Benefit Analysis: D&H Distributing Co.

Part I: Benefits Matrix Part II: Inventory of Benefits

By: Adam Davis Irida Angjeli

RMI 3501 Dr. Drennan Fall 2011

Loss Exposure Medical Expenses Hospital/Physician Dental Vision Prescription Long Term Care Retiree Health Care Loss of Income due to Death Non-Accidental, Non-Occupational Death Accidental Death Occupational Death

Covered? Yes Yes Yes Yes No Yes

Coverage/Benefit Provided BlueCross & BlueShield: PPO & PPO United Concordia Vision Benefits of America Premier Pharmacy Network COBRA, OASDI

Yes Yes Yes

Life Insurance, ESOP, OASDI, AD&D Insurance Life Insurance, ESOP, OASDI, AD&D Insurance Life Insurance, OASDI, AD&D Insurance, Workers Compensation Unemployment Insurance

Unemployment Disability Short-Term, Non-Occupational Long-Term, Non-Occupational Short-Term, Occupational Long-Term, Occupational

Yes

Yes Yes Yes Yes

ESOP, 401(k), STD, OASDI, AD&D Insurance ESOP, 401(k), LTD, OASDI, AD&D Insurance ESOP, 401(k), OASDI, AD&D Insurance, Workers Compensation ESOP, 401(k), OASDI, AD&D Insurance, Workers Compensation 401(k), ESOP, OASDI

Retirement Other Exposures Educational Assistance Work/life Exposures Dependent Care Property-Liability Legal Expenses

Yes

No No No No No

Inventory of Benefits Introduction to the Healthcare Plan D&H Distributing Co. provides a reasonable employee benefits plan to its employees. For the medical plan, eligible employees are defined as all employees who work at least 40 hours per week have completed at least 90 days of continuous employment with the employer. Employees have the option of selecting employee-only coverage or family coverage. If D&H Distributing Co. is the employer of both spouses, only of them may elect to cover their dependent child(ren). Eligible dependents are defined as a legal spouse, unmarried children residing with the eligible employee until age nineteen (including any stepchildren, legally adopted children, and children for whom the eligible employee is legally responsible), and unmarried children who are under age 24 as of the end of the calendar year and attending a college or similar institution for at least 5 months during the year. For their healthcare plan, D&H Distribution offers their employees the choice between a PPO 90 and PPO 80 plans. The enrollment tiers for the plan are Single (employee only) and Family (employee, legal spouse, legal children). Employees can enroll in the medical plan by making their benefit election within 30 days of becoming eligible for coverage. For the first plan year in which employees are eligible to participate, an enrollment form must be returned to the Plan Administrator before the date specified. An employee that fails to return the enrollment form will not be covered under any health or welfare programs. The next time the employee will be able to elect benefit coverage is during the next open enrollment period starting November 26th and ending December 7th. During open enrollment, an employee may also choose to opt-out of D&Hs plan and be covered

under their spouses employers medical plan or remain uninsured. When enrolling for a medical plan, the employees are given the options to enroll in the dental and vision plans.

Overall Medical Expenses D&H Distributing Co. offers employees two versions of preferred provider organization (PPO) coverage that are administered through the Highmark Blue Shield. Both plans are experience rated and are available to eligible employees and their dependents on a contributory basis. Employees contribute approximately 25% of the overall cost of the plan. Employee contributions are deducted from their bi-weekly paychecks on a pre-tax basis. The cost of coverage is subject to change and employees are notified of any change during the annual open enrollment period. Both PPOs have the same coverages, conditions, and exclusions. However, they differ in their deductibles, coinsurance percentages, and out-of-pocket maximums. Plan participants are not required to select a primary care provider (PCP) under both plans. They have the choice to of using either a network provider from a list provided by Highmark Blue, or an out-of-network provider of their choice. Participants who choose receive services from a provider in the PPO network will receive the highest level of benefits. Neither of the plans have a lifetime limit. The PPO 90 plan has twice as low a deductible for network providers as the PPO 80 plan ($250 for Individual and $500 for Family, compared to $500 for Individual and $1000 for Family). The same regulation applied for out-ofnetwork providers. The PPO 90 plan has a deductible of $1000 for Individual and $2000 for Family, and the PPO 80 plan has a deductible of $500 for Individual and $1000 for Family. The PPO 80 plan has a higher annual out-of-pocket maximum, as compared to

