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Transcript of MATTHEW E MCGARVEY - FrontlineTechnologies.fall2011
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Employee Benefit Plan Analysis
Frontline Technologies
Part 1: Loss Exposure Matrix
Part 2: Inventory of Existing Benefits
912619478
912479299
RMI 3501
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Dr. Drennan
Fall 2011
Table of Contents
Loss Exposure Matrix………………………………………………………………………………………………………………1
Inventory of Existing Benefits…………………………………………………………………………………………………..2
Inventory of Benefits…………………………………………………………………………………………………...3
Background of the Healthcare Plan…………………………………………………………………....3
Medical Benefits………………………………………………………………………………………......……………...4Preferred Provider Organization (PPO) Plan……………………………………………….…..3-4
Dental……………………………………………………………………………………………………………4-5
Vision…………………………………………………………………………………………………………….5-6
Prescription Drug…………………………………………………………………………………………..6-7
Loss of Income Benefits………………………………………………………………………………………………..7
Basic Life, AD&D, Supplemental Life……………………………………………………………….7-8
STD, LTD……………………………………………………………………………………………………...9-10
401(k) Plan………………………………………………………………………………………………..11-12
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Loss Exposure Matrix
Loss Exposure Covered? Benefit/Coverage Provided
Medical Expenses
Hospital and Physician Yes IBC Personal Choice PPODental Yes Guardian PPO
Vision Yes Davis Vision
Prescription Drugs Yes PBM - Millennium Drug Coverage
Retiree Health Care Yes Medicare, COBRA
Long Term Care No
Loss of Income - Death
Accidental Death Yes Basic Life Insurance, AD&D Insurance,Supplemental Life Insurance, OASDI, 401(k)
Plan
Occupational Death Yes Basic Life Insurance, Supplemental LifeInsurance, Worker’s Compensation, OASDI,
401(k) Plan
Non-Accidental Non-Occupational Death
Yes Basic Life Insurance, Supplemental LifeInsurance, OASDI, 401(k) Plan
Disability
Occupational, Short Term Yes STD, AD&D Insurance, OASDI, 401(k) Plan,Worker’s Compensation
Non-Occupational, Short Term Yes STD, AD&D Insurance, OASDI, 401(k) Plan
Occupational, Long Term Yes LTD, AD&D Insurance, 401(k) Plan, OASDI,Worker’s Compensation
Non-Occupational, Long Term Yes LTD, AD&D Insurance, 401(k) Plan, OASDI
Unemployment Yes PA State Unemployment Insurance
Retirement Yes 401(k) Plan, OASDI
Additional Exposures
Dependent Care No
Work/Life No
Educational Assistance NoProperty and Liability No
Legal Expenses No
Inventory of Existing Benefits
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Benefit Plan A.M. Best
Rating
Funding Financing Eligibility
ConditionsPersonal Choice PPO B+
(Good)Fully
InsuredContributory Full Time
Employees &Dependents
Guardian Dental PPO A++(Superior)
FullyInsured
Contributory Full TimeEmployees &Dependents
Davis Vision A(Excellent)
FullyInsured
Contributory Full TimeEmployees &
Dependents
MillenniumAdministrators -Prescription Drug
B+(Good)
FullyInsured
Contributory Full TimeEmployees &Dependents
The Hartford Life andAccident Ins. Co. -Life Insurance
A++(Superior)
FullyInsured
Non-Contributory Full TimeEmployees &Dependents
The Hartford Life andAccident Ins. Co. -AD&D Insurance
A++(Superior)
FullyInsured
Non-Contributory Full TimeEmployees
The Hartford Life and
Accident Ins. Co. -STD & LTD Insurance
A++
(Superior)
Fully
Insured
Non-Contributory Full Time
Employees
All A.M. Best Ratings were sourced from www.ambest.com
Inventory of Benefits
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Background of the Healthcare Plan
Frontline Technologies, a workforce management software company based out of Exton,
Pennsylvania, offers a competitively-priced benefits plan package to its employees. While
medical benefit choices are limited to one plan, the coverage available is priced well below much
of its competition and national averages. This issue will be addressed in the analysis section.
Eligibility to participate in the medical plan is defined to include full-time, active employees,
working forty hours per week, who are citizens or legal residents of the United States, its
territories and protectorates, excluding temporary, leased or seasonal employees.
Due to the fact that Frontline Technologies is a young and small sized company, with
only 80 employees, all of the firm’s available medical benefits are fully insured, contributory,
and community rated. The firm’s medical plan covers 65 total employees. In its entirety, there
are 39 family groups, 2 parent/child groups, 10 employees with legal spouse coverage and 14
single employees. When an employee enrolls in the health care plan, they are automatically
provided with coverage under the dental and prescription drug plans as well. If an employee is
covered under a spouse’s or parent’s plan, he/she may elect to opt-out of medical coverage with
the firm.
