the copay. This practice allows PBMs to negotiate larger discounts from pharmacies for their clients. While this doesn't financially impact the plan sponsor payer, it does result in higher payments for the individual plan participant. It's important for payers to inquire with PBMs about the occurrence of zero-balance billing and if it aligns with their benefit philosophy."
"Explain the concept of a rebate in a prescription drug program and its benefits.", "A rebate in a prescription drug program is a deal between a Pharmacy Benefit Manager (PBM) and a drug manufacturer to achieve substantial cost reductions in prescription drugs. Some of these savings are then transferred to employers. The increase in rebates given to payers has coincided with the surge in pharmacy benefit inflation and the introduction of multi-tiered copay designs. Previously, manufacturers would offer discounts based solely on usage, but now they often demand an increase in market share before providing discounts. Rebates allow drug manufacturers to incentivize PBMs that can persuade a significant proportion of enrollees to switch to the manufacturer's primary products."
"What are the key considerations for a company when choosing a Pharmacy Benefit Manager (PBM)?","The company should first establish its own set of objectives before seeking proposals from PBMs. While cost is a significant consideration, other factors such as consistent claim administration in line with the plan's benefit designs, service delivery, administrative supervision, and pricing transparency are also crucial. The company should also consider the following: (a) The PBM's provider network options and pricing, as well as the support provided for network customization. (b) The ownership and operation of the PBM's mail-order program. (c) The assurance of price guarantees through unrestricted audits by the plan sponsor. (d) The backing of service and performance offerings by guarantees and substantial financial penalties. (e) The types of reports provided by the PBM. (f) The types of Drug Utilization Review (DUR) edits performed and their customization options. (g) The basis of DUR edits on measurable criteria in the claims detail supporting the invoices. (h) The PBM's collaboration with physicians to educate and modify prescribing patterns. (i) The patient education programs offered by the PBM. (j) The design and funding of any disease management programs offered by the PBM. (k) The types of ancillary services provided and the processing of claims. (l) The PBM's preferred drugs and the client's ability to modify the preferred list. (m) The results and return on investment tracking of the PBM's programs. Lastly, the company should scrutinize the ownership of the PBM to ensure the best discounts and oversight of owned pharmacies, as many PBMs have ties with large drug chains or pharmaceutical manufacturers, or are owned by chains or independent pharmacy consortiums."
"Explain the characteristics of the most intense mental disorders.","The most intense mental disorders, like schizophrenia, bipolar disorder, and major depressive disorder, are typically seen as disorders rooted in biology that impact the brain. They significantly interfere with an individual's thought processes, emotions, mood, interpersonal relations, and ability to handle life's challenges. Mental disorders not based on biology can also have a severe effect on a person's ability to function."
"Identify the broad classifications of mental disorders.", "Mental disorders can be broadly classified into: (1) Adjustment disorders (like situational stress) (2) Anxiety disorders (like panic disorder) (3) Childhood disorders (like autism) (4) Eating disorders (like anorexia) (5) Mood disorders (like major depressive disorder) (6) Cognitive disorders (like dementia) (7) Personality disorders (like antisocial personality disorder) (8) Psychotic disorders (like schizophrenia) (9) Substance-related disorders (like alcohol/drug dependence)."
"Following World War II, mental illness hospitalization was initially covered at the same benefits level as nonpsychiatric benefits. Why did insurance companies begin to impose restrictions, especially on outpatient mental health care?", "Insurance companies began to impose restrictions on outpatient mental health care due to the indefinite duration of treatments and the high degree of subjectivity involved in diagnosing and treating mental disorders."
"Can you describe the limitations of mental health care coverage under health maintenance organizations (HMOs) during their rise in the 1980s?", "The mental health care coverage was quite limited under HMOs. Hospital coverage was typically restricted to 30-45 days per mental illness or 30 or 60 days per year, unlike medical illnesses which usually had unlimited days. Outpatient services had significantly lower coverage for mental health treatment compared to medical treatment, with common limitations including a maximum dollar limit of $1,000 per year and a maximum reimbursement per visit ranging from $25 to $40. Coinsurance rates also differed greatly between medical and mental health care coverage."
"Can you explain the concept of a behavioral health care carve-out program and why employers might opt for it?","A behavioral health care carve-out program refers to a system where mental health and chemical dependency services are separated from a general medical plan and offered independently, typically under a different contract and from a different company, often a managed behavioral health care organization (MBHO). Employers may choose this for several reasons: it is often managed by companies specializing in behavioral health treatment; it allows large, self-funded employers to provide the same behavioral health benefits across all health plans; and it helps a health plan to reduce adverse selection. However, with the Affordable Care Act encouraging integrated, coordinated care, the practice of carving out behavioral health benefits may become less prevalent as it promotes a segmented form of care provided by MBHOs."
"Can you explain the role of psychotropic drugs in mental health treatment and why their management poses a difficulty for MBHOs?", "Psychotropic drugs are used in the treatment of mental health disorders as they influence mental activity, behavior, or perception. They are typically managed by pharmacy benefit managers (PBMs) under the medical benefit. The challenge for MBHOs is that while they are responsible for managing the behavioral health of their members, they do not manage the prescription drug benefit. This often leaves them in the dark about whether the psychotropic drugs prescribed to their members are suitable in type and dosage, or if there are adequate interventions in place during treatment to ensure medication compliance. This lack of oversight can lead to increased overall healthcare costs due to the chronic nature of many mental illnesses."
"What are the drawbacks of the traditional MBHO business model that have led to its recent scrutiny?", "The traditional MBHO business model has been scrutinized due to its emphasis on managing cost and utilization rather than enhancing clinical outcomes and integrating with medical health benefits. This has led to a push for insourcing management of behavioral health and substance use disorder benefit services into health plans."
"Discuss the impact of legislative measures and regulatory actions on the preference for a carve-in model over a carve-out model for the provision of behavioral health and substance use disorder benefits.", "Several legislative initiatives and regulatory actions have influenced the preference for a carve-in model over a carve-out model. The Affordable Care Act (ACA), with its focus on integrated, holistic health approaches, tends to favor a carve-in model. The Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) also had an impact that favored the carve-in model, as it created a larger administrative burden for carve-out plans in complying with parity. The Health Insurance Portability and Accountability Act (HIPAA) and other policies protecting the privacy of health information also contribute to this trend, as they create obstacles for comprehensive clinical integration. Over time, there have been shifts in the preference for the carve-in or carve-out model for providing behavioral health care and substance use disorder benefits. Initially, the carve-in approach was favored, but in the early 2000s, there was a shift towards the carve-out model due to rapidly escalating mental and behavioral health costs. However, in recent times, the trend has shifted back towards the carve-in model due to legislative and marketplace forces encouraging integrated care delivery, as well as operational impediments presented by data privacy and mental health parity provisions. Regardless of the model chosen, the success of a behavioral health and substance use disorder benefit program depends on effective execution and awareness of the positive and negative attributes of the chosen model."
"Can you explain the limitations of the Mental Health Parity Act of 1996 (MHPA) and why it didn't fully achieve its intended purpose?", "The MHPA was designed to create parity between mental health benefits and other health benefits. However, it only applied to group health plans, insurance companies, and HMOs, not to individual insurance. It also allowed for limits on inpatient days, prescription drugs, outpatient visits, and higher deductibles, which effectively imposed dollar limits on mental health benefits. The law only applied to groups that offered mental health benefits and had more than 50 employees. It did not mandate that plan sponsors include mental health benefits in their packages. Furthermore, it did not cover substance abuse and chemical dependency treatment."
"Can you explain the differences between the Mental Health Parity Act (MHPA) and the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA)? (Text, p. 68 and", "The MHPA only required parity in annual or lifetime dollar limits and did not include substance use disorder benefits. On the other hand, the MHPAEA not only continues the rules of MHPA for mental health benefits but also extends them to substance use disorder benefits. The MHPAEA also mandates that the financial requirements and treatment limitations for mental health and substance use disorder (MH/SUD) benefits should not be more restrictive than those for medical/surgical benefits. This means that MH/SUD services must be treated similarly to all other covered medical and surgical services under the health plan. Financial limits or cost-sharing requirements such as deductibles, copayments, coinsurance, and out-of-pocket maximums are included in these rules. Deductibles and out-of-pocket maximums cannot accumulate separately for medical/surgical benefits and MH/SUD benefits as this would be an impermissible financial constraint. Treatment limits refer to the frequency of the treatments, number of visits, days of coverage, days in a waiting period or similar limits. Plans cannot avoid the law by setting up a plan for mental health services or substance use disorder benefits only."
"Can you explain the key elements of the MHPAEA and its relationship with the Affordable Care Act (ACA)?","The MHPAEA includes several key provisions: (a) It prohibits plans from imposing financial requirements (like deductibles and coinsurance) or treatment limitations on MH/SUD benefits that are more restrictive than those applied to most medical/surgical benefits. This includes both quantitative and nonquantitative treatment limitations. Quantitative limitations refer to things like frequency of treatment, number of visits, days of coverage, etc. Nonquantitative limitations can include medical management standards, formulary design, and methods for determining usual, customary, and reasonable (UCR) amounts. (b) The parity requirements apply separately to six classifications of benefits: Inpatient in-network, Inpatient out-of-network, Outpatient in-network, Outpatient out-of-network, Emergency care, and Prescription drugs. (c) Separate cost-sharing requirements for MH/SUD benefits are not allowed, even if they are equivalent to those for medical/surgical benefits. For instance, plans must have a combined deductible for medical/surgical and MH/SUD benefits. (d) The law includes two new disclosure requirements. Plans must disclose their criteria for determining medical necessity for MH/SUD treatment and the reason for claim denials for MH/SUD benefits. ERISA plans can meet this requirement by following ERISA claim denial procedures for group health plans. Under the ACA, mental health and substance use disorder benefits are considered essential benefits, so annual limits cannot be imposed on these benefits, and lifetime limits are banned under general conditions. The ACA also requires nongrandfathered group health plans to provide certain preventive services without cost-sharing, such as alcohol misuse screening and counseling, depression counseling, and tobacco use screening. However, the plans are not required to provide the full range of benefits for MH/SUD to comply with the preventive services requirement."
