kevin t henry - theamericancollege.fall2011

8/2/2019 KEVIN T HENRY - TheAmericanCollege.fall2011

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Part III Benefits Analysis

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Introduction

The American College is a non-profit educational institution that specializes in

professional development. In over 84 years, they have guided over 200,000 professionals in

accelerating their careers in securities, banking, and insurance services. Surveys have shown that

the Colleges sales training has helped boost production for individuals by 40%, while holders of

financial planning designations have increased sales by 27-51% (www.theamericancollege.edu)

The following analysis discusses the current employee health and welfare benefit plan that is

offered. Our research for this study was conducted through interviews with Amy C. Dewey,

Executive Director of Human Resources and Jeff Snyder, Human Resource Generalist for the

American College.

Employee Benefit Objectives and Goals

The American College covers 154 lives on their health and welfare benefits plan with

employees, spouses, and dependents included. Their two locations consist of the main campus in

Bryn Mawr, PA, which has 73 covered employees, and their smaller Boca Raton, FL office,

which has 13 covered employees. The Colleges Executive Director of Human Resources

describes her objective for offering employee benefits to attract and retain employees, but more

importantly to provide a comprehensive and affordable benefit package to enhance employees

lives. She expressed that she sees the Colleges biggest competitors as the local colleges in the

Main Line area, such as Haverford College and Rosemont College. Through providing

competitively priced medical, dental, vision, prescription drug, and life insurance benefits, The

American College drives to provide employees and their dependents all of the protection against

personnel loss exposures that they need throughout their lives. At the end of the 2010 year, the


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College decided to change from their former Blue Cross HMO and PPO plans to three Aetna

Medical Plans. Their reason for this was that Blue Cross was going to raise their healthcare

premiums by 20% for the 2011 year. They have expressed that overall satisfaction with Aetna

has been high for their first plan year and that they have experienced minimal, if any issues.

Administration is very thorough, enrollment is high among employees, and costs are more than

affordable to the organizations senior management. The College offers their three options of

medical plans on a contributory employer pay 80%, employee pay 20% basis. This cost sharing

helps to keep healthcare costs affordable for the College as well as for the employees as

healthcare costs continue to skyrocket higher each year. Within the last five years, the College

was financing their health and welfare benefits on a non-contributory basis but could not

continue as healthcare costs continued to rise. Amy Dewey described how their new cost sharing

approach with employees has helped to increase employee awareness and appreciation of the

actual cost of their benefits package. When asked about the idea of self-funding, she responded

that she does not think that the College could maintain as inclusive and competitive of a benefit

package due to the companys size and lack of credibility. She discussed that the College has

experienced some very high cost claims with two employees who had undergone cancer

treatment and one employee who was out of work for years with very severe arthritis. If the

company were to self-insure, these types of claims could be catastrophic especially because of a

relatively low number of employees. Larger companies who self-insure are better able to retain

their losses because they naturally have more funds in their loss reserves than do small

companies. The risk pool for these large companies is better spread over the group and these

companies have the ability to retain more costly claims. A small company such as the American

College could experience severe financial difficulty with self-insurance. When we asked Amy


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Dewey about what she thinks of the changes that Health Reform will bring, she responded that

her biggest fear was to be pushed into self-insurance. She does not feel that healthcare would be

affordable for employees or for the College if future legislation pushes for self-insurance due to

unaffordability.

Health Benefit Considerations

To avoid employee dissatisfaction and plan issues, the Colleges HR department does

their best to steer employees into the health plans that will best fit their needs. When discussing

this topic with Amy Dewey, she expressed that not every employee has the same medical needs

nor wants the same things out of their benefit plan. Younger employees tend to plan much less

for the future than do older employees and younger employees do not want to pay a high

premium for their good standing health. For this reason the college attempts to get a feel for

what the individual is seeking before recommending a plan to enroll into. A popular decision for

younger employees at the College is the Aetna POS and Aetna High Deductible Health Plans.

The implementation of a Health Savings Account or a limited Flexible Spending Account is a

very favored option among middle-aged to older employees, but not so much for the younger

employees. HSAs allow employees who utilize healthcare, dental, vision, or prescription drugs

frequently or infrequently to pay low out-of-pocket costs, some of which with pre-tax dollars out

of these accounts. Limited FSAs cannot be used for health related expenses until the employee

has reached their deductible but can still help to cover preventative and dental expenses when

needed. Middle-aged employees with children and families tend to be more interested in the

Aetna POS and HNO options that the College offers, so the HR department needs to be able to


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really guide each employee according to their needs. Another consideration expressed by our

interviewees is that young people rarely ever purchase life insurance or any of the voluntary gap

health products for extra medical coverage. They are often also much more unwilling to pay

money into the Colleges 403(b) retirement account. The Plan Coordinator and decision maker

must always consider the demographic trends of each age group to design the best possible

employee benefits plan. Mrs. Dewey really emphasized this importance as the key to minimizing

future dissatisfaction and employee opt-outs. A way for the College to strengthen this diversity

is by educating young people on the importance of investing and putting money away while they

are young. If the administrators were to have beneficial mathematical information on 403(b)

investment as well as information on the savings of an FSA or HSA, I believe that they could

certainly improve on their younger generations lack of interest for several benefits that they

offer.

Dental, Vision, and Prescription Drug Considerations

Employees that enroll in one of the Colleges Aetna health plans are automatically

enrolled into one of their two MetLife dental PPO plans. These dental plans have an average

cost savings of 15-45% when compared to what local dentists in the area charge without

coverage. This is a big advantage for employees since they do not need to go out and look for an

individual or voluntary dental plan which could be more costly for themselves and their families.

