Larry M

why not define class by date of hire or some such? e.g., class 1 = m.d. who was employed during 1998 class 2 = m.d hired in 1997, . . . class n = r.n. employed after 1994 and before 1998 class n+1= r.n. employed after 1997 and before 2001 etc.

Kirk asks why federal mandates will make self funding less attractive. One of the major advantages for a multi-state company to self fund is the avoidance of conflicting state mandated benefits for insured plans. The variations among the states concerning their insurance laws also affects the costs of doing business by insurance companies who are licensed in more than one state. One of the suggestions advocated by both employers and some insurance companies is to have the federal government take over the supervision of the insurance industry ("Over our dead bodies" shout the state insurance commissioners) and eliminate the individualized state insurance laws (and departments). This will lead to one set of rules for insurance companies and one set of mandated benefits for employers. Thus, goes the argument, one of the major reasons for self funding will have been removed.

wow, the tangled web people weave... why not simplify all lives and have company A adopt its own d.c. plan? It will get rid of any liability Company B may have for paying wages for persons who perform no services for it; it will obviate (my word for today) the need for Company A to set up books to periodically reimburse Company B for its payroll (and other) costs [and vice versa]; it will keep the two companies separate for all state and federal wage and tax filings; etc., etc., etc.

Be careful, this is a complex issue. Just extrapolating numbers and comparing potential distributions is an insufficient approach to the decision. Doing so will leave you exposed to potential problems. You should seek the help of a competent pension actuary in your area who will work with you and your client to explain to the client the pros and cons of each type of plan, the implications of changing and whether either type of plan is appropriate for the client.

The 1994 EA meeting had a session on the first twenty years of ERISA - and it included comments concerning the events leading up to erisa as well as changes implemented during that time.

and, when you have finished with the other sources, consider reviewing each of THE PROCEEDINGS of the Conference of Consulting Actuaries (nee Conference of Actuaries in Public Practice) starting with the first issue in 1951. The Proceedings include lots of practical discussions concerning pensions - why, who, how, etc. and, as an aside from a very curious actuary, WHY are you doing this? Did you lose an election bet? Or, worse yet for future actuaries, are you on the examination committee?

Okay, let us assume you are referring to a group plan, pre-medicare, and would like to offer an option for employees between a high deductible medical plan with a low premium, and a lower deductible plan, with a higher premium. Most carriers will allow you to develop an optional plan for your employees. If employees are given a choice, then they are intelligent enough to choose, on average, that plan which they anticipate will give them more for their money. So, we can assume the "users" (includes those who are healthy but who expect to use medical services for every small item - prescriptions, sniffles, headaches - and the not so small pregnancy benefits as well as those associated with chronic ills and major problems) will take the low deductible plan, while the "occasional users" (those who can afford the higher deductible and those willing to pay for the smaller items themselves) will take the high deductible plan. So, what will the net result be? Theoretically, the overall claim costs will be less than if all the employees were in the low deductible plan. Theoretically, the carriers should charge less, in total, for the combination than for the low deductible plan by itself. (Sometimes even the high deductible plan participants will have claims which would be paid under the low deductible plan.) However, the costs per employee in the low deductible plan will increase significantly (with a correspondingly healthy increase in premium rates) because there will be no "non-users" subsidizing the "users" portion of the plan's benefits. If you can establish a retrospective premium rating for the optional plans, then your overall costs (excluding costs of administering a dual option) should be less than if all were in the low deductible plan. However, on a prospective only basis, the carrier will assume the worst and, most likely, charge a premium rate for the low deductible plan which will allow it a large margin of error because, in advance, it does not know how many users will buy the plan and how much those users will benefit. The result will very likely be a total premium for the two plans which is much larger than the premium needed in retrospect. Even though the two plans combined have a high participation rate, the mix of participation is very important and will not be known until after the employees make their decision. Another item difficult to price, is the amount of increase in claims which might occur because the low deductible plan participants feel they must get more back than the difference in premium between the two plans. The cost of this factor is very difficult to estimate in advance. So, in summary, if you thinking of offering your employees a choice between a standard and a high option plan, a. yes, it can be done, and b. the overall benefit costs may go down, but your total premium charges may not. [by the way, there are some agencies in California (and I assume elsewhere) which have made arrangements with a number of carriers to allow each employee within a firm to choose among a wide variety of plans and carriers(!). Here employee A can choose a high deductible plan with carrier A, employee B can choose a hmo plan with carrier B, employee C can choose another plan with carrier A, ..... [My guess is these plans have premium rates which are loaded for selection.]