"Can you list some examples of nonquantitative treatment limitations (NQTL) that must maintain parity under MHPAEA and cannot deviate from medical/surgical limits?", "Under the Mental Health Parity and Addiction Equity Act (MHPAEA), certain nonquantitative treatment limitations (NQTL) must maintain parity and cannot deviate from medical/surgical limits. The Compliance Tool provides examples of such NQTLs. These include: Medical management standards limiting or excluding benefits based on medical necessity or appropriateness, or if the treatment is experimental or investigative Prescription drug formulary limits Standards for provider admission to participate in a network, including reimbursement rates. The Compliance Tool also highlights potential warning signs regarding provider reimbursement rate setting. Methods for determining usual, customary and reasonable charges Requirements for using lower cost therapies first, often referred to as step therapy or fail-first policies, as they apply to inpatient and outpatient treatment Conditioning the availability of a benefit on completion of a course of treatment. For instance, a plan cannot require an individual to complete employee assistance program (EAP) counseling—making the EAP a “gatekeeper”—before benefits are available under the plan, unless the same is required for medical/surgical services. Comparable provider reimbursement rates and network provider participation standards. Some NQTL limits that vary based on clinically appropriate standards of care are allowed. While plans are not required to use the same limits for both medical/surgical and MH/SUD benefits, the processes or standards of care must still be comparable and applied uniformly."
"Can you outline the suggestions given by the Compliance Tool for creating an internal compliance plan as per the MHPAEA, even though it's not a requirement?", "The Compliance Tool suggests several steps for creating an internal compliance plan under MHPAEA. These include: Regular training and education, Proper retention of records and information, Regular internal monitoring and compliance reviews, Responding to potential violations and formulating corrective actions."
"Can you explain what kind of documentation a plan sponsor might be asked to provide during a DOL audit regarding the parity of MH/SUD benefits and medical/surgical benefits according to the Compliance Tool?", "The Compliance Tool suggests that during a DOL audit, a plan sponsor might be asked to provide: Documentation of the methodology used for applying NQTLs to both MH/SUD benefits and medical/surgical benefits under the plan Documentation and guidelines, claims processing policies and procedures, or other standards that the plan has used to determine its compliance with applying NQTL to MH/SUD benefits and medical/surgical benefits Examples of approved and denied benefit claims for MH/SUD benefits and medical/surgical benefits If a plan delegates benefits management to another entity, such as a third-party administrator or other service providers, documentation of that entity’s compliance with MHPAEA Any MHPAEA testing done by the plan regarding the financial requirements or treatment limits applied to MH/SUD benefits."
"Who are the primary purchasers of behavioral health care benefits in the United States?", "Large groups that buy comprehensive health care and other insurance benefits for their covered members are the primary purchasers of behavioral health care benefits in the United States. These benefits are sold through various channels such as large brokerage and consulting firms, large MBHO sales forces, and health carrier sales forces."
"Can you outline the common characteristics of behavioral health care benefit plans?", "Most employer-sponsored plans provide coverage for inpatient and outpatient mental health services. This includes intermediate services like residential treatment and partial hospitalization, as well as intensive outpatient services. These services can encompass psychological rehabilitation, case management, and wraparound services for children."
"How does the Health Insurance Portability and Accountability Act (HIPAA) protect sensitive patient information during behavioral treatment?", "The Health Insurance Portability and Accountability Act (HIPAA) ensures the confidentiality and security of sensitive patient information collected during behavioral treatment."
"Can you explain the three main funding arrangements for a Managed Behavioral Health Organization (MBHO)?","The three main funding arrangements for an MBHO are fully insured, shared risk, and administrative services only (ASO). In a fully insured arrangement, the MBHO takes on the financial risk for providing behavioral services and pays the claims submitted by providers. If the overall plan costs exceed expected levels, the MBHO absorbs the increased costs. In a shared-risk arrangement, the purchaser agrees to assume the financial risk for claims payment up to a certain amount. If claims exceed this amount, the MBHO assumes those claim costs or a percentage of them. If the claims are below this amount, the balance can be shared by the MBHO and the client or refunded to the client. In an ASO arrangement, the MBHO handles medical management, utilization review, benefit and other administrative functions, such as claims payments, for a fee. The purchaser assumes the financial risk of the health care costs for its members. This arrangement is often used by larger groups as the financial risk is spread across a greater number of employees and its budget is large enough to absorb the risk."
"How has the focus of Employee Assistance Programs (EAPs) changed over time?","Initially, EAPs were primarily concerned with substance abuse issues, but they have since expanded to address a variety of employee and family problems. They now often include preventative measures and health and wellness initiatives. Some EAPs even offer support to human resources through management consultations, workplace seminars, and stress management following significant workplace incidents."
"What are the key components of a successful behavioral health program?", "A successful behavioral health program should have a combined mental health/substance abuse benefit that covers both inpatient and outpatient services, along with an Employee Assistance Program (EAP). The success of such a program is determined by (1) the knowledge and understanding of the program's services and value by both employees and employers; (2) the correct utilization of the benefits; and (3) the efficiency of the behavioral vendor and its network providers in preventing and managing expensive disorders."
"Who are the typical members of a behavioral health specialty network and what roles do they play?", "The typical members of a behavioral health specialty network are individual practitioners and multispecialty group practices. These include clinical psychologists who diagnose and treat mental, emotional, and behavioral disorders, social workers who help people solve and cope with problems in their everyday lives, master’s-level therapists who provide therapy and counseling, psychiatric nurses who care for patients with mental illnesses, and psychiatrists who diagnose and treat mental illnesses. The network may also include medical doctors specializing in addictionology who treat substance abuse and addiction, and developmental-behavioral pediatricians who work with children with developmental and behavioral problems."
"Explain the varying levels of care provided by inpatient, partial (day), and outpatient behavioral health care treatments.", "Inpatient treatments are for those with severe conditions who may pose a danger to themselves or others and cannot take care of themselves. Partial hospital programs or day treatments provide intensive care during the day, allowing patients to return home at night. Intensive outpatient programs, on the other hand, are for patients who need more care than weekly outpatient therapy but less than what is provided in partial or day facilities."
"Explain the cost-control strategies employed by Managed Behavioral Health Organizations (MBHOs):","(a) Access to care (b) Risk assessment and predictive modeling (c) Evaluation of performance (d) Management of cases (e) Review and management of utilization (f) Management of outcomes (g) Care coordination (h) Programs for managing depression disease (i) Programs for preventing substance abuse relapse"
"Name three bodies that provide accreditation to MBHOs.", "The Joint Commission, the National Committee for Quality Assurance, and the Utilization Accreditation Review Commission are three bodies that accredit MBHOs."
"What are some novel strategies that could effectively address the urgent needs of individuals with mental health conditions?", "Novel strategies that are either being developed or are already being utilized to address the needs of individuals with mental health conditions include: (a) Active disease management programs that operate on multiple levels. These programs collaborate with employers to engage with employees in the workplace and with health plans to identify patients on psychotropic drugs who require additional assistance; they also engage with patients suffering from other illnesses such as diabetes or heart conditions who may also have a mental illness. (b) Outreach to individuals who desire treatment but are unsure of how to obtain it or locate a suitable therapist (c) Novel methods of providing therapy that are most accessible and cost-effective. For instance, individuals with mild to moderate distress levels can benefit from a coach who provides counseling over the phone or through the internet."
"Can you list the three main advantages of implementing a comprehensive wellness program in the workplace?", "The three main advantages of implementing a comprehensive wellness program in the workplace are: (1) Reduction in employee absences. (2) Enhancement in productivity. (3) Increased employee satisfaction and retention."
"Can small and mid-sized businesses implement wellness programs effectively despite budget constraints? Provide examples.", "Yes, small and mid-sized businesses can effectively implement wellness programs despite budget constraints. They have been shown to be superior at creating a culture of wellness within the workplace. Examples of cost-effective wellness initiatives include: (a) Holding regular workplace stretch breaks (b) Organizing a walking program (often cited by employees as their favorite wellness activity) (c) Instituting policies against smoking at work (d) Organizing potluck lunches featuring healthy foods (e) Identifying on-site assets available for wellness programs (such as a nearby walking trail or a conference room suitable for wellness classes)."
"What are the main factors that influence the cost of a workplace wellness program per employee per year, and what is the usual cost range for an employer to sponsor such a program?", "The cost of a workplace wellness program can vary greatly, but it typically falls between $0 and $450 per employee each year. The cost is primarily driven by factors such as incentives, equipment, and external service providers such as consultants, counselors, and gyms. It's important to establish a budget beforehand and then decide on the program offerings that can be supported with the available resources. For small businesses, it's common to share some costs with employees, especially for services like classes and memberships."
"What is the main objective of a health promotion program in a workplace, and what are the crucial choices to be made during the initial stages of its design?", "The main objective of a health promotion program in a workplace is to create a work environment that encourages healthy lifestyles. During the initial stages of its design, crucial choices that need to be made include: (a) Who is the target audience for the program? (b) What health concerns should be addressed?"
"List the six main components that are usually included in a comprehensive wellness program.","A comprehensive wellness program usually includes the following six main components: (1) Health screenings. (2) Educational and self-help tools. (3) Organized activities. (4) Individual follow-up and treatment. (5) Incentives. (6) A supportive environment."
