Benefits Analysis Parts 1&2

908526076 and 913130913

RMI 3501 Fall 2011

12/5/2011

Table of Contents Benefits matrix - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 Overview of Benefits - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2-3 Medical Benefits HMO- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3-4 PPO- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4-5 POS- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5-6 Dental- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 7 Vision- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 8 Prescription drugs- - - - - - - - - - - - - - - - - - - - - - - - - - 8-9 Health savings accounts- - - - - - - - - - - - - - - - - - - - - -9-10 Loss of Income Due to Death Life Insurance- - - - - - - - - - - - - - - - - - - - - - - - - - - - - 10-11 Loss of Income Due to Disability Short Term Disability- - - - - - - - - - - - - - - - - - - - - - - -11 Long Term Disability- - - - - - - - - - - - - - - - - - - - - - - --12 Loss of Income Due to Retirement Retirement- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 12-13 Other Exposures-Work/Life EAPS- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 13 Paid Holidays, Vacation, and Personal Time Off- - - - - - - - - - - - - - - - - - - - - - - - - -14

Exposure Analysis for Schiller Grounds Care, Inc. Loss Exposure Medical Expenses Hospital/Physician Provided? Coverage/ Benefits Provided

Yes

Dental Vision Prescription Long Term Care Retiree Health Care Loss of Income Due to Death Non-Accidental, NonOccupational Death Accidental Death

Yes Yes Yes No Yes Yes Yes

AETNA or Dean: HMO, Base Choice POS, Buy-Up Choice POS, Base PPO, Buy-Up PPO Eflexgroup: Health Savings Accounts; Health Reimbursement Account (HRA), Flexible Spending Account (FSA) Guardian: Base Plan, Buy-Up Plan; HRA, FSA EyeMed, HRA, FSA, POS, Buy-Up POS, PPO, Buy-Up PPO AETNA: HMO, POS, Buy-Up POS; Express Scripts; Dean: HMO, Base POS/PPO, Buy-Up POS/PPO; FSA Medicare, COBRA Reliance Standard: Group Basic Life Insurance, Supplemental Life Insurance; 401(k) Plan, OASDI Group Basic Life Insurance, Supplemental Life Insurance, Basic AD&D Insurance, Voluntary AD&D, 401(k) Plan, OASDI Group Basic Life Insurance, Supplemental Life Insurance, Workers Compensation 401(k) Plan, OASDI Unemployment Insurance through the states of Pennsylvania, Wisconsin, and Nebraska Guardian: STD; OASDI, Basic AD&D Insurance, Voluntary AD&D, Paid Time Off Reliance: Voluntary Group LTD Insurance, OASDI, Basic AD&D Insurance, Voluntary AD&D STD; OASDI, Basic AD&D Insurance, Voluntary AD&D, Workers Compensation Voluntary Group LTD Insurance, OASDI, Basic AD&D Insurance, Voluntary AD&D, Workers Compensation

Occupational Death

Yes

Loss of Income Due to Unemployment Unemployment Yes Loss of Income Due to Disability Non-Occupational Disability Short Term Non-Occupational Disability Long Term Occupational Disability Short Term Occupational Disability Long Term

Yes Yes Yes Yes

Loss of Income Due to Retirement Retirement Yes Other Loss Exposures Educational Assistance No Work/Life Exposures Yes

401(k) Plan, OASDI

Dependent Care Property-Liability Legal Expenses

Yes No No

Employee Assistance Programs (Eaps), 11 Paid Holidays, Family Leave, Paid Vacation, Basic Group Life Insurance, Basic AD&D Insurance, STD Insurance Dependent Care FSA

Overview of Schiller Grounds Care, Inc. Benefit Plans: Schiller Grounds Care, Inc. is headquartered in Southampton, Pennsylvania with branches located in the states of Wisconsin and Nebraska. The company currently has 675 employees, of which 560 including employee dependents are enrolled in one or more benefit plan. With the guidance of Kistler Tiffany Benefits consulting firm, Schiller Grounds Care provides eligible employees and their eligible dependents with medical, dental, vision, prescription, life insurance, long-term disability, and accidental death and dismemberment insurance benefits, as well as dependent flexible spending and medical flexible spending arrangements. These benefit plans are funded through employee and employer contributions to the purchase of insurance contracts and through the general assets of Schiller Grounds Care. Meanwhile, the dependent and medical flexible spending arrangements are funded through employee contributions. In addition to these benefit programs, Schiller Grounds Care self-funds to provide eligible employees with non-contributory short-term disability insurance and Employee Assistance Programs (Eaps). The company also provides and assists eligible employees fund 401(k) plans. Documents, such as insurance contracts and schedules of benefits, describing the benefit programs determine the eligibility of employees and their dependents to participate. Under the current benefit plans, an eligible employee will become a participant on the first day of the month following the eligible employees date of hire, given that completed enrollment forms are received by the Administrator within 31 days of the date of hire. If enrollment forms are not completed and received within the 31 days after the date of hire, eligible employees must wait until the next open enrollment period to enroll for medical, prescription drug, vision, and dental