what do you mean by a "dual deductible"? and are you referring to a group plan or to an individual plan - pre or post medicare?

I do not know if there are any; there may be some. However, I do know there are IRS auditors who hire actuarial experts to review claim reserves of plan sponsors.

Anyone can use actuarial methods to determine COBRA premiums and claim reserves....which is unfortunate, not only for me and others in my profession, but more so for those who use the results derived from applying methods incorrectly. It is similar to saying "anyone can draft a legal document." Just be wary. The penalties for being wrong are steep.

Is it possible there is a "WARNA" action? [from RIA -} "...The Workers Adjustment and Retraining Notification Act of 1988 (WARNA) requires employers to give 60-days' notice of site closings or to compensate laid-off employees for 60-days' salary and benefits, including the cost of health insurance. However, the exclusive remedy for violation of WARNA is monetary damages. 67 Therefore, WARNA does not require an employer to provide laid-off employees with actual medical plan coverage if employees are laid off within the 60-day notice period. Rather, WARNA only obligates employers to pay the cost of the medical expenses incurred as if the employment loss had not occurred. 68 Assuming employees are laid off without notice, WARNA effectively requires an employer to self-insure medical benefits for 60 days. An employer may determine it is less costly to simply pay the COBRA premium for 60 days after announcing the site closing in such a situation. Presumably, the employer would not be required to pay any amount attributable to medical benefits if it can establish that all its medical plans would have terminated whether or not employees had been given 60 days' notice of the site closing. 67. 29 USCS 2104. 68. Local 217, Hotel & Restaurant Employees Union v MHM, Inc. (1992, CA2) 976 F2d 805 , 7 BNA IER Cas 1313 , 123 CCH LC"

It is my understanding that neither COBRA nor HIPAA require an employer to maintain a group health plan for its employees. COBRA's continuation coverage is available only as long as the employer maintains the group health plan for its active employees. Therefore, when the employer terminates its group plan, COBRA is not available to either active or terminated employees. The employees MAY have a right for a conversion policy with the carrier if the group contract so provided.

A major question which comes to mind is "Why do you want to self-fund?" Do you want to avoid the mandated benefits? Or do you think you will save some money by not paying premium tax on the premium to a carrier and, perhaps, getting some investment yield (or equivalent) on the money you do not have to prefund (claims take a while to reach a relatively stable level)? In return, you will have to get (and pay for) someone to administer the program; develop and print brochures; arrange for the equivalent of a letter of credit (better known as "reinsurance" to handle the expected jumps in claims which will come, but at unexpected and, usually, inconvenient, intervals - especially when there is a downturn in the economy or if your company starts to downsize); make sure the network of providers and the management of claims is such your employees will get proper treatment and you, as the employer funding the plan, do not get to pay more in claims than you save in premium taxes. etc., etc., etc. Now, don't get me wrong, some of my best clients are self funded - but they have a larger employee base. My guess is your size is such that any premium tax and investment yield money saved will be more than offset by the other expenses you will incur. On the other hand, the THREAT of going self funded should do wonders in the renewal negotiations with your current carrier ...

why not amend the plan to provide coverage for any employee who has reached 53 years of age and who has at least X years of service and who retires because of disability (as defined by the plan)? The coverage will continue until the earliest of a. eligibility for Medicare b. recovery from disability c. termination of the plan d. eligible under another employer's group plan just a thought!

why don't you use the five year age brackets and develop annual rates using the graduation techniques we were all taught and which most of us have forgotten? As an alternate, contact NVS and ask if it can release the basic data.