"Identify three U.S. federal laws that specifically regulate wellness programs in the workplace and explain how they relate to broader anti-discrimination laws.", "Three U.S. federal laws specifically regulate wellness programs in the workplace and relate to broader anti-discrimination laws. The Employee Retirement Income Security Act (ERISA) prevents group health plans from discriminating based on a person's health status, but allows wellness programs to offer discounts on premiums or cost-sharing based on health status under certain conditions. The Americans with Disabilities Act (ADA) prevents employment discrimination based on health status and generally prohibits employers from asking about employees' health status, but allows medical inquiries as part of voluntary wellness programs. Lastly, the Genetic Information Nondiscrimination Act (GINA) prevents employment discrimination based on genetic information and prohibits employers from asking about individuals' genetic information, including information about the health status or family history of family members. However, like the ADA, GINA allows inquiries through voluntary wellness programs."
"Name the federal regulations that provide privacy protections for personal health data.", "The Health Insurance Portability and Accountability Act (HIPAA) provides privacy protections for personal health data. Additionally, the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) also offer certain privacy protections."
"Describe the changes in ERISA standards regarding 'health-contingent' wellness program incentives after the Affordable Care Act amendment in 2010.", "The Affordable Care Act in 2010 allowed group health plans to implement wellness program incentives that alter a person's group health plan premiums or cost sharing based on their health status, known as health-contingent wellness programs. These programs can offer rewards like premium discounts for achieving certain health outcomes or participating in wellness activities. In 2013, the Department of Labor (DOL) stated that these programs can alter group health plan premiums or cost sharing based on health status without being considered discriminatory if they meet certain standards. These standards include a limited reward amount, a maximum reward of 30% of the total cost of self-only group health plan coverage (which can be increased to 30% of the cost of family coverage if spouses and dependents are eligible to participate in the wellness program, and further increased to 50% if tobacco-related components are included in the wellness program), and the program must be reasonably designed to promote health or prevent disease. Reasonably designed is defined as having a reasonable chance of improving health or preventing disease, not being overly burdensome or a subterfuge for discrimination, and not being highly suspect in the method chosen to promote health. Health-contingent wellness programs must also meet other standards related to providing notice to participants, providing waivers or alternative ways for participants to earn rewards, and making rewards available to participants at least annually. ERISA standards for participatory wellness programs, which do not base rewards or penalties on health status, are different. These programs are not required to meet any of the five standards that apply to health-contingent wellness programs and generally are not considered to implicate ERISA nondiscrimination rules. However, the DOL rule notes that other employment discrimination laws, such as ADA and GINA as noted in the next question regarding EEOC rules, also apply and that being in compliance with the ERISA/ACA wellness program standards does not relieve employers from having to comply with other federal laws."
"Explain the key policy objectives and subsequent declarations/regulations of the Equal Employment Opportunity Commission (EEOC) regarding wellness programs, particularly in relation to ADA and GINA compliance.", "(a) ADA and GINA guidelines for wellness programs. The EEOC, in 2000, clarified that a wellness program is deemed voluntary under the ADA if an employer does not mandate participation or penalize non-participating employees. This definition was reiterated in the final regulations for GINA implementation in 2010. In 2014, the EEOC took enforcement actions against several employers who penalized employees for not participating in wellness programs involving medical inquiries. This included a case where an employer used financial incentives to boost participation. Employer groups disagreed with these actions, arguing that the ADA should allow the use of financial incentives similar to those permitted under ERISA/ACA. (b) ADA guidelines for wellness programs offered through a group health plan. In May 2016, the EEOC issued final rules on regulations to reinterpret ADA standards for voluntary wellness programs. These rules stipulate that any wellness program involving medical inquiries must be reasonably designed, as defined under the ERISA/ACA rule. The ADA rule also states that a reasonably designed wellness program should not primarily aim to shift costs onto employees based on their health. If the program collects health information, it must also provide participants with their results, follow-up information, or advice designed to improve health or use collected information to design a program that addresses at least a subset of health conditions identified. Additionally, two new standards relating to (1) financial incentives and (2) notices applied to wellness programs. (1) Regarding incentives, employers cannot deny eligibility for group health plan benefits or take adverse employment action, or retaliate against, intimidate, or threaten employees who refuse to participate in workplace wellness programs. The rule allowed the use of financial incentives or in-kind incentives to promote employee participation in wellness programs that include medical inquiries. The maximum financial incentive was 30% of the total cost* (employer and employee share) of self-only group health plan coverage. The rules specified this limit applies to both health-contingent and participatory wellness programs. A wellness program is considered voluntary under ADA if the amount of an incentive offered for participation—alone or in combination with incentives offered for health-contingent wellness programs—did not exceed this maximum. The rule further specifies that incentives need not be conditioned on participating in the group health plan. For example, if an employer offered a wellness program but did not offer group health plan benefits, the maximum incentive would be determined using the cost for self-only coverage meeting certain criteria sold on an ACA marketplace. Finally, the rule specifies that wellness programs cannot condition the incentives on the individual’s agreement to the sale, exchange, sharing, transfer or other disclosure of medical information or to waive confidentiality protections that would otherwise apply. (2) Notice requirements also applied to wellness programs that involved medical inquiries such as HRAs. Programs were required to provide workers notice of what information would be requested, how it would be used, and how the privacy and security of personal information would be protected. Notice requirements also applied to any workplace wellness program, either health-contingent or participatory, that involved medical inquiries. (c) GINA guidelines for wellness programs. In May 2016, EEOC issued a final rule to make similar changes in workplace wellness standards under GINA as under the ADA. The GINA wellness rule addressed the extent to which an employer could offer inducements to an employee’s spouse to participate in its workplace wellness program. Inducements for the spouse to participate in a wellness program could be made without regard to whether the employer offers group health benefits to the spouse or whether the spouse participates in the employer’s group health plan. Under GINA, genetic information is defined to include not only results of a genetic test, but health information about an individual’s family members, including the spouse. The rule makes an exception to this definition and permits wellness programs to offer incentives to spouses to provide information about their own health status, though not about results of genetic tests. The rule does not permit workplace wellness programs to offer incentives for children of employees to disclose their genetic information or any other health information. The GINA wellness rule adopted the ERISA/ACA definition of a reasonably designed wellness program as modified by the ADA wellness rule. In addition, the GINA wellness rule amended the standard for voluntary wellness programs to permit a maximum incentive for the spouse to participate in the workplace wellness program. The maximum incentive applicable to the spouse was 30% of the cost* of self-only coverage offered by the employer, regardless of whether the spouse participated in the health plan. If the employer did not offer a health plan, the rule specified the type of ACA public exchange plan on which to base the maximum incentive. The rule also included the ADA rule requirement that wellness programs cannot condition incentives on individuals agreeing to the sale, exchange, sharing, transfer or other disclosure of their genetic information. * Candidate Note: This 30% maximum financial incentive level
"Which federal laws establish privacy standards for workplace wellness programs and how do they apply?", "The ADA, GINA, and HIPAA establish privacy standards for workplace wellness programs. The ADA applies to employers with 15 or more workers and requires them to keep private all medical information about workers. Access to identifiable medical information is restricted and must be kept securely and separate from other employment records. The EEOC rule states that medical information obtained by the program may only be provided to the employer in aggregate terms that do not disclose the identity of any employee. GINA has similar privacy standards for genetic information. HIPAA applies to most health care providers, health care clearinghouses and health plans, including group health plans sponsored by employers. HIPAA privacy rules do not apply to wellness programs that are offered directly by employers outside of a group health plan. A group health plan cannot disclose personal health information to a person’s employer without that person’s authorization, but it is permitted to disclose protected health information to the employer without authorization if the employer certifies to the plan that it will safeguard the information and not use or share it for any employment-related activity or in connection with any other benefit. In case of a suspected violation of HIPAA privacy rules, individuals may file a complaint with the U.S. Department of Health and Human Services (HHS). For a complaint involving a covered workplace wellness program, HHS would investigate and verify whether the plan had received the required certifications from the employer. If the group health plan had not obtained the required certification, HHS could seek civil monetary penalties. However, if HHS found that an employer had violated its promise to only use the information that it receives for permitted purposes, HHS could not pursue enforcement against the employer due to the agency’s limited jurisdiction. Different privacy standards might apply to worksite wellness programs, depending on whether or not the program is offered as part of a group health plan. Under the EEOC rule, privacy standards established under the ADA will continue to apply to any ADA-covered entity. In addition, when a wellness program is part of a group health plan, its obligation to comply with ADA privacy rules will likely be satisfied by adhering to HIPAA privacy rules. Under all three privacy standards, it is permissible for wellness programs to share participants’ health information with their business partners for purposes of administering the program. The May 2016 EEOC rules for ADA and GINA supplemented existing wellness regulations under HIPAA/ACA and, in some cases, compliance with HIPAA/ACA did not guarantee ADA and GINA compliance. Specifically, HIPAA/ACA rules did not impose any incentive limitation on “participatory” wellness programs, while ADA and GINA rules did impose limits if such programs included health risk assessments (HRAs) or biometric testing. In addition, HIPAA/ACA rules apply only to those wellness programs offered with group health plans; ADA and GINA rules also applied to wellness programs that were “self-standing.” That is, the final EEOC rules made it clear that for purposes of ADA and GINA, there was no distinction as to their applicability between wellness programs offered inside or outside of group health plans."
"Do a majority of large companies that provide health benefits require employees to share personal health data?", "Yes, a significant number of large companies that offer health benefits require employees to share personal health information. This is usually done through a health risk assessment (HRA) or biometric screening, or both. In 2019, 72% of such large firms, which employ 48 million insured employees, provided the option to complete either an HRA, biometric screening or both."
"Do wellness programs offered by large employers often use financial incentives to encourage employees to share their personal health data?", "Yes, wellness programs provided by large employers often use financial incentives to motivate employees to share their health information. In 2019, 32% of large firms offering health benefits provided incentives for completing a health risk assessment (HRA), a significant increase from 14% in 2008. Additionally, a small percentage (7%) of these employers offer incentives for achieving specific biometric outcomes like a target BMI or cholesterol level."