the PPO 90 plan for both network and out-of-network provider. PPO 80 has an annual limit for out-of-pocket expenses of $2000 for Individual and $4000 for Family for network providers and $5000 for Individual and $10,000 for Family for out-of-network providers. PPO 90 has an annual limit for out-of-pocket expenses of $1000 for Individual and $2000 for Family for network providers and $2500 for Individual and $5000 for Family for out-of network providers. The PPO 80 plan offers lower coinsurance (80%, after deductible, for network providers and 60%, after deductible, for out-of-network providers) than the PPO 90 plan (90%, after deductible, for network providers and 70%, after deductible, for out-of-network providers. In terms of innetwork office visits, for both primary care physicians and specialist, both plans cover 100% of the expenses after a $25 copayment. For out-of-network office visits (primary care and specialist), PPO 80 covers 60% of the expenses after deductible, and PPO 90 covers 70% of the expenses after the deductible. Both plans have a limit of 90 hospital visits per benefit period. For inpatient hospital care, the PPO 80 covers fewer expenses than the PPO 90 (80%, after deductible, for network providers and 60%, after deductible, for out-of network providers and 90%, after deductible, for network providers and 70%, after deductible, respectively). Both plans pay for 100% of the cost of preventive care for in-network providers. For out-of-network provider preventive care, PPO 80 pays less than PPO 90 (60%, after deductible, and 70%, after deductible, respectively).

Consumer-Driven Health Plan (CDHP) with Health Savings Account (HSA) D&H Distributing Co. does not offer a CDHP with HSA to their employees. The reasoning is because the plan administrator thinks these benefits have too high of a deductible and employee contribution. Dental D&H Distributing Co. offers dental coverage that is fully insured through United Concordia. United Concordia is rated A- by AM Best. The eligibility requirements for the dental plan are the same as those for the medical plan. Employees are offered two options the Basic Option and the High Option, with employees contributing 50% and 60% respectively. The employee contribution is acquired via pre-tax payroll deduction. Both plans cover 100% of diagnostic/preventive services (exams, cleaning, x-rays). Both plans cover Basic Services (space maintainers, fillings, endodontic, simple extractions) with the exception of nonsurgical periodontics, which is only covered under the High Option plan. In addition, the High Option covers 50% of Major Services (repairs of crowns, repairs of bridges, denture repair, surgical periodontics, prosthetics, and oral surgery). The Basic Option has a $1000 calendar year maximum per covered person and a $0 calendar year deductible for both individual and family. The High Option plan has a $2000 calendar year maximum per covered person and is also subject to annual deductibles ($50 for individual and $150 for family) which is only applies to the Major Services described above. United Concordias standard exclusions and limitations apply, so the plan covers unmarried dependent children to age 19 and unmarried dependent students to age 23.

