Slides for Qualitative IDIs -- Benefit Credits Research 10-27-10 NEW

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Slide 1: 

1 Ancillary Benefits We Are Discussing Dental Long-Term Disability Short-Term Disability Life/AD&D Long Term Care Accident Cancer/Critical Illness Whole Life Universal Life Supplemental Medical

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Company buys group plan, enrolls all employees, pays all Pros Great rates High levels of coverage Tax break for employer Guaranteed coverage (no medical exams) Cons Employer pays all Some employees do not need Costs are unpredictable Employer Group Plan Employee Individual Plan 2 Individuals buy insurance on open market Cons High rates Low levels of coverage Employees may job hunt for better benefits No tax breaks Medical exams may be required Pros Employer not involved No cost to employer Employees decide if they need it

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Company offers group plan for those who want it, shares cost – will need at least 75% enrolling Employer Group Employee Individual 3 Individuals buy insurance on open market. Employer reimburses all or part of expense. Individuals buy their own insurance from a preferred vendor at work. Employer pays all, part or none of expense.

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Rates increase Coverage levels decrease Employer cost decreases Employee cost increases Enrollment levels and minimums decrease Employee choice increases Guarantee issue less certain Employer Group Employee Individual 4

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1 Employer selects a menu of products (all or just a few) Dental • Long-Term Disability • Short-Term Disability • Life/AD&D • Long Term Care Accident • Cancer/Critical Illness • Whole Life • Universal Life • Supplemental Medical Employer decides how many $ credits to give each employee Employees decide which benefits they want and how to allocate the credits 2 3 Employees can also contribute their own money Credits may not cover full set of desired benefits They may want higher levels of coverage 4 5

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(the fine print) No enrollment minimums except for state-minimums (usually 2) Employers that fully fund coverage today will see total cost for that same coverage increase by as much as 35%-50% Option to minimize the increase by pre-allocating dollars toward a benefit Rates are age-banded which means that older employees will pay more Credits are paid to employees through salary gross up Add’l admin for employer Tax implications for employer and employee Individual products (if included in package) become subject to ERISA Add’l admin for employer 6

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Before 7 After ACME Co. ACME Co. Employer Contribution $25 monthly Employer Contribution $35 monthly ACME decided to lower their monthly employee contribution, but they could have maintained or increased it.

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Dental  LTD  $25 Life  $10 Monthly Cost = $35 (Employer $35) All Employees 60% of salary to age 65 Optional employee paid Dental $25 LTD  STD  Life  Critical Illness  Monthly Cost = $25 (Employer $25, Mark $0) Mark (34 years old, single) Dental LTD  $40 STD  Life $ 5 Critical Illness $15 Monthly Cost = $60 (Employer $25, Sue $35) Sue (55 years old, married) 60% of salary to age 65 Before After $50K death benefit $20K diagnosis benefit $10K death benefit Mark decided against LTD. His cost would have been $30 for the same level of coverage he had under the old plan. Rates are for illustration purposes only.

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9 Employee Choice

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