"Does the effectiveness of wellness program incentives in encouraging employee participation vary across different firms?", "Yes, there is a significant variation in the effectiveness of wellness program incentives across different firms. Some firms have found that even with incentives, participation in wellness screening programs is not high. For instance, a study of the Employer Health Benefit Survey revealed that only 50% of workers at large firms with an incentive for completing a health risk assessment actually complete the assessment, compared to 31% at firms with no incentive. Furthermore, 61% of large employers believe that financial incentives are either “not at all effective” or only “somewhat effective” in encouraging employee participation in wellness programs, or they are unsure about their effectiveness. Employees may choose not to participate in wellness programs for various reasons, such as concerns about the privacy of their health information, inconvenience, or other factors. Additionally, if wellness program incentives result in financial penalties for nonparticipation, employees may find them burdensome, as evidenced by a legal challenge."
"In what manner can employers utilize health data gathered, and what are the restrictions on the use of such data?", "Employers can use health data obtained through appropriately designed wellness programs to offer valuable feedback or guidance to employees regarding their health or risk status; this data can also be used in a collective manner to create efficient disease management programs or treatments. However, according to EEOC regulations, a wellness program is not considered appropriately designed if its primary purpose is to transfer costs from the employer to certain employees based on their health or to merely provide an employer with data to predict future health care costs."
"Is there substantial evidence to suggest that workplace wellness programs are successful in enhancing health and averting illness?", "Although workplace wellness programs are widespread, many studies have found little proof of their success in enhancing health or averting illness. The difficulty in measuring the impacts of these programs presents a significant challenge. Firstly, individuals who are already healthier are more likely to engage in wellness programs, which makes it difficult to ascertain if the observed health outcomes are a result of the program's effectiveness or the health status of the participants. Secondly, the diversity in the structure and focus of these programs, with many emphasizing health screening over health promotion, further complicates the assessment of their effectiveness."
"Given the EEOC's plans to reassess the role of incentives in workplace wellness programs, are companies temporarily stopping the gathering of employee health data and refraining from using such data to set health coverage prices? (Text, pp. 316.-317)", "The collection of health data from employees through voluntary workplace wellness programs is allowed under federal law, and the EEOC has announced its intention to reevaluate the role of incentives in future regulations. The future direction of federal standards for wellness incentives is uncertain. However, most large employer wellness programs continue to gather personal health data, with many of these screening programs offering incentives to employees to provide it. If incentives are tied to the premium contribution for group health benefits, not participating in wellness programs can significantly increase the cost that employees would otherwise pay for their health coverage."
"Can you define 'financial wellness' in a concise manner?", "Financial wellness is the efficient management of your financial life. It involves several aspects such as: Living within your means, being financially ready for unexpected situations, having access to the necessary information and tools for sound financial decisions, and having a future financial plan."
"How does the concept of 'financial wellness' tie into 'financial security', and do the majority of financial services and benefits provided by employers effectively incorporate these ideas?", "Financial wellness is fundamentally linked to financial security, a goal that is frequently cited by employees in all industries. However, only a small percentage of employees surveyed say they have access to the financial services and benefits they believe would be most beneficial in achieving financial security. This view is supported by research from the Center for Financial Services Innovation. The majority of financial health benefits offered by employers are limited employee assistance programs (EAPs) intended for emergencies, which make up only a small portion of an employee's overall health benefits package. In many instances, these EAPs are not even included in the benefits package."
"What are the shortcomings in the current employer initiatives for employee financial well-being?", "The current employer initiatives lack a holistic approach to financial well-being, which should aim to help employees establish enduring financial resilience and stability, thereby contributing to a stronger organization."
"In what manner can financial wellness programs be compared to health-related wellness programs offered by employers?", "Just like health and wellness programs that employers provide, which aim to prevent health issues through fitness, diet management, and lifestyle changes, financial wellness programs should also be seen as a preventive measure. They should offer comprehensive support and guidance to employees to help them meet immediate financial needs and also plan for long-term financial goals. These programs are usually an extension of other benefits programs offered by employers."
"Discuss the importance of personalization in a successful financial wellness program and how employers can adapt to the diverse needs of their workforce and adopt a comprehensive approach.", "Every employee has distinct financial responsibilities and goals, hence a successful wellness program needs strategies that are adapted to an employee’s specific situation. This begins with digital interaction, interviews, and analysis of employees’ salary and benefits data to create a comprehensive view of their financial status. The objective is to comprehend employees’ objectives in terms of tax payments, home buying, establishing and maintaining a good credit score, healthcare, emergency readiness, educational expenses, debt repayment, retirement savings, and other financial aspects. The second aspect of a comprehensive approach to financial wellness is imparting the principles of sound financial health and providing the necessary tools to implement that knowledge. This implies that employees need not just education, but also the chance to apply this knowledge. For some employees, this might mean using software to monitor financial objectives. For others, having a financial coach or advisor to assess their financial situation and provide advice is more effective in keeping them committed and involved with their objectives."
"What are the advantages for workers when companies promote strong financial health?", "Strong financial health allows workers to make smarter, more knowledgeable choices and maintain a successful long-term plan."
"Do financial wellness programs have any impact on employee productivity and retention?", "Yes, financial wellness programs have a significant impact on employee productivity and retention. Employees dealing with financial stress are often less productive and more likely to leave their jobs. Studies have shown that 22% of employees have missed work to deal with financial issues, 15% spend significant work hours on personal financial tasks, and 20% have resigned due to financial stress. Furthermore, each day of employee absence can cost businesses an average of $348 in lost productivity. Therefore, promoting financial wellness can enhance a company's profitability. However, many companies do not recognize the need for comprehensive financial wellness programs until employees start relying heavily on emergency EAP services, which can increase costs and threaten the sustainability of these programs."
"How can the benefits of financial wellness programs be utilized to improve employee retention and productivity?", "By reducing costs related to absenteeism, lost productivity, and benefit cost overruns, financial wellness programs can free up resources for businesses to invest in other benefits. These can include programs to improve money management skills, newsletters and other publications, and seminars on investment, retirement, college, emergency, and health care planning. Debt and credit-related programs can also be included. Offering a wide range of benefits can help businesses attract and retain high-quality staff, as employees who are financially secure are more likely to remain with the company. Both employers and employees have a role to play in maintaining financial wellness, which requires ongoing effort and a supportive environment with accessible, high-quality financial services. This can lead to benefits such as increased loyalty, higher productivity, and lower costs, and can help employees balance their current needs with future planning."
"Can you explain the reasons behind the increasing adoption of cafeteria plans by organizations?", "The increasing adoption of cafeteria plans, also known as flexible benefit plans or flex plans, is primarily due to two factors: (1) The rising costs of benefits (2) The diversity in the workforce leading to different employee benefit needs. These plans allow employees to choose benefits that best suit their personal financial situations, which is beneficial for both the employee and the employer. Since employee benefits form a significant part of labor costs for most organizations, it is crucial to utilize these benefits in a cost-efficient manner that maximizes value. A cafeteria plan ensures that the employer gets the most value from its benefit dollars and avoids spending on redundant or unnecessary benefits. Prior to the introduction of flex plans, optional or supplemental benefits were paid by the employee using after-tax dollars. A flexible benefit plan allows employees to contribute towards benefits on a tax-favored basis. As certain benefit programs, especially health care, have become more expensive and employees are asked to share costs with the employer, the tax advantages and choice in benefits selection offered by these plans become particularly attractive."
"Explain how cafeteria plans circumvent the tax doctrine of constructive receipt.", "Cafeteria plans are designed to be an exception to the tax doctrine of constructive receipt. This doctrine typically taxes an individual when they have control over the expenditure of money. However, if a cafeteria plan is properly designed in compliance with all relevant tax laws, the participant can receive benefits tax-free instead of being taxed."
"Explain the role of a cafeteria plan in relation to other employer-sponsored benefit plans and how it functions.", "A cafeteria plan is essentially an umbrella plan that operates alongside other employer-sponsored benefit plans. It serves as a mechanism for paying for employee benefits and is governed by Internal Revenue Code (IRC) Section 125 and its related regulations. Other IRC sections apply to the benefits funded within the cafeteria plan. Before the introduction of Section 125 in the Revenue Act of 1978, the tax treatment of benefits where the participant had a choice was different. The tax doctrine of constructive receipt meant that if a participant had any choice regarding benefits, they were taxed as if they had chosen the maximum available taxable benefits. This was because the participant could elect these amounts in cash, so they were taxed as if they had chosen the cash. This was true even if the participants chose benefits that could be offered tax-free if paid for by the employer."
"Describe the tax implications of employee benefits under IRC Section 125 and identify which benefit plans are included or excluded from this tax treatment.", "IRC Section 125 provides a favorable tax treatment for certain benefits provided through a cafeteria plan. A cafeteria plan is defined as a plan where all participants are employees (Note: The plan can only benefit employees, not owners, such as partners paid according to a Form K-1 or 2% or greater shareholders of an S corporation) and where all participants can choose between two or more benefits consisting of a combination of qualified benefits and cash. If the requirements of IRC Section 125 are fulfilled and the benefits are eligible for inclusion in a cafeteria plan, then the benefits are not considered as taxable income to the participant if benefit coverage is chosen. Conversely, if cash is selected and paid to participants, the cash payment would be fully taxable as compensation. Section 125 has a specific scope, with some benefits that are permissible for cafeteria plan tax treatment and other benefits that may not be included in a cafeteria plan. It's important to note that benefits that cannot be offered in a cafeteria plan include whole life insurance and long-term care insurance. Interestingly, a health savings account (HSA) funded through a cafeteria plan can be used to pay premiums for long-term care insurance or for long-term care services. HSA contributions permissible under a cafeteria plan are themselves an exception to the Section 125 special rule that prohibits the deferral of compensation."
"Can you explain the tax benefits an employee receives when participating in a cafeteria plan?", "When an employee participates in a cafeteria plan, they receive significant tax benefits. Their contributions to the plan are exempt from federal income tax, and they are not subject to the Federal Insurance Contributions Act (FICA-Social Security) and the Federal Unemployment Tax Act (FUTA) taxes. Most state and local tax laws also follow this federal tax treatment, leading to direct savings for the employee."
