Benefit Cost

Analysis

Sridhar Varadharajan –
09020241047 Vishal Singla –
09020241048
 Benefit Costs
 Cost incurred by an organization towards
the welfare programs of its employees.


Today it eats into a large part of the

company’s profit margins.

Benefit costs should be managed
effectively by the company so as to
maintain a profitable business.
Overview of Benefits to employee

Employee
Employee Benefits
Benefits

Mandatory
Mandatory Voluntary
Voluntary

Life
Life Leave
Leave
Provident Insurance
Insurance Encashment
ProvidentFund
Fund Gratuity
Gratuity Encashment

Mediclaim Super-
Super-
Personal
Personal Mediclaim annuation
Accident annuation
Accident
Common Benefit Costs
Uncommon Benefit Costs
Benefit Costs : Trend
Indian Scenario
 As per the study by the Watson Wyatt
India :

 Average 10% rise in the premium over last 3 Years.

 58 per cent of the companies did not deduct any
premium costs out of employee salaries.

 46 per cent did not plan to share the costs with the
employees even in the coming year



 Source: Business Line Dec. 30 2009 Edition
 DNA News Daily Dec. 28 2009 Edition
Indian Scenario Cont…
 40% of Indian companies consider health
care cover as a value differentiator for
employees.

 Companies use it in the hiring and retention
strategy. 17% of the companies cover post
retirement medical expenditure.

 74% of the companies are stressing on
employee education around health care.
Means of Controlling Benefit Cost
 Cost sharing


 All employees contribute to the cost of their benefits

 Cost sharing is an increasingly popular method used by
companies.
 It includes sharing the costs of the benefits with the
employees
•
•
 Co pays, deductibles and lifetime limits


 Co pays are the flat amount paid by the employee at

the time of medical service or while receiving
medication
 A deductible is a fixed amount of money you have to
pay before most, if not all, of the policy's benefits can
be enjoyed.
Means of Controlling Benefit Cost
 Changing to a tiered prescription drug program
 Cost sharing by employees increases if they use a
brand name drug
 It decreases if they choose formulary or generic drug

Means of Controlling Benefit Cost
 Enhancement of Voluntary benefit
programs


 Setting up of Flexible spending accounts

 Win-win situation for both employees and
employers
 As it encompasses non-taxation of the amount
spent on medical or childcare expenses
•
 Other measures include
 Preventive health care programs
 Employee education programs
 Means of Controlling Benefit
Cost
 Different cost reduction methods depend
on:
 Company size
 More effectively employed by smaller companies
 Type of industry


 Areas to be considered for more effective

control of health care costs
 Generating greater use of generic drugs
 Minimizing number of visits to the infirmary
 Identifying chronic conditions for developing
more cost effective disease management
programs
Means of Controlling Benefit Cost
 Essential for employers to obtain in depth
data about the drug costs, usage rate and
health risks posed to their employees

 This enables systematic benefits planning
process

 Many companies also utilizing employee
surveys to redesign their benefits package.

 Education needs to be provided to employees
highlighting the reasons why companies
cannot absorb the entire benefit cost of the
employee

Means of Controlling Benefit Cost
Create a culture of wellness is
essential for reducing the benefit
costs of the organization


 Thank You