Vision D&H Distributions Co. provides vision coverage through Vision Benefits of America (VBA). VBA is not ratted by AM Best. The benefits are provided on employeepay-all basis and cover the full cost of one visit per year for in-network providers (VBA Participating Doctor). Rates are guaranteed for the full two years of the contract and are based on 100% employee contributions through a qualified section 125 plan. The plan covers hardware expenses when Customary and Reasonable as determined by VBA. If employees choose an out-of-network or non-participating provider, they will be responsible for the cost of visit and will be later reimbursed at a specified rate which is relevant to cost of expenses. Prescription Employees enrolled under any of the healthcare plans are automatically enrolled in the Prescription Drug Coverage also administered by Highmark Blue. The PPO 80 and PPO 90 offer identical coverage for only in-network providers. Neither of the plans have a deductible for prescription drugs for both Individual and Family. The plans cover for prescriptions of generic formulary, preferred brand name formulary, and nonpreferred brand name formulary drugs, each having a specific co-payment. The copayments are as follows; for 31-day supply ($8 for generic, $35 for preferred brand, and $60 for non-preferred brand); for 60-day supply ($16, $70, and $120 respectively); for 90-day ($24, $105, and $180 respectively). Up to a 90-day supply of mail order drugs are offered for a smaller copayment ($16 for generic, $70 for preferred brans, and $120 for non-preferred brand). Both PPOs have a $500 lifetime maximum for fertility drugs. If an employee wishes to purchase prescription drugs from an out-of-network provider,

they can do so and file a claim for reimbursement. However, reimbursement is not always guaranteed.

Life Insurance
Employee Term Life, Dependents Term Life, Accidental Death and Dismemberment (AD&D)

D&H Distributing Co. offers basic employee term life insurance on a noncontributory basis. The employer also offers basic accidental death and dismemberment insurance on a non-contributory basis. The employees of the firm have the ability to elect additional employee term life coverage and accidental death and dismemberment insurance on a fully contributory basis. The above benefits are fully insured through The Prudential Insurance Company of America, which A.M. Best rates an A+, or superior. To be eligible for this coverage, employees must be full-time which is defined as customarily working 40 hours per week. The Basic Employee Term Life insurance provides benefit limits equal to 100% of the participants annual earnings up to a maximum of $100,000. If the participants annual earnings are not a multiple of $1,000 then the amount of life insurance coverage is automatically rounded up to the nearest multiple. Optional Employee Term Life insurance has benefits that are equal to the lesser of: 500% of annual earnings or $200,000. Both of these coverages have a reduced value once the participant reaches the age of 70, at which they will only be eligible to receive 75% of their benefits. Additionally, participants in this plan have the option to purchase Optional Dependents Term Life Coverage on a fully-contributory basis. Benefits under this insurance are $25,000 for spouses and $10,000 for dependent children. The basic AD&D insurance

limit is equal to the amount of insurance under the basic employee term life coverage and the optional AD&D insurance limit is equal to the amount a participant is insured for under the option employee term life coverage. Accidental Death and Dismemberment has a schedule of payable benefits that range from a loss thumb and index finger of the same hand (25% of benefit payable) to loss of life (100% of benefit payable). In order to be eligible to receive AD&D benefits the loss must have caused a covered person to sustain a bodily injury, the loss must have resulted directly from the injury, and the person suffers the loss within 365 days after the accident (with special provisions for death and coma). Both the basic and optional AD&D provide for additional benefits if the loss is classified as stemming from or resulting in: Loss of life from a vehicular accident while wearing a seatbelt, loss of life from a vehicular accident equipped with a supplemental restraint system, return of remains, loss as a result of felonious assault, tuition reimbursement for spouse, tuition reimbursement for dependent child, and day care expenses for dependent child. Short Term Disability Insurance D&H Distributing Co. provides their employees with short term disability insurance on a non-contributory basis. It is funded through self-insurance. This benefit provides an employee with supplemental income if they are kept from work due to a covered loss such as injury, sickness, or pregnancy. To become eligible, employees must be classified as full-time and must have completed 12 months of continuous employment at D&H Distributing Co.