"Can you list some potential drawbacks for an employee participating in a cafeteria plan?", "The main drawbacks for an employee participating in a cafeteria plan include the requirement to make benefit elections before the start of the plan year, which are generally irrevocable for the entire coverage period. The use-it-or-lose-it rule in a health care FSA can also lead to forfeiture of unused benefits at the end of the plan year. Additionally, an employee might end up financially worse off if they pay for dependent-care expenses through a cafeteria spending account instead of taking the tax credit on their personal tax return. Lastly, since there is no FICA-Social Security tax on cafeteria plan benefit dollars, an employee's Social Security benefits or accumulation of benefits under their employer-sponsored retirement plan may be slightly reduced."
"Explain the benefits for companies when they provide employee benefits through a cafeteria plan.", "Companies can gain several benefits when they provide employee benefits through a cafeteria plan. Firstly, they can achieve substantial financial benefits. The company can save on payroll costs as they do not have to pay FICA or FUTA taxes on the amounts contributed to the cafeteria plan. Moreover, deferral amounts are not counted as wages when calculating workers’ compensation premiums and other payroll-related expenses. The tax treatment at the state and local level varies, but many states provide the same favorable tax treatment as the federal government. Besides financial benefits, cafeteria plans can increase employee awareness of the total value of their benefits. The flexible benefit structure can also be used to control rising benefit costs, limit company contributions, and avoid wasting benefit dollars on duplicate or unnecessary benefits. This is especially relevant in the area of health care costs. If a company is considering implementing benefit changes that will lead to employees bearing more of the cost or company caps on benefit plan contributions, a flexible benefit plan is an excellent strategy to reduce the financial impact of these changes on individual employees."
"What are the potential challenges for employers in implementing a cafeteria plan?", "While cafeteria plans offer numerous benefits for employers, they also come with certain challenges. The main challenge is the ongoing administrative and operational costs. Even though these costs can be somewhat offset by payroll tax savings, the employer must be aware that setting up and managing a cafeteria plan involves additional administrative complexity and costs. This complexity includes compliance with tax law provisions. A flexible benefit plan must be operated in strict accordance with federal tax law through a written plan document. If a health care FSA is included as part of the plan, the uniform coverage rules require that the full amount of the benefit elected be available throughout the entire plan year, regardless of how much an employee has actually contributed so far. This means that an employer faces cash flow risk if claims exceed employee plan contributions early in the plan year. Employers may also face financial risk if terminating employees’ claims exceed contributions and these funds cannot be recovered. Adverse selection is a greater risk when employees can choose to participate in various benefit plans. If all the less healthy participants choose the most comprehensive insurance coverage and the healthier participants choose minimum or no health coverage, the overall plan costs may increase. This happens because utilization increases in the more comprehensive plan with fewer healthier participants. Lastly, while the Affordable Care Act (ACA) eased requirements for small employers, cafeteria plans are subject to complex coverage and nondiscrimination testing to comply with federal tax law. Some of these tests apply to the flexible benefit plan as a whole, while others apply to the underlying benefits. Depending on the demographics of the workforce, some of these tests may be difficult to pass, in which case the favorable tax treatment could be limited for the owners and other highly paid employees."
"Can you explain the various types of cafeteria plans permitted under Section 125 of the IRC and how they differ?", "Cafeteria plans, as permitted under Section 125 of the IRC, come in various forms and offer different features, but they all fall under the umbrella of cafeteria plans. These plans are named so because they offer benefits to employees in a cafeteria-style manner, allowing participants to choose the benefits they require. These benefits are bought with dollars or credits provided to the participant as part of a benefits package. In some cases, employees may not receive any employer money to spend but can enhance their overall benefits package by making tax-favored contributions to the cafeteria plan. These contributions can then be used to purchase additional benefits that are tax-free when paid out to the participant. Cafeteria plans are often referred to by various terms, some of which are generic and apply to all types of cafeteria plans, while others refer to specific types of cafeteria plans. Generic terms include flexible benefit programs, flexible compensation, choice plans, and flex plans. If a plan only includes pretax premium conversion, it is often referred to as a premium conversion plan, premium-only plan, or POP. Despite the differences in complexity among the various types of cafeteria plans, they all share the common feature of allowing employees to obtain selected employee benefits on a tax-favored basis."
"Explain the features of a premium conversion plan and its relation to a cafeteria plan.", "A premium conversion plan is a type of plan where there are no contributions from the employer and it is provided to employees to cover their insurance expenses in a tax-advantaged manner. This plan is seen as a basic form of a cafeteria plan due to the absence of employer contributions or flexible credits. A cafeteria plan is the only method that allows employees to pay for insurance expenses in a tax-advantaged way. Without a written cafeteria plan, the tax-free benefits of premium payments will not be permitted. If the employer allows employees to decline employer-paid insurance coverage, this must be done through a cash option in a cafeteria plan. If an employee does not want the insurance coverage, they can choose the cash benefit. As a result, the employer's contribution to the plan would be given to the employee as cash compensation, losing any tax advantages. The employer is not required to offer a cash option that matches the cost of the coverage being declined. In other words, the credit given to an employee for declining coverage can be less than the actual cost of the coverage they are declining."
"Which insurance policies are typically covered under a premium conversion feature in a flexible benefit plan?", "Typically, a premium conversion feature in a flexible benefit plan covers medical insurance (including dental, vision and other types of medical coverage) and group term life insurance not exceeding $50,000. However, as of 2014, IRS rules prohibit the payment of pretax premiums for individual policies under a cafeteria plan, regardless of whether these policies are purchased through an Affordable Care Act marketplace exchange or on the individual market. While disability policies can be paid by premium conversion under the law, they are often purchased using after-tax dollars to ensure that any disability payment made subsequently will not be considered taxable. Given the relatively low cost of disability coverage, most employees prefer to pay their disability premium payments on a tax-free basis, if any are made."
"Explain the structure and benefits of a cafeteria plan that incorporates FSAs.", "A cafeteria plan that incorporates FSAs, also known as reimbursement accounts, is a step up from a basic premium conversion plan. These are typically bookkeeping accounts, with the actual funds remaining part of the employer's general assets. Each participant has an individual account where activity is recorded. If an FSA is funded solely by salary deferrals, the participant is choosing between cash and qualified benefits. FSAs allow employees to fund certain qualified benefits on a pretax basis through a salary reduction agreement or a mix of salary reductions and employer contributions. FSAs can be used for health care reimbursements, dependent-care assistance, and adoption assistance. Both health care and dependent-care reimbursement accounts usually involve only employee contributions on a pretax basis. Participants and their dependents can submit claims to the plan for reimbursement as expenses are incurred throughout the plan year. The coverage period for an FSA is typically 12 months. A cafeteria plan may include a grace period of up to 2½ months after the end of the plan year, during which employees with unused contributions for a specific benefit may be reimbursed for expenses incurred during the grace period. Grace periods may apply to health care and dependent-care FSAs and adoption assistance plans. Employers also have the option of allowing health care FSA participants to roll over up to $570 (for 2022) of unused funds to the following plan year, without affecting the new plan year's allowable election amount. However, funds from one account cannot be used to reimburse expenses from another account. Employers may also limit the amount carried over during the grace period, provided the limit is applied uniformly and is not based on a percentage of unused contributions remaining at the end of the plan year."
"Describe the structure and benefits of a full flex plan.", "A full flex plan, also known as a full choice plan, allows participants to choose from a wide array of benefits. The employer sets a specific dollar amount for the benefits part of the total compensation, which is separate from any salary reductions employees opt for reimbursement accounts or additional benefit purchases. The employer then either contributes this cash to the cafeteria plan or establishes a credit system where credits are used to fund the benefit options, which are also priced in credits."
"Explain the process of determining the value of credits used by plan participants to buy benefits in a flexible benefit plan.", "The process of determining the value of credits used by plan participants to buy benefits in a flexible benefit plan typically involves understanding the correct pricing parameters of the benefits and creating a pricing matrix. This matrix considers several factors including: (a) The amount of credits a participant will receive (b) The acceptable level of employee contribution (c) The estimated number of participants choosing each benefit offered (d) The expected number of credits to be paid as a cash benefit (e) The cost of benefit options (f) The hidden employer subsidies (g) The total premium cost."
"Can you explain the reason behind employers creating credit values for flexible benefit plans instead of using the real dollar values linked with premium costs?","Employers often create credit values instead of using the real dollar values linked with premium costs to balance out benefit disparities. This allows the employer to provide a cash option that doesn't equate to a dollar-for-dollar value. As a result, the benefits are often seen as more valuable than cash. There is a belief that offering the full cash value of the benefits might be too attractive to participants, leading to a situation where employees are underinsured."
"What is the purpose of a core benefit in a flexible benefit plan and how does it prevent employees from being underinsured?", "A core benefit in a flexible benefit plan is designed to provide a basic level of benefit coverage that an employee cannot go below. This is to ensure that employees have a minimum level of protection and are not underinsured. Companies may allow employees to opt out of a core benefit if they can provide proof of alternative coverage, such as through a spouse's plan or retiree coverage from a previous employer. Typically, a core benefit would require the employee to choose some basic health coverage and a minimum amount of life insurance. Under the Affordable Care Act (ACA), large employers are required to offer 'minimum value' and 'affordable' health coverage to full-time employees and their children under 26. The affordability test applies to the lowest cost option that also meets ACA minimum value requirements. Employers may face non-tax-deductible penalties if they do not comply."
"Explain the features of flexible benefit plans that are attractive to different demographic groups in a company's workforce.", "Different demographic groups within a company's workforce may find certain features of a flexible benefit plan more appealing than others. Understanding these preferences is crucial for the employer when designing the plan. For instance, higher income employees often value the ability to lower their personal taxes through these plans. They would likely be concerned about any dollar maximums limiting contributions to reimbursement accounts. On the other hand, lower income employees usually prioritize maximizing their weekly take-home pay over tax savings. If a company's workforce is primarily composed of lower income workers, a full flex plan with a generous cash option could lead to inadequate protection for these employees unless there are mandated core benefits or limits on the cash option. These considerations are particularly important in light of the ACA-mandated shared responsibility requirements."