Medical Expenses
Preferred Provider Organization Plan (PPO)
Frontline’s only option for medical coverage is a high-deductible health plan through
Independence Blue Cross (IBC). The plan, which IBC calls “Personal Choice”, provides full
coverage on the first of the month after the employee’s initial hire date if he/she chooses to enroll
and participate. The monthly premium for the entire medical plan is as follows: $62 for a single
employee, $68 for employee and legal spouse coverage, $55 for an employee with one child, or
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$92 for family coverage (married couple with any number of children). Personal Choice, like all
PPOs, allows for balance billing. The annual deductible for in-network coverage is $3,000 for
singles and $5,000 for families. Deductibles are $5,000 and $10,000, respectively, for out-of-
network costs. As far as out-of-pocket maximums are concerned, the plan caps these costs at
$5,600 for in-network single coverage and $11,200 for families. Out-of-pocket maximums for
out-of-network coverage are $11,600 for singles and $20,000 for families. Higher deductibles
and increased out-of-pocket maximums create significant incentives for employees to stay in
network. It should also be noted that, for covered services not recognized or reimbursed by
Medicare or IBC’s fee schedule, reimbursement may be available at a rate of 50% for out of
network services, compared to 100% for in-network utilization.
Dental
Frontline offers dental care through a dental PPO sponsored by Guardian. Guardian’s
A.M. Best rating is currently at A++. The employees of Frontline must fill out the enrollment
form and turn it in to receive coverage. Once this process is completed and an employee is
enrolled, coverage begins immediately. Members can choose to stay in-network, which is called
“DentalGuard Preferred”, or go out-of-network for their dental services. However, if an
employee decides to stay in-network, their out-of-pocket expenses will likely be much lower
than if they decide to visit a provider outside of the network. If members go out-of-network, they
are required to submit a claim through the plan and wait to receive reimbursement from the PPO.
There is no guarantee that they will be fully reimbursed for their expenses.
The deductible is $50, whether the Employee chooses to stay in or go out of the network
for dental care. The PPO will cover 100% of the charges for preventive care (e.g. basic
cleanings) for both in and out-of-network users. However, the PPO lowers its coinsurance
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coverage of basic care (e.g. fillings) to 80% for both in and out-of-network users. Also, the
coinsurance limits are decreased even further for major care procedures (e.g. crowns, dentures),
at a coverage rate of 50% for both in and out-of-network users. Currently, the plan offers no
coverage for orthodontia. Under the Guardian Dental Plan, dependent age limits are currently
capped at twenty years old if the son/daughter is a non-student and twenty-six years old if he/she
is currently enrolled as a full-time student.
Vision
Frontline offers a vision plan through Independence Blue Cross, which has an A.M. Best
Rating of A. The plan is fully insured and offered on a contributory basis. The IBC vision plan
for Frontline is administered by Davis Vision and offers members benefits that include eye
exams (including refraction and glaucoma screening), frames, lenses, and contact lenses. The eye
exams, certain spectacle lenses, and frames from the Davis Collection of Frames have no charge
to the member as long as they use a provider from the Davis Vision network. Members can also
get an eye exam from a non-participating provider which will be reimbursed up to $35. Members
may also choose frames from a participating provider’s own frame collection, as opposed to the
Davis Collection of Frames. If an employee follows this route, he/she will receive a $60
allowance. If a member exceeds the $60 allowance, they are balance-billed for the remaining
excess expenses. If a member wants to select either lenses or frames from a non-participating
provider, there is a reimbursement for up to $75 available.
There are no completely cost-free contact lenses available for members. Members can
receive contact lenses which include standard, specialty, and disposable lenses, through a
participating provider with an allowance up to $75. If a member goes over that allowance, they
will also be balance-billed for the difference. If a member would rather go out of the network and
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use a non-participating provider, they can receive up to $75 in reimbursement; however they are
not guaranteed all of the $75.
Prescription Drug Plan
Frontline’s prescription drug plan is provided through a PBM (Pharmacy Benefit
Manager), Millenium Administrators. If an eligible employee or a dependent covered under the
plan incurs expenses from a non-work related injury or sickness, and prescription drugs are
needed, a small co-payment will cover most prescription costs. As previously mentioned, an
employee is automatically enrolled in the prescription drug plan when they elect to receive
medical benefits through the firm.
The schedule for co-payments is listed below. All of these prices for retail drugs reflect a
typical 30-day supply. The prices for mail order drugs reflect a 90-day supply for prescribed
medications.
Participant’s Co-Payments
(Retail)
Participant’s Co-Payments
(Mail Order)
Generic Drugs $10 $20
Preferred Brand Drugs $20 $40
Non-Preferred Brand Drugs $35 $70
Preferred drugs are defined as drugs that have been on the market for a longer period of
time and are widely accepted, therefore they are given discounts. Non-preferred drugs are
usually newer on the market, more expensive and do not receive any other discounts under the
plan. There is also a major incentive for consumers to purchase through the mail due to the cost
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saving potential. The plan also covers diabetic supplies, insulin, injectables, contraceptives and
other drugs deemed medically necessary by the provider.