The benefits are payable after a covered loss has occurred and are provided to employees on a weekly basis at 60% of their prior earnings. The benefits are payable up to a maximum of 12 months, at which the long term disability insurance will take effect. Long Term Disability Insurance Long Term Disability Insurance is provided to the employees of D&H Distributing Co. through The Prudential Insurance Company of America, which A.M. Best rates as an A+, or superior. To be eligible for Long Term Disability insurance, the employee must be classified as salaried and have worked for at least 12 months of continuous employment. The benefit payable to participants is equal to 60% of their monthly earnings but cannot exceed the maximum monthly benefit of $4,000.00 and can be utilized up to the normal retirement age. Additionally, an elimination period of 90 days applies to this benefit meaning a participant must be continuously disabled for 90 days before the payment of benefits will occur. Additional benefits under long term disability insurance include critical illness coverage, survivor benefit, worksite modification, and rehabilitation services. The aforementioned benefits are aimed at returning a covered employee to work as quickly as possible with the exception of the survivor benefit which is paid to survivors of a participant that was disabled for a long term. Retirement D&H Distributing Co. provides eligible employees with two retirement account options to provide payments to retirees. The two options are a 401(k) and an Employee Share Ownership Plan (ESOP) account.

The ESOP plan employed by D&H Distributing Co. is a special type of defined contribution plan that enables employee ownership of the company. This plan is administered through an ESOP Administrative Committee. The ESOP is funded through a trust set up by D&H Distributing Co. and has 4 executive level employees named as Trustees to the plan. Eligibility is granted to the employee on the first of the month after he/she has worked for 90 consecutive days provided they are a non-union worker. This account is funded by employer contributions in the form of stock to each of the enrolled employees accounts. The account is 100% vested to the employee after 6 years and is done so on a 20% vesting schedule. Upon retirement at the normal age of 65 years, 100% of the value of the account is payable to the retiree in a variety of ways. The payment options are: Lump sum, Installments, Joint & Survivor Annuity, Lifetime Annuity, and Lifetime Annuity with guaranteed period. This gives the employee a variety of ways to collect the benefits provided under the ESOP arrangement including ways for the named beneficiaries to continue to collect payments after the retiree has died. The second option that employees have to receive financial security after retirement is the 401(k) option provided by D&H Distributing Co. Similarly, the 401(k) plan is administered through a 401(k) Plan Administrative Committee and has the same 4 executives named as the Trustees to the plan funds. This plan has the same eligibility requirements of the ESOP program. The amount of compensation an employee may defer to the 401(k) account is capped at $16,500 for 2010 and will be indexed upward under federal law. The employer intends on matching 25% of employee contributions for the plan year ending April 30, 2011 up to an employee contribution of 6% of compensation. Any amount contributed to the 401(k) by the employee in excess of 6% of compensation

can be added to the account but will not be matched by an employer contribution. In order to be eligible for the employer match an employee must have made a salary deferral contribution to their account and they must have been employed with D&H Distributing Co. up until the last day of the plan year. The vesting of benefits for the employee is the same as in the ESOP arrangement, with 100% vesting at the normal retirement age, after a long term disability, and upon death. As stated above, both the ESOP and 401(k) plans provide loss of income benefits upon disability or death of the employee. Disability in these plans are defined as an inability to do any substantial amount of work of any sort because of a physical or mental condition that can be medically determined and that can be expected to last more than a year. If the disabled employee becomes eligible for Social Security disability benefits, they will automatically satisfy the requirements of the plan to become eligible for said benefits. If the participating employee dies, the full amount of the balance will be payable to the named beneficiary. For a married participant, the beneficiary under these two plans is automatically the spouse and can only be changed with written consent from the spouse. An unmarried employee must designate a beneficiary through a beneficiary form provided by the Plan Administrator.

