Welcome back. In this lesson we're talking about health insurance and pensions. And in this video we're giving an introduction on health insurance. Remember, health insurance along with other benefits and perks, is one element of our pay mix, along with base cash, short-term incentives and long-term incentives. So let's talk about the goals of health insurance. The first goal or the first set of goals is to achieve low cost, high quality coverage, and flexibility, for our employees. The second purpose is to promote our employees' health and well being, and a third purpose is also to achieve compliance and tax efficiency. And so, first of all there's attention when we're purchasing health insurance between cost and quality. So where as higher quality plans would tend to be more costly but also less intuitive. There's also a clash between cost and the flexibility of our health insurance options. That's because for those individuals who want to have more flexibility and who want to indeed purchase higher quality coverage, they would tend to be sicker, perhaps more likely to use that higher quality coverage. And so therefore the health insurers also charge those individuals who elect into that higher coverage a higher premium. And so for employers that usually boils down to two options. One is to provide extensive core coverage to all of their employees regardless of whether they elect in to it or they plan to use those options. The second option is to have a relatively small core set of health insurance and coverage. And then also to provide health insurance that gives some elective coverage. And then, once again, the core plus elective options, for those who choose to do that, would tend to be more expensive than they would be paying if the employer had purchased extensive core coverage for all of their employees. And so, just to give an introduction to health insurance, I want to talk about a few key terms. First are deductibles, and then those are the first few dollars paid by the claimant. Then, there's the co-insurance, which is the premium share paid by the employee, that's also split with the insurer. And then also, the cap. And so let's look at that graphically. And so if we look at the Patient Liability, that is how much the patient pays, on the y-axis, and the total cost on the x-axis, imagine that if the employer paying the full cost of their healthcare, and that would be represented by a line that It goes out at a 45 degree angle. And so for the first few dollars the employee would cover the full cost, that is up to the deductible. And then after that deductible has been met, you get to really the heart of the insurance which is the co-insurance, and so perhaps the employee might only pay 20% of all costs after the first $1000 deductible. And then at some point the employee will reach a cap at which point the employee will be liable for the full remainder. And for health insurance companies this helps them control costs because most of the costs of health insurance for them, it comes from the very most costly of their insurees, and by maintaining a cap, they argue that they are keeping health insurance costs low for everybody else as well. So a couple of more key terms, so a co-pay is a claimant's fixed payment for a fixed service. And so for example for looking at the cost of prescription medication then there might be a co-pay for generic medications that don't have patent protection. And in this case the insuree will pay a small fixed amount for less expensive medications. And then for the relatively expensive medications, there would tend to be a larger co-pay. These are especially expensive for the insurance companies and in part they serve as a small incentive for for employees and for the insured to shop for generic medications. And so research has shown that when employees have an option between different plans they tend to follow one of two criteria, they either choose the plans that are, have the lowest deductibles, or they have the lowest premium and there's not so much shopping or adaptation to whatever their particular circumstances may be. So there are four general types of health insurance options, ranging from those that offer the lowest deductibles, the highest premiums, and relatively less flexibility, versus those that tend to have higher deductibles but then they also have lower premiums and offer their employees more flexibility. So let's start from the top. So, HMOs stand for Health Maintenance Organizations/ Health maintenance organisations are managed care organisations such as groups of hospitals or clinics, or physicians that group together and provide health insurance on a prepaid basis. HMOs then have incentives to promote health in order to control cost. The second option is HMO/PPO Mix. And sometimes are referred to as a point-of-service plan. And these plans give employees the option to participate in HMO or a PPO. PPOs and EPOs those stand for {referred Provider Organizations or Exclusive Provider Organizations. There are managed care organizations that negotiate with insurers and they'd be to provide health services at reduced rates. And these out-of-network providers may also require referrals or they may be more expensive. Lastly there is high deductible health plans. High deductible health plans have higher deductibles. That means employees pay more out of pocket out the gate. Before co-insurance kicks in and this gives patients incentives to control costs or the downside is that it essentially gives them incentives to skimp on preventative care. These plans also allow employees to be eligible for a health savings account, in which they contribute their earnings on a pre-tax basis. Another trend in health insurance is for employers to offer wellness programs. So why do they do this? For the employees, they allow the participants to earn discounts on health insurance or other incentives. Those other incentives could include gym memberships, or cash awards, or outings, or whatever. And so employees can elect to do that. For employers they're also good because they reduce health insurance costs as health insurers give those companies a break on their premium. And the reason is because of programs such as healthy living programs, healthy cooking programs, or smoking cessation programs, these reduce costs for the insurers, and those insurers can pass some of those costs onto their employers. For employers, again, wellness programs also promote an engaged and healthy workforce. The next step, we'll talk about the Affordable Care Act. Thanks and I'll see you next time.