Loss of Income Benefits
Basic Life, Accidental Death & Dismemberment Insurance, Supplemental
Life Insurance, Supplemental Dependent Life Insurance
Frontline offers basic life insurance, accidental death & dismemberment (AD&D), and
supplemental life insurance to all eligible, full-time active employees who are citizens or legal
residents of the United States, its territories and protectorates, excluding temporary, leased or
seasonal employees. This coverage is made available to help surviving dependents deal with loss
of income caused by the death of the employee. Supplemental dependent life insurance is offered
to spouses and children of full-time employees as defined above. All of these options are
sponsored by The Hartford Life and Accident Insurance Company, who has an A.M. Best Rating
of A++ (superior). Basic life insurance and AD&D are offered on a non-contributory basis and
supplemental life insurance and supplemental dependent life insurance are offered on a
contributory basis. There is an annual enrollment period with no waiting period if the employee
is working for Frontline on the policy effective date. If the employee is not employed by
Frontline at the time that the policy became effective, the employee must wait until the first day
of the month following the date they were hired.
The amount of coverage for basic life insurance is equal to the employee’s annual
earnings, subject to a maximum of $150,000, rounded to the next higher $1,000 if not already a
multiple of $1,000. In no event will the employee’s basic amount of life insurance be less than
$10,000. AD&D has a limit of 1 times the employee’s annual earnings, subject to a maximum of
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$150,000, rounded to the next higher $1,000 if not already a multiple of $1,000. The employee’s
principal sum of AD&D will never be less than $10,000. AD&D also offers additional benefits
which include: repatriation, child education, day care, rehabilitation, spouse education, and
adaptive home and vehicle benefits.
Frontline employees may also choose supplemental life insurance. They can choose how
much they want with a guaranteed issue amount that the amount the employee elects in
increments of $10,000, subject to a maximum of $100,000. However, the maximum amount they
can receive is the amount they elect in increments of $10,000, subject to the lesser of $300,000
or three times their annual earnings. The employee will never have less than $10,000 in
Supplemental Life Insurance however. Finally, the supplemental amount of dependent life
insurance available for an employee’s spouse includes a guaranteed issue amount that the
employee elects in increments of $5,000, subject to a maximum of $100,000. The dependent
children (ages 15 days – 19 years,) are only eligible up to a maximum amount of $10,000. The
amount of spouse supplemental coverage may never exceed 50% of the supplemental amount of
life insurance in force for the employee.
There is some reduction in coverage for life insurance once the individual employee
reaches a certain age. On the date that the employee becomes 65 years old, their life insurance
and principal sum is reduced by 35%. Once the employee then reaches the age of 70, their life
insurance and principal sum will be reduced by 50% of the original amount.
Short-Term Disability Insurance & Long-Term Disability Insurance
Short-term disability and long-term disability insurance are offered by Frontline through
The Hartford Life and Accident Insurance Company, which has an A.M. Best Rating of A++.
The short-term disability (STD) policy provides Frontline employees with short-term income
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protection if they become disabled from a covered injury, sickness, or pregnancy. The long-term
disability (LTD) insurance policy follows the same general guidelines as the STD policy except
its nature varies as it is meant for long term income protection. The STD and LTD are both
offered on a non-contributory basis. All full-time active employees who are citizens or legal
residents of the United States, its territories and protectorates, excluding temporary, leased or
seasonal employees are eligible for this coverage. Consistent with the life insurance policies,
there is no eligibility waiting period for disability coverage if the employee is working for
Frontline on the policy effective date. If the employee joined Frontline after the policy was
already in effect, they must wait until the first day of the month following their hire date.
Short-term disability benefits are available for disability resulting from non-work related
injury on the 30th consecutive day of total disability or disabled and working. For disability
caused by sickness, the benefits also commence on the 30 th consecutive day of total disability or
disabled and working. Benefits are paid weekly at a rate of 66
% of the employee’s pre-
disability earnings or $1,500, whichever is the lesser amount. This coverage level provides an
incentive to the employee to return to work as soon as he/she can to the extent that it does not
provide full compensation coverage. The maximum duration of benefits payable for STD is 9
weeks if caused by injury or sickness. Once the allotted 9 weeks of coverage has expired, STD
benefits cease completely.