Part III: Benefit Analysis Introduction

D&H Distributing Co., Inc. operates as a technology distributor for IT and electronics for small and midsize business and consumer markers. The company offers a variety of server and infrastructure, mobile applications, consumer electronics and gaming products. The company sells its products through several channels, including solution providers, resellers, system builders, college bookstores, retailers, video gaming dealers, home installers etc. D&H Distributing is a privately owned company. It currently employs 1100 full-time employees in Harrisburg, Atlanta, California, and Chicago. At present, D&Hs health and welfare benefit plan consists of 823 contracts with Highmark Blue, 1734 members. Many employees choose to opt-out because they are covered by their spouses employer benefits. D&H provides Short Term Disability, Long Term Disability, Basic Life, and Basic Accidental Death and Dismemberment benefits on a non-voluntary benefits. Therefore, the employees are automatically enrolled in these benefits after being full-time employed for one month. In addition, 67% of the employees participate either in ESOP or 401K plans. Throughout this project, Linda Messner helped us gather information and analyze D&H Distributing Co. current benefits plan. Linda Messner is the Human Resources director, and her responsibilities include benefits plan design, communication, administration, and regulatory compliance. Other than Linda, the benefits committee consists of Dan Schwab, Robert J Miller, Michael Schwab, and Jeffrey Davis. Linda brings the employees perspective into picture when designing the plan, because she thinks a strong benefits plan builds a strong employer-employee relationship. The

benefits committee gives important inputs regarding the benefits plan and helps Linda design it. Their recommendations regarding plan design are presented to the Chairman and CEO of the company, who makes the final decision.

Overall Design Deliberations in Employee Benefits Goals When asked about why D&H Distributing Co. provides a benefits package for their employees and their employees dependents, Linda replied that it helps the firm stay viable and retain their talent. It is implemented in the companys culture that good benefits are crucial, because it is important to take care of employees and their families. However, this does not mean that employees choose to work at D&H only for the benefits plan. Thus, the companys benefits plan does not essentially function as a selling point for potential employees. D&Hs benefits committee acknowledges the prominence of designing a plan that balances the benefit goals with their budget. The committee stresses designing a plan that adopts employee needs rather than their wants. Linda mentioned that unless a benefit was requested by a considerable number of employees, it would not be offered. The HR team is constantly educated about any additional benefits, since they are accountable for their administration. She noted that people administering the plan were careful not to violate their fiduciary responsibility under ERISA. In the upcoming years, D&H is working to apply employee wellness programs, in hopes of decreasing premiums. Since the health care benefits are experience rated, Linda feels that providing incentives to healthy employees will decrease the cost of premiums overall.

Demographics When designing their benefits plan, D&H took into account factors such as average employee age, marital and family status, and different locations. The average employee is about 40 years old, and there is a high divorce and single parent rate. The benefits committee discovered that many employees had different types of dependents, ranging from: single child, multiple children, spouse only, and spouse and children. Linda noted that a single parent family does not have the same benefits costs as an older couple; therefore, to share the cost more equitably, the benefits committee implemented a five tier healthcare plan. The tiers are employee, employee and child, employee and spouse, employee and children, and employee and family. Additionally, D&H has very few part-time employees. The firm is able to attract and retain full-time workers, while discouraging part-time workers, by only providing benefits for the previous. Funding and Financing Considerations The majority of benefits provided by D&H are fully insured, with the exception of Short Term Disability being self-insured. For the medical plan, the firm chooses to fully insure through Highmark Blue. D&H operates in various states; thus, Highmark Blue was the ideal health benefits provider for the company. The Blue Card Network makes it possible for the sales representatives, who work across the country, to use their healthcare benefits in any of the Blues providers nationwide. The premiums are experience rated; therefore, they increase with the cost of healthcare consumption. It is difficult for D&H to control losses, as many medical conditions that drive up the premium cost can be unavoidable (premature baby, certain cancers). However, the firm is working towards implementing an employee wellness program, where employees will be given incentives