Whether you are a small or large employer, the most suitable health plan is the one which most closely matches your objectives and budget. For very small employers (less than ten employees), the types of plans available are somewhat limited - but you still have choices. Many of the Blue Cross/Blue Shield plans have web sites which list the options available to both small groups and individuals A local broker (get references from other small employers or chamber of commerce) should be able to provide options for you. Make sure the broker is expereeinced and knowledgable in health benefits for small employers. IF your company belongs to an association, that association may have a sponsored health plan available for employers such as yourself. Many states have special plans established for small groups - check with your state's insurance department for information on these.

Teresa, why not assume the company means what it says when it offers you a chance to appeal. write a letter, simply outlining what you did, and, if it seems both reasonable and plausible to the Employee Benefits Committee, your request will be granted. But do not wait another month to write the appeal. Remember, the company is providing a benefit to keep its employees happy - not to make enemies.

any plan, insured or self-funded, can provide for no co pay on any benefit. the one problem I can think of is if the only person eligible for the prostate screening is a key employee; have you considered also waiving the copay for, say, mammograms or pap smears - it will eliminate any thought of gender bias and should also enhance employee relations (with company, not necessarily with each other).

echoing and expanding upon Kip's comments: an indemnity plan can provide more, or less, benefits than an HMO - it depends upon the plan the employer has purchased. A. some of the things you should consider: 1. is there a limit on "out of pocket expenses"? This may be called a "stop loss" and means the plan will pay 100% of covered expenses which are in excess of the combination of copayments incurred by you during the plan year (sometimes the deductible is counted toward the stop loss figure). So, for example, if the deductible is $100 per year and the stop loss is $1,000 per person (not including the deductible), and you have incurred $7,000 of covered medical expenses on behalf of a child, then you pay the first $100, plus 20% of the next 5,000 and zero thereafter. 2. Many indemnity plans provide "well baby care", immunizations and cover diagnostic tests as well. 3. pre natal care is covered as part of pregnancy benefits . 4. although an indemnity plan says something to the effect of "we will reimburse you for medical expenses.." almost all hospitals and physicians will bill the insurance company on your behalf and bill you for the balance. 5. Yes, for many "healthy families" the hmo's $5 copayment per visit will be a smaller out of pocket cost than the 20% copayment. Whether these will amount to more or less than your change in salary is something you will have to estimate. 6. If you really, truly love your hmo plan and also really, truly like the other aspects of the new employer, check with the hmo to see whether you can continue the hmo plan by paying for it yourself. Again, review the summary plan description and then come back to the site with any questions you have.

The answer is "maybe". If the system allows lump sum payments of benefits, it will /should define, in the plan document, how the lump sum is calculated. This calculation may use assumptions which are different from those used to determine the amount for which the system has established its "reserve." For example, the system may use different interest (discount) rates and differing mortality assumptions for the two calculations. One way to find out the answer for this system is to ask the question of the administrator. If that is not practical, get a copy of the portion of the plan document (or a summary)which defines actuarial assumptions and have a friendly (there are some) actuary make the calculations for you.