For long-term disability insurance, there is a deductible, in nature, which is 90
consecutive days at the beginning of any one period of disability or 90 consecutive days from the
expiration of any employer sponsored STD benefits or salary continuation program, excluding
benefits required by state law. The maximum monthly benefit an employee can receive for LTD
is $8,000, while the minimum monthly benefit he/she can receive is the greater of $100 or 10%
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of the benefit based on monthly income loss before the deduction of other income benefits. The
maximum duration of LTD benefits is described below:
Maximum Duration of LTD Benefits
Age When Disabled Benefits Payable
Prior to Age 63 To normal retirement age, or 48months if greater
Age 63 To normal retirement age, or 42months if greater
Age 64 36 months
Age 65 30 months
Age 66 27 months
Age 67 24 months
Age 68 21 months
Age 69 and Over 18 months
401(K) Plan
Frontline’s 401(k) plan is subject to federal laws, ERISA, and the Internal Revenue Code,
as are all private industry retirement plans. An employee is eligible to participate in the plan
unless their employment is governed by a collective bargaining agreement or they happen to be
nonresident aliens who have no prior earned income in the United States. The eligibility age
under the plan is defined as having reached your 21st birthday. The entry date is the first day of
the month that the eligibility requirements have been met. A qualified employee may contribute
up to 12% of their pre-tax salary. Total annual contributions are currently limited to $16,000.
The plan provides for “catch-up” contributions, which allow an employee reaching the age of 50
before the end of the year to elect to defer additional amounts regardless of any other limitations.
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The maximum “catch up” amount in the cur rent year is $2,000 and increases $1,000 for every
additional year with an aggregate limit of $5,000. The normal retirement age is defined as 65
years old.
As far as ownership rights are concerned, the employee is always 100% vested, or fully
vested, in the contributions they make to the plan. Employees are not permitted to withdraw from
their 401(k) accounts unless there is an event of death, disability or separation from service
within the company past a certain, pre-set date. The employer, Frontline, will match the total
amount of the salary deduction the employee elects to defer. The plan allows for “rollover” at the
discretion of the administrator from eligible IRAs or retirement plans.
The vesting schedule for employer contributions is as follows:
Years of Service Vesting Percentage
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 100%
If an employee becomes disabled, he/she is entitled to 100% of their 401(k) account
balance. This would be paid out as if they had retired at the normal retirement age. If a plan
participant happens to pass away, the named beneficiary will naturally receive the benefits. If
there is no named beneficiary the balance will be paid to, in priority order, the surviving spouse,
the children, the surviving parents or the applicable estate.
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To protect from discrimination, the 401(k) also provides “Top Heavy” rules. This occurs
when a retirement plan’s assets are more than 60% attributable to “key employees”. When this
occurs, a “Top Heavy Minimum Benefit” will be allotted to all eligible, non-key employees.
Employee Benefit Plan Analysis
Frontline Technologies
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Part 3: Benefits Analysis
912619478
912479299
RMI 3501
Dr. Drennan
Fall 2011
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Table of Contents
Company History………………………………………………………………………………………….………………………..…………1-2
Overall Design Considerations in Employee Benefits…………………………………..……………………………..2
Goals……………………………………………………………………………………………………………..2-4
Demographics………………………………………………………………………..………………………....4
Funding and Financing Considerations………………………………..…………......……………...4
Problems in the Design of Health Benefits…………………….……………………………………….…..3-4
Funding Considerations…………………………………………………………………………………4-5
Shift of Medical Plan Coverage……….………………………………………………………………….6
Health Reform Considerations………………………………………………………………………..6-7
Cost Containment………………………….………………………………………………………………….7
Problems in the Design of Other Non-Retirement Benefits………...…………………………...……..8
Communication…………………………….……………………………..…………………………….……..8
Regulatory Compliance………………………………………………………………………………………………..9
HIPAA………………………………………………………………………………………...….…………………9
COBRA………………………………………………………………………………………………….……..9-10
ERISA…………………………………………………………………………………………………….……….10
Recommendations Moving Forward………………………………………………………………………10-12
Conclusion……………………………………………………………………………………………………..................12
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Company History
Frontline Technologies, based out of Exton, Pennsylvania, is a privately held workforce
management software technology company. Roland Thompson and Michael Blackstone founded
the company in 1998. Thompson is an ex-Wall Street trader and Blackstone worked for many
major banking and financial institutions over the course of his early career. Thompson and
Blackstone were both very gifted at what they did but were frustrated with the perceived poor
ethics and morals that existed in their industries. They both came to the realization that they
needed to leave the corporate world and try to make it on their own. They decided to take a very
large leap of faith in starting not one, but three, highly successful start up companies. It was
fascinating to learn that, prior to starting Frontline, one of Roland Thompson’s previous ventures
was the invention and sale of the SkyCam overhead camera technology that we all see every
weekend in the Fall at most major NFL football stadiums.
To this day religion and spirituality play a vital role in Thompson and Blackstone’s lives.
They actually attend the same church together every Sunday. During our interviews Mr.
Thompson said, “We wanted to create a company using Biblical principals - things like
character, honesty, morals, valuing family. That is what a company should be founded on.”
These principals have often been seen as taboo and are rare in corporate America because the
primary goal of many businesses is to generate profits. One of the slogans that is common within
the company is “Family before fame. People before profit. God before game.” These are but just
a few examples of how family oriented and employee-centered the company culture truly is.