coverage. Eligible employees may enroll for short-term disability coverage 90 days after the date of hire, while enrollment for 401(k) plans is allowed on the first day of the month after 90 days of the date of hire. While providing competitive benefit programs to attract and retain capable employees, Schiller Grounds Care may, at its discretion, also pay a cash bonus to certain eligible employees who choose to entirely forgo medical benefit coverage. Terms and conditions of bonus payments will be communicated by the Administrator prior to the election period, should a bonus be made available in any year. Of the 560 employees and dependents enrolled in one or more of the benefit programs, 125 employees, including their dependents, are part of the United Steel Workers Union in Pennsylvania. Schiller Grounds Care works also with the union to offer similar benefit plans, to those offered to non-union eligible employees and dependents, to the eligible union employees and their eligible dependents. Medical Expenses: Health Maintenance Organization (HMO) Schiller Grounds Care employs union and non-union workers in the states of Pennsylvania, Wisconsin, and Nebraska. To provide medical coverage for all employees, Schiller Grounds Care offers three HMO plans. One HMO plan is exclusively for non-union employees (employees not in manufacturing). This plan is voluntary and fully insured through Aetna Health Inc. which has an AM Best rating of A. In the state of Pennsylvania, all employees who are full-time, part-time, and managers, along with their dependents, are eligible for this plan on a contributory basis. Eligible dependents are considered spouses (only if not covered by another employer plan), domestic partner, unmarried children up to age 19,

unmarried children up to age 26 who are current full-time students, and unmarried disabled children after age 19. Payments of premium are made on a bi-weekly basis by the employer through a wage deduction. Schiller Grounds Care offers a second HMO plan through Aetna health Inc. for employees who are union workers in the state of Pennsylvania (United Steel workers Union). Aetna Health, Inc. has received an A rating from AM Best for financial strength. This plan is voluntary and fully insured. In Pennsylvania all employees who are full-time, part-time, and managers, along with their dependents are eligible for the plan on a contributory basis. Eligible dependents are considered spouses (only if not covered by another employer plan), domestic partner, unmarried children up to age 19, unmarried children up to age 26 who are current fulltime students, and unmarried disabled children after age 19. A third HMO plan offered by Schiller Grounds Care for employees in the state of Wisconsin is available through Dean Health Insurance, Inc. Dean has not received a rating from AM Best (listed as N/A). The plan is available to all workers on a contributory basis. Eligible participants include full-time and part-time employees, managers, and dependents. Eligible dependents are considered spouses (only if not covered by another employer plan), domestic partner, unmarried children up to age 19, unmarried children up to age 26 who are current fulltime students, and unmarried disabled children after age 19. Preferred Provider Organization (PPO) Schiller Grounds Care offers two fully insured PPO plans through Aetna Health, Inc. to eligible non-union employees and their dependents in the state of Pennsylvania. Eligible dependents are considered spouses (only if not covered by another employer plan), domestic

partner, unmarried children up to age 19, unmarried children up to age 25 who are current fulltime students, and unmarried disabled children after age 19. Both of these plans are fully insured. Aetna Health Inc. has an A rating from AM Best. Through Aetna there are two PPO plans, a Base PPO Plan, and a Buy-UP PPO plan. Both plans are offered on a voluntary basis and are fully insured. For both plans there is a bi-weekly premium payment. The Aetna Base PPO Plan has a preferred care $200 deductible for individuals and $400 family deductible, for non-preferred care the deductible is $500 for individuals and $1500 for family. The PPO Buy Up is similar in its coverage but has no deductible for Individual and family when using preferred care. When using non-preferred care the PPO has an individual deductible of $500 and a family deductible of $1500. For employees in Wisconsin, two PPO plans are available through Dean Health Plan. The plan is offered on a voluntary basis and is fully insured. AM Best has not rated Dean Health Inc. (Listed as N/A). The plan is available to eligible employees and their dependents on a contributory basis. Eligible employees include full-time and part-time employees, managers, and their dependents. Eligible dependents are considered spouses (only if not covered by another employer plan), domestic partner, unmarried children up to age 19, unmarried children up to age 26 who are current full-time students, and unmarried disabled children after age 19. The PPO base plan features a $200 member deductible and $400 Family deductible for in-network providers and a 0% coinsurance. The copay for this plan is $20. The PPO Buy Up plan has no deductible and 0% Coinsurance for in-network providers. For out of network coverage there is a $500 dollar member deductible and a $1500 dollar family deductible. There

