Costing of employee benefit

1. Dr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt)
Professor
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2.  They are non-wage/non-salary facilities and services
provided to employees
 Benefits are getting more expensive year after year
◦ 24.7% of pay-bill costs in 1959 were made up of benefits
◦ Today 41.3% of pay-bill costs are made up of benefits
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3.  Data required for costing health insurance benefits:
 Premium rates for each type of enrollment
- Single
- Husband/wife
- Parent/child
- Family
 Number of members enrolled in each category
 Premium rates for each category
 Total cost of health insurance =
(Number of employees in each category of enrollment) X
(Annual cost per category)
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4.  Assume 52 employees in organisation
 48 full-time and 4 part-time
 Organisation to identify whether part-time
employees eligible for benefits
 Assume organisation pay full cost of
insurance benefits for all 52 employees
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5. Type of Number of Annual Cost/ Total
Enrollment Employees Employee ($) Cost ($)
Single 12 4,200 50,400
Parent/Child 6 6,144 36,864
Husband/ Wife 10 9,180 91,800
Family 24 10,728 257,472
Total 52 436,536
Total cost of medical insurance for
organisation is $436,536
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6.  If employee requires to contribute 10% of
premiums for dependent coverage
 Employee contribution can be calculated using
information in previous slide
 Organisation’s cost for medical insurance =
Total Cost – Total Employee Contribution
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7. Type of Annual Minus Cost of 10% Number Total
Enrollment Cost/ Single Dep. Contribu of employee
Employ Portion of Covera tion ($) Employe Contribu
ee ($) Prem. ($) ge ($) es tion($)
Parent/Child 6,144 4,200 1,944 194 6 1,164
Husband/ 9,180 4,200 4,980 498 10 4,980
Wife
Family 10,728 4,200 6,528 653 24 15,672
Total 21,816
employee
contribution
Organisation’s cost for medical insurance
= $436,536 - $21,816 = $414,720
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8.  Cost of dental insurance can be
calculated based on:
 Number of employees in each category of
enrollment
 Premium rate for each category
 Assume dental insurance is provided for
all 52 employees and their families
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9. Type of Number of Annual Cost/ Total
Enrollment Employees Employee ($) Cost ($)
One person 12 463 5,556
Two persons 16 921 14,736
Three persons 24 1,314 31,536
Total 52 51,828
Organisation’s cost for 52 employees are $51,828
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10.  Dollar cap limits organisation’s expenditures
 Actual cost will be based on dollar cap
 If cap applies for each employee individually,
cap would not affect costs for 12 employees as
cost of coverage less than $700 cap
 Cap would affect costs for 40 employees who
have two or three persons’ coverage
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11. Type of Number of Annual Cost/ Total
Enrollment Employees Employee ($) Cost ($)
One person 12 463 5,556
Two persons 16 700 (921) 11,200
Three 24 700 (1,314) 16,800
persons
Total 52 33,556
Organisation’s cost is $33,556
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15. 12-
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(c) 2007 by Prentice Hall 16
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