Below is an excerpt from the Frontline Mission Statement:
“We will honor God in all we do. We will empower our people to innovate, to think
strategically and to be business leaders. We believe customer service is our differentiator and
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we will not let it be commoditized by our competitors. We will pursue business excellence by
expecting the best from our people while delivering the best for our customers. We will grow
profitably by listening to our customers and markets, and continuously be innovating and
creating simple solutions for complex needs.”
After speaking with Roland Thompson (one of the Managing Partners), Todd Orlando
(the Chief Financial Officer), Matt Bachman (the Controller), and Colleen Dewan (the Human
Resources Manager), it was quite apparent that this biblical-based company culture is imbedded
into the minds of all of these individuals. At one point Mr. Blackstone clarified that one does not
have to believe in the Bible or God to work at the company, however the principals they instill in
their employees make for an extremely unique and productive company culture.
It is also noteworthy that there appear to be real business impacts from their approach.
While striving to maintain a strong spiritual environment, the company has also enjoyed very
solid performance results. After only 12 years they have amassed close to 3,000 customers.
Profit margins consistently exceed 70% and revenue growth has topped 20% in each of the last
three years.
Frontline’s most significant product offering is a software program branded Aesop, which
is an automated scheduling and shift fulfillment system that is in place in thousands of
institutions across the world. Aesop was first developed in 1998 and has grown rapidly ever
since. In fact, the program is in place in 20% of the school districts across the country. The
program utilizes Internet services and automated telephone communication in placing substitute
teachers in the Kindergarten through Grade 12 marketplace. The program is entirely automated
and is beginning to corner the market due to its unique capabilities. Frontline also offers other
programs that are seamlessly integrated with Aesop such as Jobulator and Veritime. Jobulator, a
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desktop computer application, is an automatic job notification center for substitute teachers.
Veritime is a web-based time and attendance program that aids in the processing of time sheets,
ultimately saving tedious paperwork and reducing administrative costs. Frontline has
successfully broken into the K-12 education market, as well as the health care industry, staffing
services, manufacturing, live event staffing, and library functions. Their Aesop program has
unlimited potential applications and continues to make breakthroughs in both its technology and
in new industries.
Overall Design Considerations in Employee Benefits
Goals
Frontline is a rapidly growing software company that has had to face many plan design
changes in the past few years and will certainly be going through more radical changes in the
near future. One plan year ago, in 2010, the company offered a choice between two health plans:
a Blue Cross Personal Choice indemnity plan, or a POS-type HMO through Keystone Health (a
subsidiary of IBC). The POS-type HMO offered a Health Reimbursement Account and also a
Dependent Care Reimbursement Account. According to their broker, Kim Phelps, the growing
company would be smart to switch to the high deductible PPO offered through Independence
Blue Cross, which is what they currently offer. This recommendation is based on the fact that the
firm felt compelled to instill a sense of consumerism in the employees and also due to certain
cost shifting strategies.
Plan design, essentially, was somewhat basic due to the small size of the company but
they had to keep in mind the possibility of self-insuring within one to two years. After speaking
with Matt Bachman (Controller) and Todd Orlando (CFO), they both agreed that with the
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increased growth within the firm they certainly see themselves being a fully self-insured
company within the next two to three years.
Since Frontline is a software technology company, most of their employees are highly
compensated and are accustomed to receiving highly rich benefit plans. Keeping this in mind,
Frontline has to offer a benefit plan that is comparable to its competition which includes firms
like E-School Solutions (Orlando, FL) and CRS Advanced Technology (Montoursville, PA).
Offering benefits comparable to its competition is a key decision making factor for the company.
Colleen Dewan (HR Manager) and Orlando both explained that when prospective employees are
shown the benefits package during the interview process, many of them are shocked at the
richness of the provided plan. However, they explained that their benefit package is mainly used
as a retention tool more than anything else due to the fact that a rich benefit package is quite
common in the industry.
The increased trend of offering flex benefits and wellness programs has also been
considered and will be an influential topic during the future plan design discussions. Currently,
the only wellness program Frontline offers is the on-site gym. The company, in the past, has
considered smoking cessation programs and weight management programs as well. However the
fact remains that only two employees smoke and due to the fact that a large majority of the
company are young and in good health these programs would be largely underutilized.
Demographics
The demographics of the company were not a major decision factor in the
implementation or designing of the benefit plan. The company is comprised of a large percentage
of young, single males so this factor did come into play as to the level of benefits offered. This is
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one of the reasons why the monthly premium for the health care benefits is so significantly
reduced; it is currently at a surprisingly low $32/month.
Funding and Financing Considerations
Frontline will be offering a benefit plan that for the most part is fully insured with the
exception of their prescription drug and vision plans, which are self-insured. At the moment, the
company is not large enough to self-insure all benefits but this consideration will be discussed
furthermore throughout the analysis.
