Severance Pay

Many employers provide severance pay, a one-time separation payment when terminating an
employee. Most managers expect employees to give them 1 or 2 weeks’ notice if they plan to
quit, so severance pay seems appropriate when dismissing an employee. If the employer obligates
itself to pay severance, then its «voluntary» plan must comply with additional ERISA rules.35 The
reason for the dismissal usually affects the severance pay. The maximum weeks of severance pay
tends to vary by position. In one survey about 45% of officers and senior executives got 52 weeks or
more, 42% of professionals got 14–26 weeks, and 39% of administrative staff got 14–26 weeks.

Supplemental Unemployment Benefits

In some industries such as automaking, shutdowns to reduce inventories or change machines are
common. Supplemental unemployment benefits are cash payments that supplement the employee’s
unemployment compensation, to help the person maintain his or her standard of living while out of
work. Most employers also provide various required or voluntary insurance benefits, such as
workers’ compensation and health insurance.

Workers’ Compensation

Workers’ compensation laws aim to provide sure, prompt income and medical benefits to
work-related accident victims or their dependents, regardless of fault. Every state has its
own workers’ compensation law and commission, and some run their own insurance
programs.

HOW BENEFITS ARE DETERMINED Workers’ compensation can be monetary or medical. In

the event of a worker’s death or disablement, the person’s dependents receive a cash
benefit based on prior earnings—usually one-half to two-thirds the worker’s average weekly
wage, per week of employment. In addition to these cash benefits, employers must furnish
medical, surgical, and hospital services as required for the employee. For workers’
compensation to cover an injury or work-related illness, one must only prove that it arose
while the worker was on the job. The company must still provide workers’ compensation
benefits. Americans with Disabilities Act provisions generally prohibit employers from
inquiring about an applicant’s workers’ compensation history.

CONTROLLING WORKERS’ COMPENSATION COSTS It is important to control workers’

compensation claims . The employer’s insurance company usually pays the claim, but the
employer’s premiums may rise with more claims. First, new employees are most at risk:
inexperienced workers have two to four times the loss costs, for instance.40 Competent
selection—background checks, testing, and drug testing—plus training are therefore
crucial.41 Also reduce accident-causing conditions, such as slippery floors or sloppy work
habits. Red flags include vague accident details, minor accidents resulting in major
injuries, lack of witnesses, injuries occurring late Friday, and late reporting.42 Case
management is popular for cost control.

Hospitalization, Health, and Disability Insurance

Health insurance looms large in many people’s choice of employer, because it’s so expensive. 45
Hospitalization, health, and disability insurance helps protect employees against hospitalization costs
and from the income loss arising from off-the-job accidents or illness. Many employers purchase
insurance from life insurance companies, casualty insurance companies, or Blue Cross and Blue
Shield organizations.
 COVERAGE Most employer health plans provide at least basic hospitalization and surgical
and medical insurance for all eligible employees at group rates. Some also provide «major
medical» coverage to meet the medical expenses resulting from serious illnesses. Most
employers’ health plans also cover health-related expenses like doctors’ visits, eye care, and
dental services. Disability insurance provides income protection for salary loss due to illness
or accident, and may continue until age 65 or beyond. Disability benefits usually range from
50% to 75% of the employee’s base pay if he or she is disabled.

HMOS Many employers offer membership in a health maintenance organization (HMO), a

medical organization consisting of specialists (surgeons, psychiatrists, and so on), often
operating out of a health-care center. HMOs provide routine medical services to employees
who pay a nominal fee.

PPOS Preferred provider organizations (PPOs) are a cross between HMOs and the traditional
doctor–patient arrangement: They are “groups of health-care providers that contract with
employers, insurance companies, or third-party payers to provide medical care services at a
reduced fee.

MENTAL HEALTH BENEFITS The World Health Organization estimated that more than 34
million people in the United States between the ages of 18 and 64 suffer from mental
illness.50 Mental illnesses represent about 24% of all reported disabilities, more than
disabling injuries, cardiovascular diseases, and cancer combined. For some reason
Millennials are more likely to report being depressed.51 Mental health costs are rising.
Reasons include widespread drug and alcohol problems, more states requiring employers to
offer minimum mental health benefits, and the fact that mental health claims tend to trigger
other health-care claims.

KNOW YOUR EMPLOYMENT LAW

Patient Protection and Affordable Care Act of 2010 and Other Laws

Under the Patient Protection and Affordable Care Act, employers with at least 50 full-time-
equivalent employees are to offer minimum levels of affordable health-care coverage or pay a
penalty of $167 per employee per month. Individual and group health plans that already provide
dependent coverage must expand eligibility up to age 26. Under the law, each state may run health
insurance exchanges—in effect, marketplaces for buying and selling insurance. «Obamacare» health-
care exchanges cover less than 10% of the health insurance market; employers’ programs cover
almost half the U.S. population. Because employers had to pay a 40% surcharge beginning in 2018
on health insurance plans exceeding $27,500 for a family , many employers are moving to reduce
their health-care benefits, for instance by increasing employee co-pays and deductibles. To avoid
penalties that could reach $2,000 per employee, some employers are directing employees who
qualify for Medicaid to sign up for it, instead of employer-supplied insurance. Some employers are
eliminating their health plans, or turning more full-time workers into part-timers working less than
30 hours per week.59 About 43% of employers surveyed say their workers will have to pay more for
their health-care plans.60 Others are reducing their coverage.

The Evolving Law

The Affordable Care Act did not please everyone, and many legislators in particular objected to it.
For example, some say it entangles the federal government excessively in citizen’s personal health
matters, and that it provides excessive monetary subsidies to support the act’s provisions. An early
proposal would have changed or eliminated many of the Affordable Care Act’s core provisions, by
allowing individual states to waive compliance with them.

COBRA

COBRA—the Consolidated Omnibus Budget Reconciliation Act—requires most private employers to

continue to make health benefits available to separated employees and their families for a time,
generally 18 months after separation.67 The former employee must pay for the coverage. The
employer does not want separated employees to leave and be injured, and then claim they were
never told they could have continued their insurance coverage. And all employees separated from
the company should sign a form acknowledging that they received and understand those rights.

Trends in Employer Health-Care Cost Control

It can cost a business with 50 employees $1 million or more for insurance coverage. The standard for
claims dollars paid in error was 1%; the actual percentage of claims dollars paid in error was 3.4%.
The bottom line is that auditing claims is essential. Beyond that, for many employers, deductibles
and co-pays are the low-hanging fruit in health-care cost control.

OTHER COST-CONTROL TOOLS Employers take other cost-control steps. For example, employees use
tax-sheltered health savings accounts to pay for «low dollar» medical expenses. About 19% of
employers surveyed had some form of health-care plan spousal exclusion policies, such as excluding
a spouse when similar coverage was available from the spouse’s employer. Some employers offer
defined contribution health insurance plans. That reduces their own administrative obligations while
offering retirees more choices for less money. The exchanges are run by companies that include
Mercer, and Aon Hewitt. Other employers hire «patient advocates,» such as nurses who review
employees’ medications and recommend reduced medication regimens. The U.S. Also, make sure
employees know the costs of their medical benefits.84 For example, periodically send a statement to
each employee listing the employer’s costs for each health benefit.