Skip to main content
20.E: Employment-Based Risk Management (General)(Exercises)
- Last updated
Save as PDF
- What are the main ways in which group insurance differs from
- Why is group insurance proportionately less expense than
- Rosa Sanchez, single, age twenty-five, received two job offers
after college graduation. Both were with organizations that she
respected, and the nature of the work at each place sounded very
interesting to her. One job was with a larger, well-established
firm and offered $22,000 per year in salary plus noncontributory
benefits worth $7,000 per year. The other job was with a small
business and offered a salary of $30,000 per year without employer
voluntary benefits (the employer is required to pay for social
insurance programs). Rosa’s mother suggested that she make the
choice between the two jobs based on which offered better total
- What factors should Rosa consider in determining the better
package? Which package do you think maximizes her total
- Which employer is economically better off (all else being
equal), the one offering salary plus benefits or the one offering
salary only? Explain your answer.
- Henry Zantow, the comptroller for Kado Industries, was
discussing the supposed advantages of a true cafeteria plan versus
a traditional plan with Lloyd Olsen. Lloyd agreed with Henry that a
cafeteria plan certainly seemed the better of the two plans. Both
Henry and Lloyd looked at each other and in the same breath said,
“I wonder why anyone would choose a traditional plan?”
- What is your answer to this question?
- If the corporation decides to use a cafeteria plan, why might
it want a minimum level of core benefits?
- What does it mean to self-insure and have the stop-loss
programs for workers’ compensation and for group health
- Jan Czyrmer, the employee benefits manager at Ludlow
Enterprises, wants to restructure the leave policy for the company.
He is concerned that employees abuse the sick leave policy, taking
sick leave time for personal reasons not related to illness. He
wants to abolish particular types of leave (such as sick leave,
vacation leave, personal leave) and give employees a certain number
of general leave days per year to use as they choose.
- What advantages might Jan cite to convince upper management
that consolidating leave time may be helpful for Ludlow
- If upper management rejects Jan’s idea of a major restructuring
of leave time, what can he do to prevent abuse of the current sick
leave policy? What steps can be taken to reduce moral hazard within
the traditional leave system?
- Knowledge Networking, Inc., provides a growing business of
high-tech and electronics equipment and software. It is a specialty
retail and online business that has tripled its revenues in the
past seven years. The company started fifteen years ago and
includes fifty outlets on both the East and West coasts. In 2005,
the company went public and now, despite the major financial
crisis, it is doing very well with innovation and creative
offerings. The company has 5,600 full-time employees and 1,000
part-time employees. Knowledge Networking, Inc., provides all the
social insurance programs and offers its employees a cafeteria plan
with many choices. Employees have generous choices of health, life
insurance, and disability coverages; dental and vision care;
premium conversion plan; and flexible spending accounts as part of
the cafeteria plan. Each employee receives $5,500 a year from the
employer to pay for the benefits.
- Describe in detail your understanding of the structure of the
cafeteria plan of Knowledge Networking, Inc. (design this cafeteria
plan). What are the advantages and disadvantages of this cafeteria
- Knowledge Networking, Inc., follows the federal laws: FMLA,
ADA, Civil Rights Act, and Age Discrimination in Employment Act. If
you were the employee benefits manager, how would you explain the
impact of each of these acts on the employee benefits of the
- How would the group insurance rates be computed (what factors
play into the computation) for such a company?
- Why might Knowledge Networking, Inc., prefer to self-insure
their workers’ compensation and health insurance rather than buy
- Yolanda Freeman is evaluating whether federal nondiscrimination
laws have helped or hurt employees.
- Which federal laws particularly affect employee benefits? Which
workers are particularly affected by each law?
- Who pays the cost of requiring that benefits be paid on a
nondiscriminatory basis? Do additional benefit costs have any
effect on employee wage levels?
- If federal laws did not require coverage for certain employees
and their dependents, who would pay for benefits for these
individuals? Do you think that social welfare is maximized by
mandating coverage for certain workers and their dependents through
these nondiscrimination laws?