is a 30% coinsurance after the deductible and out of pocket maximums are $300 for a member and $500 for family. Point-Of-Service (POS ) Plan There are two POS plans that are offered to non-union employees of Schiller Grounds Care through Aetna Health Inc. Both plans are contributory, fully insured, and on a voluntary basis. Aetna Health Inc. has received an AM Best rating of A for financial strength. The two POS plans are offered to Schiller eligible employees in Pennsylvania who are non-union fulltime, part-time, managers, and their dependents. Eligible dependents are considered spouses (only if not covered by another employer plan), domestic partner, unmarried children up to age 19, unmarried children up to age 26 who are current full-time students, and unmarried disabled children after age 19. Premiums are paid on a bi-weekly basis. The Base Choice POS Plan uses a calendar year deductible. When using participating providers there is a $200 individual deductible and a $400 family deductible. For use of nonparticipating providers there is a deductible amount of $500 for an individual and $1,500 for a family. The out- of- pocket maximum for going through a participating provider is $1,500 for an individual and $3,000 for a family. For non-participating providers, there is a deductible of $500 for an individual and $1,500 for a family. Both participating and non-participating physicians have no lifetime maximum. The Buy Up Choice POS Plan uses a calendar year deductible. When using participating providers there is no individual or family deductible to be satisfied. If non-participating providers are used, there is a $500 individual and $1,500 family deductible. The out of- pocket maximums for participating providers is $1,500 for individual and $3,000 for family. Non-

participating providers have an out-of-pocket maximum of $3,000 for individual and $9,000 for family. For employees in Nebraska, the only medical plan available is a POS Base Plan through Dean Health insurance, Inc. Dean does not have an AM Best rating (listed N/A). All Schiller Grounds Care employees who are full-time, part-time, managers, and their dependents (as defined above) are eligible for this plan on a contributory basis. Eligible dependents are considered spouses (only if not covered by another employer plan), domestic partner, unmarried children up to age 19, unmarried children up to age 26 who are current full-time students, and unmarried disabled children after age 19. Payments of premium are made on a bi-weekly basis by the employer through a wage deduction.

Dental Benefits Schiller Grounds Care offers its employees several choices of dental benefits on a voluntary and fully contributory basis. For union and non-union employees, there are different plans available. For non-union employees in the states of Pennsylvania, Nebraska, and Wisconsin, there are two levels of dental benefits available through Guardian. Guardian has received an AM best rating of A++. These benefits are available to all eligible employees in the state of Pennsylvania who are full-time, part-time, managers, and their dependents as defined above, are eligible for this plan on a contributory basis. Payments of premium are made on a biweekly basis by the employer through a wage deduction. Guardian offers two options: low plan option (option 1) and high plan option (option 2). These plans are the same in regards to their deductibles and have the same coinsurance

percentages for preventative care, basic care, and major care. The low plan option and high plan option differ in the Annual Maximum Benefit. The low option for in network care is $1,500 and the High option is $2,000. The out of network maximum benefit is the same for both plans. For the low option plan and high option plan insurance will pay 100% in network and 90% out of network for preventative care. For option 1, the plan pays 80% in network and 70% out of network basic care. Alternatively, option 2 pays 100% for in network and 70% for out of network basic care. The major care option 1 pays 50% in network and 40% for out of network major care. Option 2 pays 60% in network and 40% out of network for major care. For Orthodontia, option 1 and 2 both pay 50% for both in network care and out of network care. Schiller Grounds Care uses Aetna Health Inc. for dental care for those employees who are union workers in the state of Pennsylvania. The plan is voluntary, provided on a fully contributory basis, and is fully insured through Aetna Health Inc. This plan is a single low option health plan available to all employed union workers and their dependents as defined above. Vision Plan Schiller offers vision care benefits to its employees, who are non-union workers in the states of Pennsylvania, Wisconsin, and Nebraska; full-time and part-time employees, managers, and their dependents are eligible for this plan on a voluntary and fully contributory basis. This plan is fully insured through EyeMed. Prescription All Schiller Grounds Care employees enrolled in any medical plan offered can get prescription drug coverage through Express Scripts RX. Both Aetna and Deans health plans

exclude prescription drugs (on an outpatient basis from their plans) so employees can choose a vision plan from Express Scripts on a voluntary and fully contributory basis. This allows employees to use in net-work pharmacies, out of network pharmacies, and mail order services for their prescription needs. The dispensing limits are 30 days for retail and 90 days for mail order. There are three different plans for prescription drugs which are offered to Schiller Grounds Care employees through Express Scripts based on the employees type of medical coverage. All three plans have the same coverage and exclusions but differ in copay amounts. For employees with Aetnas HMO (non-Union), Base Choice POS, and Dean Base POS and PPO, there is one prescription drug plan. There is coverage for generic drugs ($15 copay), formulary drugs ($35 copay), non-formulary drugs ($50 copay) and mail order drugs (2x the retail copay). Employees who have Buy Up and POS coverage through Dean have a plan through Express scripts that have retail copays for generic drugs ($10), formulary drugs ($20), nonformulary drugs ($40) and mail order drugs (2x the retail copay). For employees who have medical coverage through Aetna HMO (SGC Union) and Aetna Buy Up POS, the prescription drug package retail copays for generic drugs are $10, formulary drugs-$20, non-formulary drugs- $35, and mail order drugs- 2x the retail copay. Health Savings Accounts Schiller grounds care offers Health Savings Accounts to employees that have medical benefits through either Aetna Health Inc. or Dean Health. Employees who are full-time, parttime, managers, and their dependents (as defined above) can utilize a Health Savings Account. Schiller offers two different HSAs that an employee can use for health expenses. There is a