Vision and Prescription drug coverage are included in the Colleges medical plans, which is

another benefit since employee contributions to health plans are relatively low. When asked

about the Colleges vision plan, Amy Dewey expressed that she was not satisfied with how

limited the plan is for the employees. She included that employees do not seem to be satisfied

having only one covered eye exam every two years. The College could improve this benefit by


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changing the plan to include one eye exam per year rather than per every two years. The

increased cost for employees if this change were administered would be very low and employees

would be more satisfied with this access. A large benefit that employees have through the use of

FSAs and HSAs is that these accounts cover many dental and vision expenses that a limited

plan would not cover for employees. Depending on an employees needs, they can contribute a

small amount of their annual pre-tax income into these accounts just so that many dental or

vision expenses can be covered for themselves or for their dependents. In recent years

prescription drug costs have continued to rise. The Colleges employees have reasonable copays

for generic and non-formulary drugs, and pay a bit more out of pocket for brand name, non-

formulary drugs with a copayment of $70.

Issues and Considerations with LTD and STD

The American College offers non-contributory Short and Long-Term Disability

Insurance through MetLife for active, full-time employees. The Colleges Human Resource

Generalist, Jeff Snyder, touched on some potential issues with these Disability Insurance

programs during our interview. Much of the Disability claims that are filed by the Colleges

employees do not involve the administration of the HR department or any members of senior

management. MetLife Insurance handles claims processing, rehabilitation arrangements,

physician visits to certify a legitimate disability, and communicating the duration of time that

employees will be unable to perform job duties. The reality is that MetLife handles every aspect

of these insurance programs. The fact that the American College offers these Disability benefits

on a non-contributory basis does not create incentives for employees to be cost conscious and

can create moral hazard. The organization has had some very costly long-tail claims, as

mentioned above, which could be more effectively minimized through greater employee


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communication. One example of how this employee communication could help with future

claims is through further encouragement and education about company-offered wellness

programs. Amy Dewey mentioned that if Disability claims continue to be as costly as they have

been in the last few years, the College will no longer be able to offer them on a non-contributory

basis and will need to move toward cost sharing.

Non-Retirement Considerations

The Executive Director of Human Resources stressed in detail during our interview that

work-life benefits are very loosely implemented into the Colleges benefit plan. The reason for

this is that offered benefits such as Four-Day Work Week, Employee Assistance Programs, and

ID Theft Assist are seldom utilized by employees. This causes plan decisions to be focused

more on health benefits, both contributory and voluntary, for employees.


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Impact of Regulatory Compliance

The Patient Protection and Affordable Care Act (PPACA) was signed into law on March

30th, 2010. There are reforms that need to be implemented now, reforms that need to be

implemented before 2014, and distant reforms that will be addressed after 2014. The first issue

for The American College is whether or not their benefit plans will be grandfathered. Since the

college has changed its carrier to Aetna Insurance for the 2011 plan year, The American College

lost its grandfathered status. The American College must comply with all of the insurance

market reforms as they become effective. The University does not need to worry about

Temporary Reinsurance Program because it does not offer health insurance coverage to retirees

at any age. Effective in 2011, the tax treatment of reimbursements for over-the-counter (OTC)

drugs has changed. In addition, coverage for non-medical purposes under HSAs and form W-2

reporting for health benefits has changed. Beginning in 2011, OTC drugs have been excluded as

qualified medical expenses for HSAs, FSAs, and HRAs. These exclusions do not apply to

prescribed drugs or insulin. Fortunately, The American College does not impose lifetime or

annual limits on its essential health benefits, so this is not an issue that the College will have to

worry about phasing out. Also under PPACA, no insured group health plan may rescind

coverage of any individual once the individual has become a covered participant, unless there

was fraud or an intentional misrepresentation by the enrollee. Since The American College has

strict definitions of being a full-time employee, 30 or 37.5 hours per week, mistakenly

classifying an employee as full-time when they under full-time qualifications can be costly. If

the employee, who was erroneously classified as full-time, began receiving benefits, their health

coverage could not be rescinded for remainder of the plan year. Another regulation under the

health reform act restricts group health plans from dropping coverage for adult children,


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Works Cited

The American College. 1 Jan. 2011. Web. 27 Nov. 2011.

.

Jones, Mark C. "Health Care Reform Update: Changes Plan Sponsors Should Make This Year."

Client Alert. Pillsbury, 8 Sept. 2010. Web. 5 Dec. 2011.

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Tinnes, Christy. "Preparing for Health Care Reform A Chronological Guide for Employers."

Practical Law Company. 15 Oct. 2010. Web. 2 Dec. 2011.

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Thanks You LetterFrom:[email protected]

To: [email protected]

Amy and Jeff,

I wanted to take the time to thank you guys again for providing such helpful information andinsight into your employee benefits program. My partner and I learned a great deal from beingable to speak with you regarding so many of the topics that we have been learning aboutthroughout the semester. We will be submitting our paper today and are confident that we wereable to discuss a very in-depth look at the benefits offered by the College. Thank you for makingyourselves available to us on more than one occasion by phone and in person and for gathering

documentation and information for us when necessary. The discussion that we had regarding403(b) retirement plans was very beneficial to us and really helped to have a more detailedunderstanding of how these plans work. We will keep you posted with the results of our paperand will stay in contact in the future.

Thank you for all of your time and efforts,Nick Anastasi and Kevin Henry
mailto:[email protected]:[email protected]:[email protected]:[email protected]

kevin t henry - theamericancollege.fall2011

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