Problems, Issues, Concerns, and Considerations in the Design of
Health Benefits
Funding Considerations
As the company sees increased revenue quarter after quarter and as their products are
becoming wildly successful, the idea of self-funding is becoming an increasingly likely option.
In the next plan year the company will be moving to a self-funded dental plan as well as a self-
insured prescription drug plan. According to Kim Phelps, the firm has some serious incentives to
initiate a self-insured medical plan and potentially self-funding their disability coverage (long-
term and short-term) as well.
Many issues related to implementing a self-funded plan will surely arise for Frontline. As
they are approaching nearly 100 employees and hitting certain annual revenue thresholds, it is
entirely possible that they can save a substantial amount of money by offering such a plan. When
Frontline ultimately decides to self-insure they will need to be generating sufficient revenue in
order to establish loss reserves for the firm. They must be able to properly manage cash flow,
predict future earnings, sufficiently deal with shortfalls in expected income, and adapt to
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changing demographics. The firm’s current accounting team is young and may be forced to grow
nearly as fast as the company itself in order to predict such figures. The issue of stop-loss
insurance also arises when considering a self-insured plan. To protect themselves from
unexpectedly high claims, stop-loss insurance is an absolute necessity. In addition, stop-loss
insurance is an additional expense due to the premium that will be paid for the appropriate
policy. Extra resources and time will be necessary in order to find the correct plan with the
necessary stop-loss limits.
A major incentive for Frontline to implement a self-insured plan other than the cost
savings would be the decreased need for regulatory compliance. Under ERISA, self-insured
plans are exempt to hundreds of state laws that regulate and set certain benefit requirements on
employer-sponsored health care plans. This fact alone may hurt them in the long run due to new
regulation of health reform. Under legislation that is waiting to be passed, PPACA may limit the
design options for employers implementing a self-insured plan. The Department of Health and
Human Services is examining the limitations it needs to put in place by analyzing self-insured
plans’ ability to offer less costly coverage.
Shift of Medical Plan Coverage
Frontline, as of their last plan year, offered a POS-type HMO through Keystone Health
with a monthly premium of roughly $125. This plan was the most popular for employees due to
its low cost and the ability to go to virtually any doctor. In addition to the POS plan, Frontline
offered a traditional indemnity plan through Blue Cross called “Personal Choice”. This plan,
referred to as a “Cadillac” plan, had a premium of roughly $325/month. This plan was offered
and chosen by only five employees, because these highly-compensated individuals either did not
want to change their doctors or had increased expected medical costs. One aspect that makes
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Frontline so unique is the fact that it still has the ability to listen and coordinate with its
employees. The only reason the “Cadillac” plan was offered was due to the requests of a few
employees to offer such a plan. The firm switched to the PPO through IBC in order to broaden
the network of primary care physicians and specialists as well as force employees to act more
like traditional consumers of health care services.
Health Reform Considerations
With the array of health reform regulation that has passed legislature or is still on the
docket with the Supreme Court, health reform is the most controversial issue facing small
businesses today. Frontline, who currently fully-insures their PPO plan through IBC, will face
some increased compliance issues if the Supreme Court allows the Individual Mandate.
Currently, the program is waiting for a ruling on whether or not it is in fact constitutional and if
so it will be effective as of January 2014. From what the key decision makers of the company, as
well as the broker Kim Phelps have explained, they believe that the company will be self-funding
before the Individual Mandate is passed so that fact makes this a non-issue.
Health reform, the Individual Mandate in particular, will limit the flexibility of health
insurance policies. Any policy that is deemed qualified under future legislation will face
limitations as to the level of deductibles, maximum payouts, and copayments.
Cost Containment
As with most companies, Frontline is focused on and concerned about continuous
inflation when it comes to healthcare costs. As these costs continue to escalate, employers need
to start rethinking certain aspects of their employee benefit plans. Frontline has certainly taken
notice of these recent trends and has started to rethink their benefits packages and in certain areas
they have already taken steps to attempt to contain the costs. For example, Frontline’s most
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noteworthy effort so far has been the move to a $3,000 /$6,000 High Deductible Health Plan.
This shifted more of the cost towards the employees so that Frontline won’t have to bear as much
of the overall cost. The Frontline team indicated that they are not able offer traditional co-pay
plans any longer due to cost constraints. Not only are the deductibles extremely high, but also the
co-pays were moved from $5.00 to $10.00. However, employee satisfaction didn’t change.
Ironically, the staff’s loudest complaint was that they had to switch plans, with limited concern
about the high deductible or the high co-pay.
Frontline has also been considering not offering any type of healthcare at all in the future
as a potential alternative depending on where the cost structure goes in the future. With the “Play
or Pay” law coming into effect in the future, Frontline is contemplating possibly paying the
$2,000 penalty for not “playing”, then simply giving their employees a 20% raise to help them
out with their own healthcare expenses. Frontline says that this option of paying the $2,000
penalty is a last resort option and they don’t believe it will come to fruition.