Health Reimbursement Account (HRA) which is non-voluntary and the employer contributes funds based on salary. All employees who have medical plans are automatically enrolled in this program by the employer. The IRS requires that an HRA be funded solely by the employer. Employees will then be reimbursed tax free for qualified medical expenses (Copayments, coinsurance, deductibles, and services). Schiller Grounds care uses a third party administrator called Eflex to administer this account. Employees can also make use of a Flexible Spending Account (FSA). These accounts are offered on a voluntary basis and are fully contributory. This FSA pays for out-of-pocket medical expenses incurred during the plan year. Medical expenses covered under this plan can include insurance copays, deductibles, prescription drugs, eye glasses, podiatry services, and dental services. Dependent care can also be covered under an FSA offered to the employees by Schiller Ground Care. It can be used to pay for dependent child care (up to 13 years of age) and elderly dependent care (those who live in the employees home) as well. This plan is administered by Eflex and participants are given a debit card to use for all above mentioned qualified expenses. Since FSA funds are not usable at the end of the plan year, Schiller Grounds Care does grant an extension for two months to allow employees extra time use any excess funds in the account before they are lost. The maximum on the companys FSA fund is $2,500 dollars. Loss Of Income Due to Death: Life Insurance Schiller Grounds Care offers three options to its non-union employees for loss of income due to non-accidental/non-occupational death, accidental death, and occupational death. All

options are fully insured through Reliance Standard Life Insurance Company. Am Best has given Reliance Standard Life Insurance an A (excellent) rating for financial strength. Group basic life and accidental death and dismemberment (AD&D) is non-voluntary and provided to eligible employees on a non-contributory basis. Eligible employees are considered active, full-time, non- union employees working 30 or more hours a week. This benefit is equal to two times the employee earnings, rounded to the next highest $1,000 subject to a maximum of $150,000. Voluntary group accidental death and dismemberment insurance is available to Schiller Grounds Care employees and their dependents (as defined above) as well on a voluntary employee pay all basis, through reliance Standard Insurance Company. An employee is eligible for this benefit by being active, full-time, non-union, and working 30 hours or more per week. The employee chooses from a minimum of $25,000 to a maximum of $250,000 in increments of $10,000. Spouse and children coverage is available in four options: spouse only (50% of the employee amount), spouse with children (40% of the employee amount), children with spouse (10% of the employee amount), and children with no spouse (15% of the employee amount). Schiller Grounds Care also offers employees a plan for group voluntary and dependent life insurance. This is a voluntary plan and is on a fully contributory basis. The plan is offered through Reliance Standard Life Insurance Company to cover employees and eligible dependents (as defined above). To meet eligibility requirements, an employee must be active, full-time, nonunion, and work 30 hours or more per week. Coverage for voluntary life is one-half, one, two, or three times earnings rounded to the next highest $1,000, subject to a maximum of $250,000.

Coverage for a dependent spouse has a minimum of $10,000 and a maximum of $250,000, and can be purchased by the employee in $10,000 increments. For union employees, there is one plan that covers loss of income due to nonaccidental/non-occupational death, accidental death, and occupational death. This plan is offered on a non-voluntary, non-contributory basis, and is fully insured through Reliance Standard Life Insurance Company. Active, full-time, Schiller grounds Care union employees who work thirty hours or more are eligible. No dependent coverage is available through this policy. The benefit amount is $20,000. Loss of Income Due to Disability: Short Term Short term disability is available to all employees who are full-time, part-time, managers, and temporary employees who have worked for the company for more than ninety days. This plan is self- funded through a General Asset Plan by Schiller Grounds Care and is administered through Guardian Life Insurance Company of America acting as an ASO contract. Guardian has received an AM best rating of A++ for financial strength. Employees who meet Schiller Grounds Cares requirements for STD get two thirds of the weekly income for up to six months. Employees must provide a note from a doctor as proof that they cannot perform job functions. Long Term Disability Schiller Grounds Care offers LTD insurance to employees in case of long term injury or sickness from a covered injury or sickness. This coverage is voluntary and provided on a fully contributory basis and is provided by Reliance Standard Life Insurance. Am Best has given