"Why is a well-planned communication strategy crucial when implementing a cafeteria plan in a company?", "A well-planned communication strategy is essential when implementing a cafeteria plan to mitigate potential negative feedback and misunderstandings from employees. It provides an opportunity for employees to ask questions and understand both the advantages and disadvantages of the plan. By involving employees in the process, the plan can be tailored to meet their needs and incorporate their suggestions, which can lead to greater acceptance and success of the plan."
"Can you list the qualified benefits that are allowed to be included in a cafeteria plan as per the tax law?", "Per the tax law, the qualified benefits that can be included in a cafeteria plan are: (a) Employer-provided accident or health coverage under Internal Revenue Code (IRC) Sections 105 and 106. This includes health, medical, hospitalization coverage, prescription plans, drugs, dental and vision programs, disability insurance, and coverage under an accidental death and dismemberment policy. In addition, business travel accident plans, hospital indemnity or cancer policies, and Medicare supplements can be funded, as can short- and long-term disability. This also includes reimbursement for health care expenses under a health care flexible spending account (FSA). (b) As of 2014, individually owned accident or health insurance policies may no longer be offered under a cafeteria plan. Also, the plan may not reimburse the health insurance premiums under a health care FSA or reimburse policies maintained by another employer. (c) Employer-provided group term life insurance coverage excludable from income under IRC Section 79 or includable in income solely because the benefit exceeds the $50,000 limit of IRC Section 79. Only the first $50,000 of coverage is nontaxable; income is imputed on amounts in excess of $50,000. (d) Employer-provided dependent-care assistance under IRC Section 129 (e) Employer-provided adoption assistance under IRC Section 137 (f) A 401(k) plan or purchase of retiree group term life insurance by participants employed by certain educational institutions described in IRC Section 170(b)(1)(A)(ii) (g) Contributions to a health savings account (HSA) under IRC Section 223."
"Can a cafeteria plan provide taxable benefits to employees?", "Yes, a cafeteria plan can provide taxable benefits to employees. These benefits result in taxable income for the employee and a tax deduction for the employer. Examples of such benefits include cash, paid-time-off days, and group term life insurance in excess of $50,000."
"Identify the elements of total compensation that are not deemed as qualified benefits and hence, cannot be funded through a cafeteria plan.", "The elements of total compensation that are not deemed as qualified benefits and hence, cannot be funded through a cafeteria plan include: (a) Contributions to medical savings accounts under IRC Section 106(b) (b) Qualified scholarships under IRC Section 117 (c) Educational assistance programs under IRC Section 127 (d) Certain fringe benefits under IRC Section 132 (e) Qualified long-term care insurance under IRC Section 7702B (f) Archer medical savings accounts (g) Athletic facilities (h) De minimis (minimal) benefits (i) Dependent life insurance (j) Employee discounts (k) Lodging on the business premises (l) Meals (m) Moving expense reimbursements (n) No-additional-cost services (o) Parking and mass transit reimbursement (p) Contributions to an IRC Section 529 college savings account (q) Legal assistance (r) Financial assistance (s) Elective deferrals to a Section 403(b) plan (t) Health reimbursement arrangements (HRAs) (clarified by August 6, 2007 regulations) (u) In addition, a qualified health plan offered through a health insurance marketplace (exchange) established to facilitate the purchase of health insurance in accordance with the Affordable Care Act."
"Can you explain the concept of a salary reduction agreement in the context of a cafeteria plan, and what steps must be taken for it to be considered valid under tax law?", "A salary reduction agreement is a contract between an employee and their employer where the employee agrees to defer a portion of their salary. This deferred salary is then used by the employer to contribute towards the cost of certain benefits. This arrangement allows the employee to purchase benefits on a pretax basis, without the money being considered as constructively received. As a result, the deferred amounts are not considered wages for federal income tax purposes. They are also generally not subject to FICA (Social Security) or FUTA taxes, although state and local taxes may apply. To be considered valid, a salary reduction agreement must be established between the employer and the employee before the start of the coverage period, typically the plan year."
"Explain the circumstances under which a participant can revoke a cafeteria plan benefit election and make a new one according to the special change-in-status rules within Section 125 regulations before the Affordable Care Act.", "According to the IRC Section 125 regulations, special change-in-status rules allow participants to revoke an election and make a new one. These rules permit changes in accident and health coverage, dependent-care expenses, group term life insurance, or adoption assistance if a permissible change in status happens and the election change aligns with the change in status. Acceptable change-in-status events include changes in: (a) Legal marital status (b) Number of dependents (c) Employment status (d) Work or residence location (e) Situations where the dependent meets or no longer meets the eligibility requirements (f) Start or end of an adoption proceeding for adoption assistance purposes."
"Explain the additional circumstances introduced post-Affordable Care Act that allow participants to change their cafeteria plan election midyear. (Text, p. 222, Footnote d)","After the Affordable Care Act, the IRS introduced two new circumstances in 2014 that allow participants to change their cafeteria plan elections midyear: (1) Participants can change their elections due to a reduction in hours, even if they still qualify for benefits under the cafeteria group health plan. This change is only allowed if the participant obtains coverage under another plan that meets ACA minimum essential coverage within a specified period. (2) If an employee is eligible for enrollment in the ACA Exchange during the Special Enrollment Period and coverage begins within a specified period."
"Can you explain the concept of a 'consistent' benefit election change as per the IRC Section 125 regulations?", "A 'consistent' benefit election change under IRC Section 125 regulations implies that the change is due to and aligns with a change-in-status event that impacts eligibility for coverage. If a change in status leads to an increase or decrease in the number of an employee’s family members or dependents who may benefit from coverage under the plan, the eligibility requirement is met. Election changes must be made on a prospective basis only. Retrospective changes are generally not allowed. It's important to note that under the Affordable Care Act, dependent coverage is extended through the end of the calendar year. However, employer plans required to provide dependent coverage for adult children are only required to do so until the end of the month in which the individual turns age 26. Some plans may extend the coverage through the end of the plan year or calendar year in which the individual turns 26. According to the Centers for Medicare & Medicaid Services, the requirement to make adult coverage available applies only until the date that the child turns 26. If coverage extends beyond the 26th birthday, the value of the coverage can continue to be excluded from the employee’s income for the full tax year (generally the calendar year) in which the child had turned 26. For instance, if a child turns 26 in March but is covered under the employer plan of their parent through December 31, the value of the health care coverage through December 31 is excluded from the employee’s income for tax purposes. If the child stops coverage before December 31, then the premiums paid by the employee up to the time the plan was stopped will be excluded from the employee’s income."
"What modifications can a participant make to their cafeteria plan elections if they (a) go on unpaid Family and Medical Leave Act (FMLA) leave, (b) are protected under the Uniformed Services Employment and Reemployment Rights Act (USERRA), or (c) are affected by the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act)?","(a) A participant on unpaid FMLA leave can revoke their existing election for all health plan coverage for the rest of the coverage period, regardless of any conflicting rules in the cafeteria plan document. They can only revoke elections for nonhealth benefits under the same rules as participants on non-FMLA leave. Upon return from FMLA leave, the participant can choose to be reinstated in the plan under the same terms and conditions as before the leave. (b) A participant on leave under USERRA can choose to continue their participation in the plan during their leave. They can pay the amounts previously deferred that would otherwise continue to be deferred if they were still employed, either as a single lump sum at the start of each year or at the start of the expected leave-of-absence period, or in monthly payments. (c) The HEART Act expanded the protections of USERRA. One of its enhancements allows plan sponsors to let an employee called to active duty for a certain period to receive a distribution of the unused balance of their health care FSA."
"Can you explain the options an employer has for the allocation of forfeited funds in health care FSAs?", "When participants in a health care FSA do not use their funds within the plan year, these funds are forfeited and become the property of the employer. The employer has several options for these funds. They can keep the funds, use them to cover plan expenses, donate them to charity, or distribute them equally among all employees. However, the funds cannot be returned only to the employees who forfeited them. These forfeited funds, known as experience gains, can be: (a) Kept by the employer, (b) Used to offset the administrative costs of the cafeteria plan, (c) Distributed to employees (with the restriction mentioned above), or (d) Used to lower the required salary reduction amounts for employees. The regulations stipulate that experience gains must be allocated in a 'reasonable and uniform basis.'"
"What is the difference between elective and nonelective PTO in a cafeteria plan and why can't PTO days be carried over to the next year?", "In a cafeteria plan, elective PTO refers to the time off that an employee can choose to sell back, while nonelective PTO refers to the time off that is not subject to the employee's choice. For instance, if an employee has two weeks of total PTO and can only sell back one week, then they have one week of elective PTO and one week of nonelective PTO. The prohibition of carrying over PTO days to the next year is due to the fact that it would constitute an impermissible deferral of compensation."
"Explain the types of expenses that are considered eligible under an adoption assistance program in a cafeteria plan, and outline the general criteria these plans need to fulfill.", "Eligible adoption expenses under an adoption assistance program include necessary and reasonable adoption fees such as legal fees, travel costs, and other expenses directly related to the legal adoption process. These programs must adhere to certain criteria including being documented in writing, being non-discriminatory, and being maintained solely for the benefit of employees. Employees should be adequately informed about the plan. There is a maximum limit for adoption expense reimbursement, which is applied per adoption rather than annually. Furthermore, these benefits are subject to an income limit."