pax, I agree with most of your comments - and do not consider them disrespectful - you just pointed out I did not express my self properly...and I oversimplified by suggesting the use of salaries only without a further adjustment. However, the major thrust of my response was: Any pension "cost" should not be shown as a separate item. I would never (never?) show the cost of a pension benefit to individual employees as a separate item on an employee benefit statement. The method I am suggesting is to include an approximate cost allocation in the statement only as part of the total approximate cost of all fringe benefits. We should not show the individual costs of the defined benefit plan in any statement. To show an individual defined benefit "cost" has to lead to problems down the road. The usual purpose of these statements is to let the employees know a significant amount of money was spent by the company on behalf of the employee for items other than salary. The statements enumerate the benefits (in detail) and then show an allocation (in total) of the company's total expenditure for those benefits. We can argue about the specific methods of allocation for almost all the benefits. For example, if group life is provided, should the average term cost per thousand be used, or should the cost be allocated using a cost which increases by age? Or should there be no cost for those employees who did not die in the year? For medical benefits, should we vary the costs by age or sex? Or should we use an allocation based upon the premium paid for that employee's class? For workers comp, we can use an average rate/unit of salary or one which varies by occupational class. In a defined benefit plan, if the full funding limit has been reached and there has been no contribution, should the statement include any cost for the plan in that year? I can argue that no cost be included. Or I might argue we use an artifical rate for every year. All of these depend upon what the client wishes to accomplish and how much time he wishes us to expend on (and for which he is willing to pay) the allocations.

I would keep it simple and include it as part of the total cost of the fringe benefits, using the actual contribution to the plan for the year, and allocating it among the employees in proportion to a normal cost for the participants or in proportion to the salaries of the participants. Presumably medical and death benefit plans, workers comp, sick pay, paid leave, etc are included in the total of the fringe benefit costs and each of these requires some decision as to how to allocate. For death, disability, or health benefits, the average premium (either adjusted for family status or not) should be used as opposed to using the actual benefit costs incurred by the individual. similarly, the db plan's costs should be an averaging among the participants.

However, if there are enough employees in the plan, it is possible to design a single profit sharing plan where some (or one) employees receive 25% of their compensation while others receive a lesser percent - as long as the total contribution for all eligible employees is no more than 15% of their total compensation. Also, if 25% is not enough, consider a defined benefit plan.

I agree with most of the writer's opinions and comments. The arguments against insurance companies and hmo's seem to be based upon the contracts entered into between the buyer (an employer or an individual) and the carrier. These contracts specify the benefits which are to be provided and the premium which is to be paid for those benefits. If the employer wants a greater benefit, then the carrieer will oblige - but for a greater premium. Lesser benefit packages can be had for smaller premiums. Perhaps an analogous situation can be seen in the profit sharing field. For example, an employer, with limited funds, can only provide a 1% or 2% profit sharing contribution every other year. An employee with a vested benefit terminates his employement with the employer after having been in the plan for a few years. Should the trustee of the funds be required to deliver a higher benefit than that based upon the account balance? Must he distribute an amount equal to that which would have been in the account if the employer had been making maximum contributions every year, and the investment yield was equal to the S&P 500 for each year of the plan? Of course not. He must deliver a benefit equal to the vested account balance for that plan - no more, no less. And, yet, that is not the rule to which health plans are being subjected. Suppose the same employer can afford only a limited health plan for his employees. He will provide the full cost of any tonsillectomies or appendectomies required by his employees or their spouses or dependent children. So, he contracts with an insurance company to provide these benefits and no others and pays the appropriate limited premium for that limited benefit. When a spouse discovers the pain in the abdomen is caused by a debilitating disease which may be terminal if not treated, but having nothing to do with the appendix (or even a swallowed tonsil), should the carrier be forced to pay for the treatment - even though it was never intended to be covered by the contract? Again, the answer should be, "Of course not." And, yet... It seems as if we are forgetting there is absolutely no requirement that every employer provide every employee with every medical benefit which may or may not be necessary to preserve that individual's health. [beyond the fact that there is no such requirement, there isn't enough money available to provide such a benefit for everyone.] Does this mean the individual can not have the non-covered illness treated? NO!! It means the individual has the right to have the illness treated and he can pay for any expenses out of his own pocket or through the aid of others.

why not ask a member of one of your local big eight - er - six - er - four accounting firms for a copy?