Problems, Issues, Concerns, and Considerations in the Design of
Other Non-Retirement Benefits
Communication
Frontline communicates with their employees in several different ways to inform them
about the benefits they are offered and how they work. First, Frontline sends out SPDs to all of
their employees electronically so that they can start to gain a little bit of a background as to what
is offered and how much they will have to pay and other things of that nature. Open Enrollment
is another way Frontline communicates benefits with their employees. Once a year, in March,
Frontline holds a meeting to go over the different benefits that they offer and what each of them
contains. All the employees gather together to learn more about the benefits they will be
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receiving. To keep the employees engaged, there are food and beverages provided. Kim Phelps is
also there to help inform the employees and answer any questions that they might have.
Also, Frontline has completed utilization surveys in the past. These surveys go to the
employees to see what they like about their benefits and what they do not necessarily like about
them. For example, Colleen Dewan gave one to the employees two years ago regarding their
vision plan in order to determine basic participation percentages. She said she was surprised to
find out that about 85% - 90% of the employees were going to the eye doctors regularly and were
using the glasses and contact lens benefits. This and other surveys are used to help determine
how the benefits that are being offered can be altered or eliminated from the benefits package.
Regulatory Compliance
HIPAA
Most privately held companies have to worry about HIPAA and the confidentiality of
their employee documents and claims history. Kim Phelps said that this is not completely the
case for Frontline. This is all because everyone at Frontline is upfront and open with everyone
else and most of the time the employees share a lot of their health problems with other
employees anyway. “It is just how the culture is at Frontline” Kim said, “Everyone is open with
each other”. However, Colleen Dewan said that she has to be very careful about not knowing
anything that she doesn’t necessarily need to know. If something of that much importance is
brought up she will tell the employee to just go straight to the broker, Kim, to discuss any issues
they might have. There was one instance at Frontline when Colleen found out that an employee
had pneumonia and she accidently told another employee. This caused a big problem within
Frontline because the employee who was ill became very upset. From then on out, Colleen
advised the employees to go directly to Kim with their questions or concerns. The employees
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also don’t have access to their spouses and children’s medical information/bills. If they are over
the age of 18, the dependents must give permission to the employee to have access to their
records even though the employee is more often than not the one who is paying the bills.
COBRA
Frontline must offer COBRA coverage due to the fact that they have over twenty
employees. If an employee does leave Frontline, they can get COBRA coverage for up to 18
months thereafter. There is also an HRA account which holds either $2,000 or $4,000 depending
on if the employee is single or married. (These numbers come from the same amounts that
Frontline helps to pay for the employee’s deductibles under their HDHP.) Frontline deals with
COBRA in house with the help of Kim Phelps also. She says that Frontline has few issues
complying with COBRA. Due to the fact that the COBRA coverage is exactly the same as the
active, full-time employee coverage, the employees who are provided COBRA only complain
about the issue of them having to pay the entire premium for the health benefits.
ERISA
Under ERISA, Frontline has a fiduciary responsibility that they must abide by. One
example of this is the switching of health care plans. Last year, Frontline offered two plans: a
Blue Cross Personal Choice indemnity plan and a POS-type HMO through Keystone Health. By
switching to their Blue Cross Personal Choice PPO, the employees now have more possible
providers because they have a broader network of doctors than before when they were either in
the indemnity plan or the POS-type HMO. Also, the switch to the PPO greatly reduced the
premium. Frontline must also communicate their benefits effectively to the employees under
ERISA. Frontline sends out SPDs to its employees electronically as well as has an annual
meeting to discuss the upcoming year’s benefits plan where Kim is also present to answer any
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question the employees might have. Discrimination testing is another area of concern under
ERISA but not for Frontline. Because Frontline has fewer than 100 employees, they need not
perform any discrimination testing so that area of ERISA is not an issue for Frontline.
Recommendations Moving Forward
Frontline has overcome many obstacles in making major changes as far as their benefits
program. Switching from offering a traditional indemnity plan and a POS-type HMO to a high
deductible PPO plan was no easy decision for the executive panel. The company still has many
challenges ahead of them, resulting from health reform and other market and regulatory
pressures. It is suggested that the best course of action, strategically, for Frontline would be to
self-insure their benefits plan. This may mean considering an ASO contract due to the fact that
current administration will most likely not be able to handle and regulate the plan as required.
There are only a few key decision makers within the company, as well as a small accounting
department, that are informed as to the true cost of the benefits provided. This may be a
challenge when the company has to analyze the appropriate amount of loss reserves and correctly
predict future earnings taking into account their current product offering and competitors.
In order to keep up with competition, Frontline may also want to consider offering
wellness programs to their employees. Although weight management programs and smoking
cessation programs are not cost effective at the moment, they should keep them in mind as the
company continues to grow. Although they do have a small on-site gym, they may want to also
consider discounts on local gym memberships in order to keep the company’s employees as
happy and healthy as possible.
