Development of Post.pptVIP

Lecture 13Medical Benefits:Plan Provisions and Post-Retirement Benefits Eligibility Post Retirement Benefits Coordination of Benefits Termination of Coverage Health Insurance Portability and Accountability Act Eligibility Employees Probationary period Full time Not actively at work Dependents Age of children Omnibus Budget Reconciliation Act of 1993 Adopted children Medical support orders Pressure on states to enact laws Portability Limitations on preexisting conditions Creditable coverage Domestic partners Development of Postretirement Medical Benefits First offered in the 1940s by insurance companies for their employees Became more widespread in the 1960s Generally cheap compared to pension benefits “Pay as you go” accounting Cost became a concern in the ‘70s and ‘80s Medical costs increasing greater than inflation Decline in average retirement age Amount paid by Medicare decreased Range of benefits provided has expanded Financial Accounting Statement 106 FAS 106 “Employers Accounting for Postretirement Benefits Other Than Pensions” issued in 1990 Previously, paid expenses as incurred Now,“pay” for them over working lifetime Some companies had a very large one-time charge when statement was issued Charge in annual financial statements for both current and future retirees Impact of FAS 106 on Postretirement Medical Plans Liabilities often higher than pension liabilities Most plans are not prefunded Rising medical costs and implications of FAS 106 has caused many employers to take steps to limit their financial obligations Eliminate and/or change plans Shift costs to employees Legal issues Postretirement Medical Plan Design Who will be eligible for coverage? Anyone who retires Service requirements What coverage and benefits will they receive? Indemnity plan, HMO, PPO, POS Defined benefit or defined contribution approach Prescription drug coverage Medicare Part B Dependants Postretirement Medical Plan Design - cont. How much will the plan cost, and who will