(lower premium, monetary rewards) if they loose weight, eat healthy. This will provide D&H with potential to save on premium costs which range from $5.5 million - $6 million annually (employer is responsible for approximately 80% of premium). The firm also chose to fully insure their Dental, Vision, Life, LTD, and AD&D benefits. The benefits committee believes that the cost of self-insuring healthcare and the other benefits mentioned above would be overbearing, since the company is rather small and not able to compensate for catastrophic losses. D&H chooses to self-insure the STD benefits because of positive claims experience. Also, the firm wants to practice self-insuring, in hopes of self-funding other benefits in the future. As the result of the rising cost of healthcare, D&H decided to finance the majority of benefits on a contributory basis (except STD and LTD). They shared a cost-benefit analysis with their employees to help them understand and make an educated choice based on their projected medical costs. Many employees found contributing 20% towards the lower cost PPO 80 was reasonable. The disability benefits had to be corresponding with state and federal insurance programs. The firm chose to offer STD and LTD on a non-contributory basis. By providing them free of cost to the employees, the firm ensured that employees received the necessary coverage.

Problems, Issues, Concerns, and Considerations in the Design of Health Benefits Issues, HMO vs. PPOs Highmark Blue administers the healthcare benefits at D&H; Highmark decides whether a medical procedure is necessary. This shifts responsibility from the employer to the insurer. Overall, the firm has not experienced major issues with Highmark as the

insurance provider, as they have handled claims efficiently. However; sometimes certain physicians pull out of The Blues network because they feel that they are not compensated enough. The Blues charge lower premiums compared to other insurance companies, which results in lower compensation for physicians. In a PPO plan, the employees are not required to select a primary care physician; therefore, physicians opting out of the network have not presented a big issue to D&H. In the interview, Linda mentioned that D&H was initially debating whether to provide an HMO or PPO plan to the employees. The committee decided to select two PPOs instead of an HMO (even though an HMO offers cheaper premiums) to dismiss the employees from having to go through a gatekeeper (primary care physician). By offering two PPOs through Highland Blue, D&H provides more flexibility to their employees. According to Linda, the plan functions in the best interest of the plan participants. Funding Considerations Fully insuring their medical plans allows D&H to transfer all loss expenses to Highmark Blues, in exchange for a premium paid annually. The employer transfers all administrative responsibilities to Highmark; therefore the firm does not have a say on what visits or treatments are paid for. As mentioned previously, The Blue Card Network allows for plan participants to use their healthcare benefits anywhere in the country. Access to experience rating through Highmark allows D&H to target wellness initiatives, which can have the potential of further cost savings. Cost Inflation During the years 2008-2010, D&H negotiated a 7% rate cap with Highmark Blue. After that, the firm faced premium rate increase as high as 25%. The plan changes only

led to a 10% premium increase for participants in the PPO 80, since the employer did not fully transfer the cost increase to the employees. On the other hand, the PPO 90s employee contribution premium increased by 15%. To cope with this issue of cost inflation, D&H increased the participants out-of-pocket expenses (deductibles and copays) and limited fertility benefits. Linda mentioned that even though the deductibles and copays were increased, they are still much lower compared to the industry averages. There has been an ongoing debate in D&Hs benefits committee regarding a switch from a fully insured medical plan to a self-insured medical plan. If their medical plans were self-insured, the firm would not have to pay the annual high premium of approximately $5.5 million to Highmark Blue. Instead, the employer would solely be responsible for paying for the losses as they occur. This can be a positive (if losses are under $5.5 million a year) or negative (if losses exceed $5.5 million a year). As of now, D&H plans to stick to fully insured plans because they are not confident in managing catastrophic losses.

Considered Benefits The benefits committee at D&H Distributing Co. is consistently analyzing their benefits package in order to provide the highest levels of coverage while keeping costs at an economically feasible level. One of their main focuses at this point is to develop and implement a wellness program by 2013 that would provide a discount on the employees share of the premium. Currently, D&H has a smoking cessation program that provides a 20% discount on healthcare premiums for every employee that is a non-smoker. This provides the employees with an incentive to quit smoking, which is proven to reduce the

cost of healthcare over the employees lifetime. The benefits committee has experienced success with this program and they are looking to increase this program to include participation in fitness programs, in-house preventative screenings, an on-site walking track, and healthy food options for employees. D&H Distributing Co. is determined to achieve a 2% reduction in the cost of healthcare by incentivizing participation in the wellness program. The D&H Benefits Committee has not considered implementing a Long Term Care plan. But because the business has remained relatively stable during the recent recession and many employees consider their position as their life-long career, we believe it is within D&Hs benefits strategy to expand their benefits program to include Long Term Care insurance. Once D&H has adapted to the changing environment of healthcare due to Healthcare Reform and PPACA, we strongly urge them to consider implementing LTC coverage and take a proposal to market.

