Description of the 2nd Excel Assignment
The Human Resources department has developed a pilot program designed to control the County’s rising cost for health care insurance. This program calls for offering employees who currently get their health insurance through the County the choice of a fixed stipend to contribute toward health, retirement, or other benefits (maybe a cruise) that they would choose rather than the traditional package. Those who accept (on a voluntary basis) the new stipend are still employees and will have employer halves of Social Security and Medicare paid by the County, but will be responsible for obtaining other fringe benefits on their own. It is anticipated that most participants will have cheap coverage under the Affordable Care Act (young people). The following particular features apply to the pilot:
• All departments are assumed to enlist the maximum number of employees (5) to participate in the pilot plan.
• The employer’s share of FICA payroll taxes (Social Security and Medicare) will continue to be paid as they are currently and are therefore neither net costs nor net savings (“net” = the difference between the status quo and the pilot).
• The program is assumed to take 6 months to become operational. During those 6 months, employer’s share of all current benefits (including health insurance and retirement) will be paid normally.
• The base stipend will be $4,000 per year. This is prorated by 50% to $2,000 for the first year, when the pilot is only going for the last 6 months.
• Each year, the stipend increases by the county’s standard escalation rate of 3.5%, but the spreadsheet handles that automatically.
• One-time payments of $10,000 will be paid into participants’ retirement accounts when they sign up (assuming employees will “roll” existing balances into IRAs).
• Human resources has assigned a flat expense of $25,000 per department to document the pilot program, interview applicants/review applications, set up HR system parameters for participants, and monitor initial payroll benefit statements.
• The ACA requires employers to provide health insurance. Otherwise, it will cost employers $3,000 per uncovered employee (increasing annually by the 8% rate of health care escalation). The full cost (not half) is assessed for the transition year.
The following other assumptions impact the pilot’s financials:
• Current retirement-related benefits (i.e., non-health care) are assumed to cost 7.5% of salary.
• All departments are assumed to enlist the maximum number of employees (5) to participate in the pilot plan.
• The annual rate for health insurance cost escalation is assumed to be 8%.
• The annual rate for cost escalation for items other then health insurance is 3.5%.
The pilot will be operational for the last 6 months of the Transition Year. During the first 6 months nothing will be ready (getting set up) and participants will get the usual benefits.
The assignment is to create a cost-benefit analysis to assess this pilot for your assigned department and, ultimately, to decide whether it’s a good idea or not for the department to participate. Good luck!