"Explain the concept of health savings accounts (HSAs) and their funding.", "Health savings accounts (HSAs) are employee-owned trusts or custodial accounts that are used for reimbursing medical expenses. They can be funded through employee salary deferrals or employer contributions via a cafeteria plan. While employers can contribute to HSAs, their contributions may be restricted by the cafeteria plan nondiscrimination rules. Contributions to an HSA are only allowed in months when the participant's only health coverage is a qualified high-deductible health insurance plan. The overall contribution limits to an HSA remain the same, irrespective of whether the HSA is funded inside or outside a cafeteria plan."
"Describe the concept of 'cash' as per IRC Section 125 plans.", "In IRC Section 125 plans, 'cash' refers to a broader concept than just the receipt of money. For a payment to be classified as 'cash' within a cafeteria plan, it must satisfy two conditions. Firstly, the benefit should not be explicitly forbidden by IRC Section 125. Secondly, the benefit should be provided on a taxable basis, which can be achieved either by the participant paying for the benefit on an after-tax basis or the employer paying for the benefit and reporting the cost of the benefit as taxable income to the employee."
"What is the term used in ERISA to refer to 'other employee benefit plans' that are not retirement plans, and what benefits do they provide? (Text, pp. 324 and 336, Footnote 2)","ERISA refers to 'other employee benefit plans' as welfare plans, which are designed to offer health benefits, disability benefits, death benefits, prepaid legal services, vacation benefits, day-care centers, scholarship funds, apprenticeship and training benefits, or other similar benefits."
"How does ERISA ensure the proper management of health plans?", "ERISA ensures the proper management of health plans by mandating that they adhere to certain minimum standards. These include: (a) Providing participants with comprehensive information about plan features and funding (b) Upholding fiduciary responsibilities in the administration of a plan and management of its assets (c) Implementing a grievance and appeal process for participants to claim benefits from their plans (d) Granting participants the ability to sue for benefits and breaches of fiduciary duty."
"Can you list the significant amendments to ERISA that were enacted before the implementation of the Patient Protection and Affordable Care Act (ACA)?","Some of the significant amendments to ERISA before the ACA include: (a) Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) (b) Health Insurance Portability and Accountability Act of 1996 (HIPAA) (c) Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), as amended (d) Newborns’ and Mothers’ Health Protection Act of 1996 (NMHPA), as amended (e) Women’s Health and Cancer Rights Act of 1998 (f) Michelle’s Law, effective in 2010."
"Can you provide a brief overview of the following pre-ACA benefit enhancements:", "(a) MHPAEA (b) NMHPA (c) The Women’s Health and Cancer Rights Act of 1998 (d) Michelle’s Law"
"Under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), who are eligible for the temporary continuation of group health coverage and under what circumstances?", "Covered employees, their spouses, their former spouses, and their dependent children are eligible for temporary continuation of group health coverage under COBRA. This is offered when group health coverage would otherwise be lost due to certain specific events."
"What are the qualifying events for COBRA coverage?", "Qualifying events for COBRA coverage are: (a) Death of the covered employee (b) Termination or reduction in work hours of the covered employee, unless due to gross misconduct (c) Divorce or legal separation from the covered employee (d) The covered employee becomes eligible for Medicare (e) A dependent child loses coverage under the plan due to age."
"Can you list some drawbacks of opting for COBRA benefits?", "COBRA benefits can be quite expensive as the employer can charge the full cost of the coverage along with a 2% administrative fee. This is usually more than what active employees pay for their group health coverage as the employer typically covers a portion of the cost. Additionally, COBRA coverage is only available for a limited duration."
"Who are exempted from providing COBRA benefits?", "Federal government plans and plans sponsored by churches and certain church-related organizations are exempted from providing COBRA benefits."
"Identify the types of medical care typically covered by a group health plan under COBRA.", "Typically, a group health plan under COBRA covers: Inpatient and outpatient hospital care, Physician care, Surgery and other major medical benefits, Prescription drugs, Dental and vision care."
"Can you identify the types of benefits in an employee package that are exempt from COBRA continuation requirements?", "Neither life insurance nor disability benefits are considered as 'medical care', hence they are not subject to COBRA continuation requirements."
"Explain the factors that determine the duration of COBRA continuation coverage.", "The duration of COBRA continuation coverage is determined by the qualifying event that initiates the COBRA rights."
"Explain the communication obligations under COBRA.", "COBRA imposes several communication obligations, such as the employer's duty to inform covered employees and their spouses about their COBRA rights when they start coverage under the plan. Furthermore, when a qualifying event is identified by the company, the employer must notify the eligible beneficiary about the option to continue coverage. In case of a divorce, legal separation, disability, or a child losing dependent status under the plan, the covered employee or family member is required to notify the employer or plan administrator."
"What are the key protections provided by the Health Insurance Portability and Accountability Act (HIPAA) for employees and their dependents?", "HIPAA provides key protections for employees and their dependents by: (1) Allowing them to enroll in group health plan coverage under certain circumstances such as loss of other health coverage, marriage, or addition of a new dependent (2) Preventing discrimination in enrollment and premium charges based on health factors (3) Maintaining the authority of states in regulating health insurance, including the power to offer more protections than those stipulated under federal law."
"Can you explain the two types of special enrollment rights provided by HIPAA and when they can be utilized?", "Under HIPAA, there are two special enrollment rights that allow individuals to enroll for health coverage outside of the open enrollment period. These are: (1) Loss of eligibility for other coverage and (2) Certain life events. In both cases, the individual must request enrollment within 30 days of the event that triggered the special enrollment, whether it be loss of coverage or a significant life event."
"Can you list the primary goals of the Affordable Care Act (ACA)?","The primary goals of ACA include: (1) enhancing the quality and reducing the costs of health care for individuals and government programs, (2) introducing new consumer protections, and (3) broadening the reach of health care services."
"Explain the impact of the Supreme Court ruling in the case of National Federation of Independent Business v. Sebelius on the Affordable Care Act's Medicaid expansion?","The Supreme Court's decision in the National Federation of Independent Business v. Sebelius case affirmed the expansion of Medicaid under the Affordable Care Act. However, it also ruled that the federal government could not withhold all Medicaid funding from states that chose not to comply with the expansion requirements of the ACA. This essentially made the Medicaid expansion optional for states."
"Describe the impact of the ACA on individuals with preexisting conditions.", "The ACA has made it illegal for insurance companies to deny coverage or charge higher rates based on preexisting conditions or gender. This applies to both the individual and small group market. Initially, this provision was only for children but now it extends to all individuals."
"Identify the ten core benefits that are considered essential health benefits (EHBs) under the Affordable Care Act (ACA).","The ten core benefits, or EHBs, under the ACA that must be provided by nongrandfathered individual and small group plans are: (1) Ambulatory patient services (outpatient care) (2) Emergency services (3) Hospitalization (such as surgery and overnight stays) (4) Pregnancy, maternity, and newborn care (before and after birth) (5) Mental health and substance use disorder services, including behavioral health treatment (6) Prescription drugs (7) Rehabilitative and habilitative services and devices (8) Laboratory services (9) Preventive and wellness services and chronic disease management (10) Pediatric services, including oral and vision care. Note: The terms EHBs and minimum essential coverage (MEC) have specific meanings under ACA. EHBs are the ten core benefits that plans offered on the ACA exchanges—called qualified health plans—must cover. MEC is the term ACA uses as a designation for those types of coverages that qualify for satisfying the shared responsibility provisions for individuals and employers. Employer-sponsored coverage (including COBRA coverage and retiree coverage) has been designated as MEC under ACA."
"Is it permissible under the ACA for group health plans to set lifetime or annual limits on the monetary value of Essential Health Benefits? (Text, pp. 329 and 337, Footnote 9)","No, the ACA generally forbids group health plans from providing coverage that sets any lifetime or annual limits on the monetary value of Essential Health Benefits. This rule applies even if the plans are self-insured or large, and regardless of whether they are required to offer Essential Health Benefits. If these plans do offer Essential Health Benefits, they cannot impose these types of limits. This provision is applicable to all group health plans, including those with grandfathered status. Most of these plans cover a majority of the ten Essential Health Benefits."
'What methods does ACA use to make health insurance more accessible for individuals?', 'ACA makes health insurance more accessible by offering tax credits to individuals earning between 100% and 400% of the poverty line who do not qualify for other affordable insurance options. These tax credits can be advanced, allowing for lower monthly premium payments. They are also refundable, enabling even families with moderate income to benefit fully. Additionally, these individuals may be eligible for reduced cost sharing, which includes copayments, coinsurance, and deductibles.'
"Explain the concept of 'employer mandate' or 'play-or-pay provision' under the ACA.", "Under the Affordable Care Act (ACA), the 'employer mandate' or 'play-or-pay provision' is a requirement for applicable large employers (ALEs) to provide health coverage to their full-time employees and their dependents. This coverage must be 'affordable' and provide 'minimum value'. If an ALE fails to comply, they may have to make an employer shared responsibility payment to the IRS. An employer is considered an ALE if they had an average of at least 50 full-time employees (including full-time-equivalent employees) during the previous calendar year. This is also known as the shared responsibility mandate."
"Explain the consequences for an ALE employer who does not offer affordable and minimum value benefits?", "If an ALE employer does not offer minimum essential coverage to at least 95% of its full-time employees and their dependents, and at least one full-time employee receives the premium tax credit for purchasing coverage through the Health Insurance Marketplace, the employer may be subject to one of two potential employer shared responsibility payments. The second type of employer shared responsibility payment may apply even if the employer offers minimum essential coverage to at least 95% of its full-time employees and their dependents, but a full-time employee receives the premium tax credit for purchasing coverage through the Marketplace. This could happen if the coverage offered by the employer is not affordable, does not provide minimum value, or the employee is not among the 95% of full-time employees offered minimum essential coverage. For either type of employer shared responsibility payment to apply, at least one full-time employee must receive the premium tax credit for purchasing coverage through the Marketplace."
"Typically, how many hours of service per week or per month does an employee need to work to be considered full-time under the employer shared responsibility provisions? (Text, p. 337, Footnote 11)","An employee is considered full-time under the employer shared responsibility provisions if they work on average at least 30 hours per week, or 130 hours per month."