Reliance Standard Insurance an A (excellent rating) for financial strength. These contributions are made on a post-tax basis. Eligible employees include active, full-time, non-Union employees who work thirty hours or more per week. The elimination period of this coverage is 180 days of total consecutive disability. The benefits will not extend beyond the longer of either: Social Security normal retirement age or duration of benefits listed in the contract. Retirement Benefits: Schiller Grounds Care offers two 401(k) plans to meet employees retirement income needs: the first plan (Plan 1) is a voluntary plan for non-union eligible employees and the second plan (Plan 2) is a non-voluntary plan for eligible employees in the United Steel Workers Union. Schiller Grounds Care defines an eligible employee as one who is either actively employed full-time, part-time, or a manger. Eligibility for either plan is also decided by a workers participation in the union. The 401(k) plans are administered by Fidelity Investments. The 401(k) Plan 1 is voluntary and Schiller Grounds Care will match an eligible employees first pre-tax contribution to the plan 100 percent. For every pre-tax contribution to the plan thereafter, Schiller Grounds Care will match it by three percent. Plan 1 is a safe harbor 401(k) plan and therefore provide for employer contributions that are fully vested when made. However, employee contributions are subject to the limit established by the IRS. For 2011, the IRS has established a contribution limit of $16,500. The established IRS limit incorporates pretax contributions and 401(k) Plan 1 employer matches. According to the IRS, Catch-Up contributions permit plan participants, who are 50 years of age or older, at the end of the calendar year to make additional elective deferral contribution. For 2011, the IRS has established a contribution limit of $5,500. However, while Catch-Up contribution limits are added to the limit of $16,500, Schiller Grounds Care is not

required to and will not match the Catch-Up contributions. At the time of distribution, pretax contributions will be subject to income tax. The 401(k) Plan 2 is non-voluntary per the United Steel Workers Union contract with union employees. Regardless of contributions made by the union employees, Schiller Grounds Care will contribute 55 cents per hour of labor to each union workers 401(k). This plan is still considered a safe harbor 401(k) plan and therefore is subject to the IRS limitations and vesting requirements mentioned previously. Other Exposures-Work/Life: Employee Assistance Programs (Eaps) Schiller Grounds Care offers an Employee Assistance Program called Health advocate on a non-contributory basis through Reliance Standard Life Insurance Company. Reliance Standard life Insurance has a rating of A for financial strength by AM Best. Eligible employees include full-time, part-time, and managers who are immediately eligible for counseling for many issues that could negatively affect the quality of the employees work if left unmanaged. These work/life benefits include counseling for emotional issues (usually related to marital or family problems), legal counseling (debt related, divorce), and financial planning advice can be offered as well. A benefit hotline is also part of this package so that if employees are confused or have questions they can be addressed without putting a heavier burden on human resource department.

Paid Holiday, Vacation, and Personal Time Off

In response to employee work/life exposures, Schiller Grounds Care provides non-union, active full-time employees, part-time employees, and managers with 11 paid holidays within a calendar year. Of the 11 paid holidays, 6 are fixed holidays while 5 are float holidays. Float holidays are assigned as seen fit by Schiller Grounds Care and are provided to maximize an employees time spent with family. Non-union, active full-time employees, part-time employees, and managers also receive paid vacation and personal time for up to three weeks. After five years of active employment, eligible employees receive three weeks of paid vacation and one week of personal time off. After eight years of active employment, eligible employees receive four weeks of paid vacation and one week or personal time off. Schiller Grounds Care also provides eligible union employees per United Steel Workers Union contract with 13 paid holidays and one personal day per year. Union employees must be actively employed for a full calendar year or must complete 1,200 hours of service before they can receive one week paid vacation time. After three years of active employment, eligible union employees receive two weeks of paid vacation time, and after nine years, they receive three weeks. Once an eligible employee completes 18 years of active employment, the employee receives four weeks of paid vacation time.

Basic Group Life Insurance, Basic AD&D Insurance, and STD Insurance also address employee work/life exposures as Schiller Grounds Care provides these benefits on a non-contributory basis.

Decision Making and Benefits Design Analysis: Part III

Brett Cole and Roxanna Abbasi
RMI 3501 Fall 2011

12/5/2011

Table of Contents
Introduction - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2 Overall Design Considerations in Employee Benefits Plan Objectives- - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2-3 Funding Considerations - - - - - - - - - - - - - - - - - - - - - - 3-4 Demographics- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4 Problems, Issues, Concerns, and Considerations in the Design of Health Benefits Nebraska and Wisconsin Plan Design- - - - - - - - - - - - -5-6 Cost Containment - - - - - - - - - - - - - - - - - - - - - - - - - - -6 Collectively Bargained Plans - - - - - - - - - - - - - - - - - - -6-7 Other Benefits Under Healthcare- - - - - - - - - - - - - - - 7 Problems, Issues, Concerns, and Considerations of Other Non-Retirement Benefits Employee Assistance Programs (Eaps) - - - - - - - - - - -7 Short Term Disability (STD) - - - - - - - - - - - - - - - - - - -7-8 Regulatory Compliance COBRA- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -8-9 ERISA- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -9-10 HIPAA- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 10 PPACA- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -10-11 Recommendations for the Future Recommendations for the Future - - - - - - - - - - - - - -11

