Management 474 Final Exam; Spring 2015

Directions:      Please respond to each question.  You answers must be typed; Times New Roman; 12 point font size; 1.5 inch spacing.  Please understand that I will be grading for content, but also for how well you support, explain and justify your answers.

A.        Employees Are Paying Increasingly Larger Shares Of Their Health Care Benefit Costs

Employees covered by employer sponsored health care plans in 2008 are paying over 119% more out of their own pockets than they did nine years ago.  The cost of employee health care is a high priority issue in labor negotiations.  The automobile industry, which has an aging workforce, already pays $9,000 per year, per employee, for health insurance, about 50% more than the rest of corporate America.  In addition, companies in the manufacturing sector, such as the automotive and steel industries, that have made promises to give health benefits to retired workers are increasingly finding retiree health benefits to be a huge cash drain that negatively affects performance.

Employee’s monthly contributions to health insurance premiums for family coverage in 2008 averaged $279.  The average monthly contribution for single coverage was $60.  On an annual basis, average family and single coverage cost $3,354 and $721 respectively.  Health care economists say that rising costs reflect advances in drug and health care technology and a loosening of managed care cost restraints that were in force in the 1990’s.  Although employers are still paying most of employee’s health care costs, currently about 75%, most employers are in the process of shifting more costs to workers, in the hopes of lowering expenses by discouraging heavy use of doctors, hospitals, and prescription drugs.  The following are some ways that companies are attempting to reduce health care costs:

·         Medtronic, a medical device manufacturer, is paying up to $2,000 per worker into a personal care account.  Employees can spend the money as they choose, as long as it is on health care.  The hope is that better information and greater personal responsibility will lead to better choices.

·         Ford gives bonuses to doctors who achieve treatment goals and rewards employees who agree to monitor health indicators such as blood glucose levels.  It also tracks information on the quality of care given at 1,000 hospitals and feeds that information back to employees so they can use it to make better informed choices about where to go to get medical services.

·         United Technologies requires that workers pick up 30% of the cost of using in-network services from managed health care plans and 40% of out-of-network health services, until the costs reach employer caps of $10,000 per year.

Questions …

1.         One of the key factors contributing to higher health care costs is the composition of the American workforce.  For example, average age of U.S. employees covered by employer-provided health care plans is now 41 years, up from 38 in 2000.  Why do you think the aging of the U.S. workforce increases healthcare costs?  Do you expect this trend to continue in the future?  Explain (hint:  support with research)10 pts.

2.         Referring to the approach used by United Technologies, what should be the maximum amount of out of pocket health costs that an employee could be expected to experience during a given year?  How does this maximum annual health care expenditure at United Technologies compare to the average cost to employees of family health care coverage for 2008 that was given in the case.  What conclusions do you draw from this health care cost comparison?10 pts.

3.         Relative to the approaches presented by the 3 companies, how are the approaches similar?  How do they differ?  Is one approach superior to the others?  Identify some key factors that you would expect to affect the choices that managers make when they select ways to reduce health care cost.  For example, would large companies (over 1,000 employees) select different methods to reduce health care costs than small companies (under 100 employees)?  If so, why?15 pts.

B.        You are a small employer wishing to establish a benefits program for your employees.  What internal and external variables should you consider to ensure that the program is a success for your employees?10 pts.

C.        Identify and contrast the various ways employers can control the costs of health care.10 pts.

D.        Discuss fully the various types of pension plans.  Be sure to include the advantages and disadvantages of each.  Also, discuss fully the federal regulation and protection of pension plans.  Who is involved and what are the provisions?10 pts.

E.         What To Choose In Creating A Benefits Plan

            In 1989, Sandra Perkins and Bethany McLean started Interior Designs, a manufacturer of high-end specialty furniture.  The company has grown to over 1,500 employees and is recognized in the Seattle area as an “employee-friendly” employer. 

            Interior Designs has offered its employees a traditional defined-benefits pension plan, but wishes to change to a 401K program.  Unfortunately, the ladies are unsure as to what they should offer in the 401K.  Here are some of the questions they have:

·         What percentage of wages should employees be allowed to invest:  3,4,5,6 or 7%?  Should there even be a cap on employee investment?

·         Should Interior Designs contribute to employee investments, and if so, what should the matching rate be: 50, 100, 200%?

·         Should the number of investment options be limited or should employee choices be unrestricted?

·         What should the mix of investments be?  Only stocks and bonds or some combination of investment options?

·         How often and how many times will employees be allowed to switch their investments?  If changes are allowed, will the employee or Interior Designs assume these transfer costs?

·         Should Interior Designs offer investment advice to its employees?

·         Should employees be allowed to borrow on their 401K savings?

While the company would like to offer the maximum options and financial advantages to employees, it cannot do everything.  This is where you come in …

1.       Discuss each bullet above and offer a decision.20 pts.

2.      Make a final recommendation as to what you feel would be the best 401K plan for employees and Interior Designs.  Defend your recommendation.15 pts.