"Describe the purpose of the Health Insurance Marketplace created by the ACA.", "The ACA created the Health Insurance Marketplace, or ACA exchanges, to enable private insurance providers to sell qualified health plans to individuals who don't have employer-provided insurance or don't qualify for government programs like Medicare or Medicaid. The ACA mandates that, with a few exceptions, individuals must have basic health insurance."
"How does the ACA affect small businesses with less than 50 full-time employees?", "Small businesses with less than 50 full-time employees or full-time equivalent employees are generally not subject to the ACA employer shared responsibility provision. If such a business had less than 50 full-time employees on average during the previous year, it is not considered an Applicable Large Employer (ALE) for the current year, and thus is not subject to the employer shared responsibility or employer information reporting provisions. These businesses can buy health insurance for their employees through the Small Business Health Options Program (SHOP Marketplace). If they have less than 25 full-time equivalent employees with average annual wages below $50,000, and they cover at least half of their full-time employees’ premium costs through the SHOP, they may qualify for the small business health care tax credit."
"Can you explain the concept of 'grandfathered' plans in the context of the ACA?", "These are health plans that were already in place and had at least one person enrolled as of March 23, 2010. While they are exempt from several ACA market reforms, they are required to state in their plan documents that they are considered 'grandfathered' plans."
"Can you list the six changes that can cause a plan to lose its grandfathered status? (p. 332)","A plan can lose its grandfathered status if it makes any of these six changes: (1) Eliminates all or substantially all benefits to diagnose or treat a specific condition (2) Increases a percentage cost-sharing requirement (for example, raising an individual’s coinsurance requirement from 20% to 25%) (3) Increases a deductible or out-of-pocket maximum by an amount that exceeds medical inflation plus 15 percentage points (4) Increases a copayment by more than the greater of $5 or a percent equal to medical inflation plus 15% (5) Decreases an employer’s contribution rate toward the cost of coverage by more than 5 percentage points (6) Imposes annual limits on the dollar value of all benefits below specified amounts. The plan must also include a statement in any plan materials provided to a participant or beneficiary that it believes it is a grandfathered health plan, and provide contact information for questions and complaints."
"Can you list the ACA provisions that are applicable and not applicable to grandfathered health plans?", "Applicable provisions to grandfathered health plans include: (a) Prohibition on preexisting condition exclusions (b) Prohibition on excessive waiting periods (c) Prohibition on lifetime/restricted annual limits (d) Prohibition on rescissions (e) Extension of dependent coverage (f) Summary of benefits and coverage and uniform glossary. Provisions not applicable to grandfathered plans include: (a) Coverage of preventive services without cost sharing (b) Internal claims and appeals and external review (c) Patient protections."
"Explain the rights and privileges of eligible workers under the Family and Medical Leave Act (FMLA).","Under FMLA, eligible workers of covered employers have the right to take unpaid, job-protected leave for certain family and medical situations, with the continuation of group health insurance coverage under the same terms as if they had not taken leave. In most scenarios, these employees can take up to 12 weeks of leave in a 12-month period."
"Describe the conditions under which an employee can avail FMLA leave.", "An employee can avail up to 12 weeks of FMLA leave in a 12-month period under these conditions: (a) For the birth and care of the newborn child of the employee, within one year of birth (b) For the placement with the employee of a child for adoption or foster care, and to care for the newly placed child within one year of placement (c) To care for an immediate family member (spouse, child, or parent) with a serious health condition (d) When the employee is unable to work because of a serious health condition (e) For qualifying exigencies arising out of the fact that the employee’s spouse, or a son, daughter, or parent is on active duty or call to active duty status as a member of the National Guard or Reserves in support of a contingency operation. Note: FMLA leave can be taken intermittently or on a reduced leave schedule under certain medical conditions. For instance, an eligible employee undergoing chemotherapy may work on a reduced schedule."
"Can you explain the main provisions of the Americans with Disabilities Act of 1990 (ADA) and who it applies to?", "The ADA, enacted in 1990, forbids discrimination against individuals with disabilities in several areas, including employment. This applies to job application procedures, hiring, firing, advancement, compensation, job training, and other employment terms, conditions, and privileges. The ADA applies to private employers, state and local governments, employment agencies, and labor unions with 15 or more employees. A disability, according to the ADA, is an impairment that significantly restricts one or more major life activities, a record of such an impairment, or being perceived as having such an impairment."
'What is a significant issue for employer-sponsored health plans in relation to the ADA?', 'The ADA's impact on wellness programs included in employer-sponsored health plans is a significant issue. The ADA typically limits employers from gathering medical data from employees, but permits health inquiries and medical exams if they are part of a "voluntary" employee health program. The ambiguity lies in whether employers can provide incentives to motivate employees to join these programs, or if doing so would render participation involuntary.'
"Who is protected under the Uniformed Services Employment and Reemployment Rights Act (USERRA) and what rights does it guarantee them?", "USERRA provides protection to all individuals who are serving or have served in the uniformed services across all public and private sector employers, including federal employers. The act allows for a cumulative five-year absence from work for military duty while maintaining reemployment rights. Upon return, service members are entitled to the job they would have had if not for their military service, with the same seniority, status, pay, and other seniority-based rights and benefits. If military duty exceeds 30 days, individuals can choose to continue their employer-sponsored health care for up to 24 months, but they might have to pay up to 102% of the full premium. For military service less than 31 days, health care coverage is provided as if the service member had remained employed."
"Is it considered a violation of the Age Discrimination in Employment Act (ADEA) if employers provide different retiree health benefits based on the retiree's eligibility for Medicare?","No, it is not considered a violation of ADEA for employers to offer varying retiree health benefits based on the retiree's Medicare eligibility."
"Explain the rules of Medicare Secondary Payer (MSP) when an individual has Medicare coverage and is also covered by a group health insurance plan.", "The MSP rules dictate the following scenarios: (a) If an individual is 65 or older, covered by an employer group health plan through current employment or spouse’s current employment, and the employer has less than 20 employees, Medicare is the primary payer and the group health plan is secondary. (b) If an individual is 65 or older, covered by a group plan through current employment or spouse’s current employment, and the employer has 20 or more employees, the group health plan is primary and Medicare is secondary. (c) If an individual is 65 or older, self-employed, and covered by an employer group health plan through current employment or spouse’s current employment, and the employer has 20 or more employees, the group health plan is primary and Medicare is secondary. (d) If an individual is disabled, covered by a group health plan through their own current employment (or through a family member’s current employment), and the employer has 100 or more employees, the group health plan is primary and Medicare is secondary. However, Medicare remains the primary payer for individuals aged 65 or over who are also covered under an employer retirement plan."
"Can you list the significant legal alterations impacting employee benefits due to the COVID-19 pandemic?", "Several legal alterations impacting employee benefits were made due to the COVID-19 pandemic. These include: Bans on unexpected medical billing, Transparency obligations, Compliance with the Mental Health Parity and Addiction Equity Act (MHPAEA), Standards for no-cost coverage and reimbursement for COVID-19 testing, Allowance for pretax reimbursement of over-the-counter (OTC) drug costs and menstrual products, Requirement for Health Insurance Portability and Accountability Act (HIPAA) guidance, Changes in confidentiality for substance use disorder (SUD) records, and Deduction for individual income tax for qualified medical expenses."
"Explain the process of performing a return on investment (ROI) analysis.", "The process begins with a planned and prospective evaluation, allowing for the necessary data to be identified and systems for data collection to be established. (1) Identify the change that will be brought about by the investments. (2) Determine the time and other resources required (a) to implement the change and (b) to maintain the change once implemented. (3) Identify the investment and the investor. (4) Identify the returns that will be valued. (5) Determine the ROI study design and data. (6) Gather and analyze the data, presenting (a) investment costs and investment time period, (b) returns at the first year from the start of investment and at the second and third years, and (c) ROI at three years. (7) State assumptions, limitations, and the level of certainty of the evaluation."
"Does a business case assessment only involve a return on investment (ROI) evaluation?", "No, a business case assessment involves more than just an ROI evaluation. It includes a comprehensive justification, plan, and expected results for a proposed investment. This may encompass: (a) Identification of current issues and opportunities (b) Explanation of how the proposed change will address the identified problem and align with strategic objectives (c) Estimation of the time, money, and other resources required to successfully implement the change (d) Anticipated benefits, particularly in relation to the identified problem or strategy, and projected ROI at one, three, and five years (e) Identification of potential risks and strategies to manage them (f) Projection of the likely scenario if the change is not implemented and possible alternative uses of the resources proposed for the change (g) A preliminary draft plan for subsequent steps."
"How can the value enhancement for local service providers be calculated?", "The calculation of value enhancement for local service providers involves a series of questions: (1) Is there substantial evidence from past research or data indicating an improvement in quality? If affirmative, proceed to points (2)-(7). (2) What is the cost of the intervention (investment)? (3) Is there any proof of waste reduction and better resource utilization (e.g., fewer visits/admissions, fewer medications/tests, shorter hospital stays, time saved)? (4) What is the monetary value of these reductions and efficiencies? (5) If there is no research evidence for points (2) or (3), then use theory or estimates to determine a cost range (e.g., it is probable that the expenditure would not be less than X and not more than Y). (6) In general, what is the ROI for a specific stakeholder? (The stakeholder ROI refers to: What is the cost of the change and savings or additional cost for different stakeholders (patient, providers, payer or integrated health system)?) (7) Payback period: How are the expenses and savings distributed among different parties in the first year, second year, third year, fifth year or tenth year?"
"Can you describe the elements of an effective ROI evaluation?", "An effective ROI evaluation should: (a) Define the intended users of the evaluation and the decisions it will guide (b) Recognize all relevant costs and benefits, quantifying those that can be measured financially (c) Differentiate between the theoretical ROI and the actual or probable monetized ROI at various points following the intervention's initiation (d) Detail the limitations, assumptions, and level of certainty of the results."