Introduction Schiller Grounds Care (SGC), Inc. was established on January 1, 2009 by the merger of Schiller-Pfeiffer, Inc. and Commercial Grounds Care, Inc. This company specializes in the manufacturing of grounds keeping equipment for professionals and experienced do it yourself customers. SGC manufactures several popular brands of equipment such as Bobcat, Mantis, and Steiner. The company employs over 300 employees in three states: Pennsylvania, Nebraska, and Wisconsin. Many of the companys workers in Pennsylvania are members of a union (United Steel) who have a collectively bargained benefit plan, which is different from the benefit plans offered to its non-union employees. SGC offers benefits for its employees and employee dependents in all three states when they meet eligibility requirements. Nicole McMenamin is the sole HR manager for the Pennsylvania operation, and along with the CEO, she is the decision maker for all employee benefit plans offered by SGC (including those offered in Nebraska and Wisconsin). She is responsible for plan design, communication, administration, and compliance with state and federal regulations. Overall Design Considerations In Employee Benefits Plan Objectives The main objective of SGCs employee benefit plan is to attract and retain capable and skilled employees. This is essential to the company for several reasons. For this company, attracting skilled employees who are capable and practiced with manufacturing is a key factor. Many of these manufacturing employees are part of United Steel Workers Union, and therefore it is highly important to meet the needs of these union workers in order to ensure that they do not go on strike or leave their current position for other union employment opportunities. If the union

is not offered a benefits plan that is seen as attractive and comprehensive, then SGC would not be able to retain these workers or attract them in the first place. SGC is a mid-size company with 300 employees in its service, and retaining them is vital to the company. Each time a new employee is hired, the cost of hiring alone is on average $10,000 (this excludes the cost of training). Therefore, SGC needs to be competitive with its benefit plans because other competitors have realized this as well. Because the company is specifically competing for engineers in Wisconsin, and overall desires to remain competitive in the future, Nicole and the CEO are constantly exploring new ways and opportunities to compete with competitors in the industry to offer more appealing benefits to employees. In the past, Schiller Pfeiffer had experienced problems with the benefit plans it offered. Schiller- Pfeiffer and Commercial Grounds Care had offered different plans compared to what is offered now. Upper management became concerned given that the past plans were either too costly for the mid-size companies and or employee satisfaction was low (especially with employees in Nebraska). Upon the merger of the two companies, it was decided that brokers would be switched and other plan design options that are less costly to the company, but satisfactory to the employees, would be sought. Funding Considerations Due to the size of the company, SGC has decided to take a risk-averse attitude towards the funding of the benefit plans. Nicole and the CEO decided that the best option was to fullyinsure the plan. Although the company could potentially save money by not paying premiums every month, and instead only pay claims, it was decided that this option was too risky in the event of a catastrophic loss which could be detrimental to the company. Therefore, Nicole

decided it was best to fully insure as opposed to self-fund on almost all of the benefits (Short Term Disability is Self- Funded in the plan). SGC has decided to finance some of the benefits offered on a contributory basis. The highest cost item in the overall plan is healthcare. With healthcare costs rising, SGC decided that employees would be satisfied with sharing the cost (and getting underwriting free group insurance) and not having to pay the entire premium themselves. The company decided that paying the entire cost of basic life and basic AD&D would provide employees with coverage that they desired as well as receiving what they would perceive as free coverage. Other benefits (such as dental, vision, and prescription drugs) would be offered on a voluntary employee-payall basis. Many of these decisions are based on employee satisfaction surveys to determine wants and needs, and also are based on past experience with previous plans. Demographics Another consideration in the formation of the current plan is demographics among the different states in which the company has employees. The most significant considerations in terms of demographics are age, gender, marital status, and economic status. The employees of Pennsylvania have a larger percentage of older women who are married with children, as opposed to Nebraska employees of SGC who tend to be younger and have fewer dependents. The average age of employees in Pennsylvania is 42, while in Nebraska the average age is 29. Wisconsin is more of a middle ground; with a mix of younger and older employees who have varying numbers of dependents, and a mix of married and unmarried employees.

Problems, Issues, Concerns, and Considerations in the Design of Health Benefits Nebraska and Wisconsin Plan Design Due to SGC having diverse employees spread out among Pennsylvania, Nebraska, and Wisconsin, and having union and non-union employees, it is crucial for the medical plan to provide adequate coverage for this assorted set of needs. One issue that SGC has had in the past, which has been corrected under the new benefits plan, was that Nebraska employees were opting out of the plan in exchange for taxable dollars. This issue concerned SGC because the company wanted to receive favorable tax treatment by providing a cafeteria plan (section 125). If a significant percentage of employees opted out, the plan would not pass discrimination testing. However, Nebraska employees found the opt-out option more appealing for two distinct reasons: first, the average income of employees at SGC in Nebraska is lower than Pennsylvania and Wisconsin, and many were choosing the opt-out so they could have more daily spending money. Second, the companys employees in Nebraska are also younger and were being offered a healthcare benefit plan that was designed to meet the wants and needs of Pennsylvania SGC employees. Many of the Pennsylvania employees are older women who use more healthcare goods and services as well. The plan was experience rated, so the high utilization in Pennsylvania caused SGC to pass on the hefty cost to Nebraska employees. This caused a significant number of Nebraska employees to choose the opt-out option because they were younger, single, without dependents, and felt healthcare was not a necessity. The opt-out was (and still is) available to employees for an extra $60 ($100 if they have children). Given the situation in Nebraska, SGC no longer offers employees in Nebraska and Wisconsin the Aetna HMO, or Aetna PPO (both base and buy up options). Instead, Nicole and SGC decided that it would find another health insurance company to contract with. SGC decided