As far as communication is concerned, Frontline handles the enrollment process very
well. As previously mentioned, they provide summary plan descriptions for all of their
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employees’ eligible plans during open enrollment. New employees are briefed as to what
benefits are offered and are encouraged to talk to the Human Resources manager, Colleen
Dewan, if they have any questions or concerns. The only recommendation related to the
communications process is related to the HIPAA privacy laws. Any employee who is responsible
for the bills of his/her adult dependents, cannot legally view said bills without written consent of
the dependent. This means a parent cannot see the bill for their child’s broken leg if he/she is
over the age of 18. This presents a problem to the employee and many are unaware of this law.
In order to improve this process, Frontline should brief all of their employees on the laws
surrounding HIPAA in order to avoid potential problems or complaints in the future.
The firm should also consider self-insuring their short-term and long-term disability
coverage as they approach one hundred employees. In order to do so they will need sufficient
data on past claims. They will also need to consider outsourcing some of the administrative
duties. This would only be worthwhile for the firm if it is indeed cost effective but may be worth
pursuing given the low number of employees and relatively low number of processed claims.
Conclusion
Frontline has seen rapid growth internally and financially over the past few years. It is
approaching one hundred employees and has some crucial decisions to make within the next one
to two years, many of them dealing with the possibility of self-insuring. After speaking with
many of their key decision makers as well as their broker, the company has a firm grasp on the
importance of offering fair and competitive benefits to its employees. It is vital to the company’s
culture that they continue to value the satisfaction of their employees as much as they do now. If
Frontline is true to its mission statement and business model, and is able to overcome the
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obstacles it will likely face in converting to a self-insured approach, the future certainly is bright
for this young company.
The consultants would like to take this time to thank the management team and staff of
Frontline Technologies for the opportunity to review and comment on the benefits program at
your organization. We found the company to be a fascinating and compelling player in a highly
competitive market. We look forward to continuing to partner with your team to strive for a best
of breed compensation and benefits program that attracts and retains the best talent in your
market space.
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Bibliography
Geisel, Jerry. "Self Funded Health Plans under Scrutiny." Business Insurance, 3 Mar.2011. Web.
09 Dec. 2011.
<https://blackboard.temple.edu/webapps/blackboard/content/contentWrapper.jsp?content
_id=_2421233_1>.
Halterman, Steven L. "Self Funding Health Insurance for Small Employers: Is It the Right Way
to Go?"
Https://blackboard.temple.edu/@@/BE9834EFD8AAC944CEF37E0E8DCC7028/course
s/1/Drennan_RMI205/content/_2421220_1/Self%20Funding%20for%20Small%20Emplo
yers.pdf . Employee Benefits Journal, Sept. 2000. Web. 1 Dec. 2011.
Pillsbury. "Health Care Reform Update: Changes Plan Sponsors Should Make This Year."
Pillsbury Law (2010). Client Alert, 8 Sept. 2010. Web. 1 Dec. 2011.
The Segal Company. "Keeping Health Funds Healthy: The Importance of Reserves." Newsletter
- Benefits, HR and Compensation Consulting July 2003. Print.
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December 9, 2011
Colleen DewanHuman Resources ManagerFrontline Technologies
397 Eagleview Blvd.Exton, PA 19341
Dear Colleen,
We would like to begin by thanking you for taking time out of your busy schedule and meetingwith us last Wednesday, December 7. We also want to thank you for takings us on a tour of Frontline’s facilities and setting up the different meetings that we had there at Frontline. Weappreciate your willingness to help us out with our paper and we are extremely thankful for yourhelp.
We also ask that if you could pass along our gratitude toward Todd Orlando (the Chief FinancialOfficer), Matt Bachman (the Controller), and Kimberly Phelps (Senior Benefits Consultant fromElite Group) for also taking time to sit down and meet with us was well as making themselvesavailable to call them if we had any further questions after the interview was over.
We thank you once again for your help and we will be sending you a final copy of our paper foryou to look over. If you have any comments or questions regarding our paper feel free to contactone of us anytime you would like
Thank you.
Sincerely,
Matthew McGarveyChristopher Rockelman
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December 9, 2011
Roland ThompsonManaging PartnerFrontline Technologies
397 Eagleview Blvd.Exton, PA 19341
Dear Roland:
We would like to thank you for taking the time out of your schedule to sit down and talk with uslast Wednesday, December 7. It meant a lot to us that you would allow us to talk with you andlearn a little more about the history of Frontline. You helped us with a considerable amount of our paper. We greatly appreciated all that you had to say and we were fascinated with some of the stories you offered. Sitting down with you gave us a better understanding of Frontline as a
whole as well as the benefits offered by the company.
We will gladly send you a copy of our final paper for you to read over if you would like. Feelfree to contact us with any comments or concerns dealing with any of the information provided.Once again we truly are thankful for you sitting down and speaking with us. This paper wouldnot be possible without your help.
Thank you.
Sincerely,
Matthew McGarveyChristopher Rockelman