Problems, Issues, Concerns, and Considerations in the Design of Other NonRetirement Benefits D&H Distributing Co. does not provide benefits outside of retirement and health coverages other than short-term and long-term disability insurance. The short-term disability coverage that they provide is on a self-funded basis because they have the ability to estimate the losses that are covered. In addition to their actuarial estimates of the probable losses related to short-term disability, D&H uses self-funding in this situation as a type of experiment. The Benefits Committee handles the administrative

aspect of this coverage and if no major issues arise then they intend on exploring selffunding for some of the other benefits they provide. Long-term disability is funded through an insurance contract because of the potential for long tail claims. The actuarial estimates and financing requirements of self-funding long-term disability are outside of the scope of D&Hs Benefits Committee at this time.

Regulatory Compliance HIPAA The main concern for D&Hs Benefits Committee with regards to HIPAA regulation is the Privacy Rule and the Security Rule. The Benefits Committee is comprised of employees of the firm and therefore the data they use while analyzing the plan and overseeing the operation of the plan must be kept free of personal information. To comply with the Privacy Rule and HIPAA, all information concerning claims history, preexisting conditions, and other individually specific health data is kept free from indicators that could potentially link the information to the person. D&H utilizes an intranet with security safeguards to administer the various plans under their benefits program. This protects health and claims data from unauthorized viewers. D&H has not had any HIPAA related non-compliance issues because of their secure intranet and the Benefits Committees commitment to keeping the personal data of their employees private.

COBRA D&H Distributing Co. offers the benefit extension as required under COBRA regulation. The administration of COBRA continuation coverage is done by Highmark

Blue Cross Blue Shield therefore the cost of compliance has been factored into the administrative expenses of the plan. D&H has not experienced many issues regarding compliance with COBRA and their strong performance during the recent recession has prevented them from making significant layoffs. For many other businesses the recession has caused large employee layoffs, which increases the amount of individuals and dependents that elect for COBRA continuation. Fortunately, this has not been the case for D&H. The Benefits Administrator for D&H did not have any issues concerning COBRA compliance other than introducing protocols and procedures for administering/approving the continued coverage and educating the employees on their ability to elect this coverage.

ERISA D&H Distributing Co. has remained compliant will all aspects of ERISA legislation including fiduciary responsibility; plan communication, reporting requirements, and discrimination testing. In order to ensure that the fiduciary duty is satisfied, D&H has employed a member of the HR department whose sole responsibility is administration of the health and welfare benefits plan. The plan communication requirement is satisfied through electronic distribution of Summary Plan Descriptions (SPD) for all of the available plans. They are updated annually and sent to employees eligible for coverage as well as new hires. The Benefits Committee does the health and welfare benefits plan reporting requirements of the IRS and Department of Labor annually. They filed the necessary paperwork for their insured contracts as well as the self-funded short-term disability coverage. Currently, D&H is exploring their ability to

self-fund all of the benefits provided to their employees and that process involves considering ERISA compliance and the additional reporting requirements. Lastly, D&H satisfies non-discrimination testing by providing their employees with uniform benefits. Regardless of compensation, employees have the option of two PPO plans, have a defined cap on their disability payments, and are subject to the same employercontribution percentage in the ESOP and 401(k) plans.