to contract with Dean in order to provide healthcare to employees in Nebraska. This new plan is less costly to the employees compared to the Aetna HMO (which is the cheapest of the options for employees in Pennsylvania). The Dean base plan PPO costs less (for employees without dependents) than all of the other healthcare options that the company offers through Aetna. This plan features the lowest employee cost that the company offers (37.87 wage reduction on a biweekly basis). For employees with dependents, costs increase substantially. However, compared with Aetna base PPO, the Dean PPO (which includes dependents) costs just over $80 dollars more. SCG feels that this doesnt bother many of the Nebraska employees since the majority, are younger and without spouse or dependents. Cost Containment SGC has utilized cost containment techniques to try to control how much the company will have to spend on healthcare benefits. SGC offers coverage for a spouse and dependents, but this is only if the spouse has to pay 100% of the healthcare premium. Nicole feels that this form of steerage keeps employees from wanting to cover their spouse under the health benefit plan, and makes the employee have their spouse seek coverage elsewhere. Collectively Bargained Plans Since SGC contracts with a union for production in the state of Pennsylvania, the company offers different medical coverage for those employees. This is a result of collective bargaining. The union employees use the same Aetna HMO as the non-union employees, although the union employees will pay 30% less for coverage (whether just the employee or spouse and children). Nicole says that the union is exceedingly happy with the plan. The rates the union pays keeps the employees involved satisfied. Nicole states that, primarily, union

workers are satisfied because many of them are from Central America and are saving to bring their families to the United States. Other Benefits Under Healthcare Health benefits such as dental, vision, and prescription drugs are offered to all eligible employees in the company on a voluntary and fully contributory basis. This gives the employees increased satisfaction from the opportunity to receive those benefits on a group basis which would be a discount from the full retail charge. Cost sharing techniques are used for dental on a tiered co-payment system (generic, formulary, and non-formulary) in order to control costs. Problems, Issues, Concerns, and Considerations of Other Non-Retirement Benefits Employee Assistance Programs (Eaps) As primarily a competitive strategy to attract and retain capable employees, SGC offers noncontributory employee assistance programs (Eaps). Nicole states that providing a health advocate hotline not only reduces the burden on her when it comes to addressing employee personal problems, but it also allows employees to have unlimited access to help and advice. Nicole believes that due to the availability of these assistance programs, in addition to other voluntary benefit programs, the employee turnover rate has remained extremely low. Overall, promoting Eaps has increased overall employee satisfaction based on satisfaction surveys received by Nicole. Although it cannot be actuarially proven, Nicole also believes implementing Eaps has acted as a pro-active cost containment strategy . Nicole states that when employees are sound of mind, they are often also sound in body, and thus, they are productive workers. Short Term Disability As another competitive method for attracting and retaining capable employees, SGC selffunds in order to provide employees with short-term disability coverage. However, because there

are often conflicts with either employees proving through a doctors notice that they are incapable of working, or employees abusing the six-month paid leave period, Nicole has stated that SGC is planning on implementing an employee paid-time off (PTO) schedule. In executing a PTO option, Nicole hopes to reduce employee moral hazard related to STD coverage. Regulatory Compliance COBRA While SCG out-sources its COBRA compliance to AETNA, Nicole also takes partial responsibility for ensuring that SGC is complying with COBRA. The company is therefore at risk for assuming significant fines should it fail to cover coverage gaps for its employees, or previously-employed workers, who are temporary uninsured. However, Nicole insists that compliance with COBRA does not pose as a challenge because SGCs computer system is programmed to track, and send notification in the event that an employee becomes eligible to receive continuation coverage under COBRA. SGCs computers are programmed to disallow further proceeding until Nicole makes the necessary changes or additions, based on COBRA provisions, within the system. While the computer system is programmed to automatically notify AETNA once it is verified by Nicole that the employee is eligible for continued coverage, Nicoles primary concern is with the occurrence of qualifying events that may not be tracked by the computer system. A large percentage of Pennsylvania non-union employees are foreign, nonEnglish speaking individuals, or individuals with basic English skills and limited understanding, who are not familiar with their rights to continuation coverage under COBRA. Although under COBRA it is the employees responsibility to notify Nicole or the HR department if their eligibility for coverage becomes suspended or terminated, due to events that the computer or Nicole cannot be reasonably aware of (i.e. a dependent losing full-time student status), Nicole is

worried that this may pose as an employee dissatisfaction issue, and possibly, liability claims issue under ERISA. ERISA Under ERISA, SGC must comply with the plan communication requirements, discrimination testing requirements, and employer fiduciary responsibility. As mentioned previously, in Pennsylvania, many of the workers who are not a part of the union are foreign, non-English speaking individuals, or have limited English literacy knowledge. Therefore, Nicole takes sole initiative to ensure that these employees are provided with paper pamphlets that describe appropriate benefits, and SPDs, that are translated to Spanish. Nicole also makes herself available to all employees English speakers and non-English speakers to answer employee concerns and questions throughout the calendar year. During open enrollment, Nicole is also available to answer all employee questions, but because of the large number of employees, SGC also holds multiple face-to-face information sessions of which no more than 10 employees may sign up for per session. This way, Nicole states, every employee has the opportunity to have his or her needs addressed on a personal level. Because employees of SGC are located in three different states, different benefit plans are offered according to the geographic location and therefore are not discriminatory. Also, SGCs menu of benefit plans, including its HSAs and 401(k) plans, have passed all discrimination testing and therefore do not discriminate in favor of SGCs highly compensated employees. SGC adheres to their fiduciary responsibility by providing various choices among health care plans for its non-union employees. SGC not only offers an HMO on a contributory basis, but also two PPOs and two POS-type plans. By offering these, SGC is giving eligible employees the option of paying a lower premium and remaining within a strict network of providers, or

paying a higher premium to access out-of-network providers. SGC also fulfills its fiduciary responsibility by providing its employees with monetary compensation should they choose to opt-out of a health care plan. This is noteworthy because a large percentage of SGC employees, especially those who are foreign, prefer the monetary compensation to health benefits. HIPAA Because SGC has a fully-insured group health plans through AETNA(and Dean in Nebraska and Wisconsin), SGC only has access to enrollment data and summary health information. Therefore, they have limited compliance and administrative obligations under HIPAAs Privacy Rule. Because Nicole is solely responsible for enrolling eligible employees by converting the completed paper enrollment forms into the computer database, she assumes responsibility of safe-guarding these enrollment forms. While SGC offers employee assistance programs (Eaps), it does not offer financial incentives to employees to participate. Therefore, SGC is not required to have its wellness programs qualified under HIPAA. PPACA Although Nicole insists that compliance with health reform will not consume a large portion of her time due to the fact that changes will be implemented in the companys computer system, and then distributed to employees during the next enrollment period or calendar year, there are several changes under PPACA that are imminent for Nicole to take note of that began in the year 2011. Under PPACA, all plans that cover dependent children are required to extend coverage to the age of 26 and dependents do not have to have student status. Currently, Nicoles summary plan description maintains that dependent children are eligible for coverage up until the

age of 25 and have full-time student status. Also, SGC offers two HSA accounts which are subject to an excise tax increase of 10% to 20% on non-medical distributions. Nicole also states that she has received numerous employee complaints due to PPACAs provision that prohibits the use of the companys FSAs and HRAs to pay for over-the-counter drugs. Employees have reported feeling highly inconvenienced as they are forced to make doctor visitations to obtain prescriptions in order to be reimbursed for over-the-counter drugs. Nicole worries that this has highly decreased employee satisfaction. Recommendations for the Future It is suggested that, in the future, SGC replace their PPO plans with a high deductible, Consumer Driven Health Plan (CDHP), combined with a Health Savings Account (they already offer a Health Reimbursement Account). This will save on costs and be a better option for the company as far as containing healthcare costs. This will ensure that the employees act as traditional consumers of healthcare goods and services, and will encourage them to question price, quality of care, and necessity. An issue of concern will be the communication of this plan to the employees. Employees will need to be informed about how the plan works and what the HSA will cover. The HSA may be appealing to employees since it can be rolled over from year to year, and is portable from employer to employer. The HSA will also appeal to the company because it is funded by the employees, unlike the HRA which is funded by the employer. It is also prudent employees are informed that under PPACA, preventive care will be paid in full. However, if SGC does not communicate the plan properly, enrollment may be low.

December 8, 2011 Nicole McMenamin, SPHR Human Resource Generalist 1028 Street Road South Hampton, PA 18966 Dear Nicole, Brett and I are writing to thank you for your time, patience, and enthusiasm in helping us complete our benefit analysis project. Your willingness to provide us with plan descriptions and insight into your decision-making process, granted us a deeper understanding of benefit plan design mechanics. With your support and experience, we managed to apply our classroom knowledge to produce a thorough and timely analysis of Schiller Grounds Care, Inc. We would also like to thank you for going out of your way and allowing us to meet with you at your home last Thursday evening. Your passion for your work, and your eagerness to share your knowledge, greatly motivated us throughout the completion of our project. It was a pleasure meeting you, and we cannot stress how grateful we are for all of your help. Once more, thank you for your time and interest. We look forward to speaking with you again. Sincerely,

Roxanna Abbasi Risk Management and Insurance Major Temple University roxanna.abbasi@temple.edu (215) 764 - 0659 Brett Cole Risk Management and Insurance Major Temple University brett.cole@temple.edu (267) 879 - 2962