PPACA and Health Reform D&H Distributing Co. has, through their provider Highmark BC/BS, remained compliant with the first wave of regulation required by PPACA that began on September 23, 2010. Free preventative care and increased dependent age have caused an increase in cost to D&H Distributing Co. of approximately 3%. The firm is preparing for the graduated regulations of PPACA by implementing many of the policies and procedures for compliance before the prescribed date. One of the issues that arose for D&H is the required W-2 reporting of the value of employee benefits, which was unsuccessfully implemented during the optional 2011 plan year. The Benefits Committee was well aware of this regulation but it ultimately became a software issue for the company. D&Hs software engineers are still working on this issue but are confident that it will be resolved by the time W-2 reporting is mandatory. As described above, D&H Distributing Co. has always had a strong emphasis on rich benefits for employees and their families so they have not considered withdrawing their benefits plan in exchange for the free rider penalty.

Recommendations for the Future While analyzing D&H Distributing Co.s current benefits plan, we have noted certain factors that could help strengthen the moderately inclusive plan. Our recommendations consider the monetary issues and personnel available to administer the additional benefits. Voluntary Benefits and Work/Life Benefits During our interview with Linda, she mentioned that D&H does not currently offer voluntary benefits. However, they would like to provide voluntary benefits on an employee-pay-all basis and deducted on a pre-tax basis from bi-weekly paychecks. These benefits include subsidized or on-site childcare, education reimbursement, flexible work schedule (telecommunication), personal financial planning. Self-funding D&H has a long history of experience and a high number of covered lives; therefore, it would be feasible for the firm to self-fund their healthcare benefits. They are currently experience rated, which makes them sensitive to their losses. They can use this information to set up a healthcare fund and hire a Third Party Administrator (TPA) to deal with the complexities of administering a self-funded plan. Additionally, we suggest D&H purchases stop-loss insurance in case of catastrophic claims. Communication In order to diversify their offerings beyond PPOs, we suggest D&H benefit committee to survey the employees regarding expanding their options to include an HMO, High Deductible Health Plan, or POS plan. Although the employees enjoy the

flexibility of the PPO plans, it would be important to see if more employees would be willing to participate in the plans proposed above if the cost-sharing arrangements were different. The firm should communicate to the employees the importance of participation in any of the benefit plans through e-mails and updates on the benefits intra-net.

Conclusion The current benefit package is the result of years of experience with providing rich benefits to employees and their families. This has enabled D&H to attract and retain top talent, which has contributed to their steady expansion over the decades. Now it is an important time for the benefits committee due to Healthcare Reform and their aspiration to self-fund. With their deep commitment to their employees, D&H will continue to provide above average benefits.

Works Cited All A.M. Bests ratings were retrieved from <http://www3.ambest.com/ratings/default.asp>

December 9, 2011 Linda Messner Benefits Administrator, Human Resources Department D&H Distributing Co. 2525 N. 7th Street Harrisburg, PA 17110 Dear Linda, We would like to thank you for taking time out of your busy schedule to hold an interview with us regarding D&Hs health and welfare benefits program. Your willingness to answer all of our questions enabled us to not only complete our project, but also gain a better understanding of the processes and involvement required to design and implement an employee benefits program. Without your assistance our work on this project would not have been possible. It was a pleasure to work with you and we look forward to speaking again soon. We wish you and your organization the best of health this holiday season! Best Regards, Adam Davis Irida Angjeli Students, Temple University Department of Risk Management and Insurance

December 9, 2011 Dan Schwab Co-President D&H Distributing Co. 2525 N. 7th Street Harrisburg, PA 17110 Dear Dan, We would like to extend our gratitude to you for your willingness to provide us with D&Hs health and welfare benefits documentation. Your willingness to provide all of the information we asked for enabled us to gain an understanding of the benefits package that an employer offers to attract and retain valuable employees. Without your assistance our work on this project would not have been possible. It was a pleasure to work with you and we look forward to speaking again soon. We wish you and your organization the best of health this holiday season! Best Regards, Adam Davis Irida Angjeli Students, Temple University Department of Risk Management and Insurance