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This is a discuss question with a required 250 word count and sources must cited (2).Must answered in apa format.How do organizational decision makers align compensation
strategies with shareholder interests? Defend your answer.

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Legally Required Benefits
Learning Objectives
When you finish studying this chapter, you should be A
able to:
10-1. Discuss the origins of legally required benefits. T
10-2. Summarize the four main categories of legally required benefits.
10-3. Describe fee-for-service plans, traditional managed care approaches, and more
recent consumer-driven approaches to providing health care coverage.
, legally required benefits.
10-4. Summarize two additional key laws pertaining to
10-5. Discuss the main benefits and costs of legally required benefits.
If your professor has assigned this, go to the Assignments section of
D already know. After reading the
to complete the Chapter Warm-Up! and see what you
chapter, you’ll have a chance to take the Chapter Quiz!
R and see what you’ve learned.
Today, legally required benefits represent a significant cost to companies. In 2014, companies spent
an annual average of $5,200 per employee to provide legally
1 required benefits. For the same period, these benefits accounted for 7.9 percent of the employers’ total payroll costs. That percentage
will rise substantially because the Patient Protection and Affordable
Care Act of 2010 now requires
2 health insurance as a component of
employers to offer health insurance to their employees. Adding
legally required benefits propels the annual average cost to approximately
$10,100 (based on recent
data when health insurance was offered on a discretionary basis). This figure amounts to more than
T in compensation budgets, the costs
15.6 percent of total compensation cost. Given limited increases
of legally required benefits slowly cut into an employer’s discretion
S in setting pay level and pay mix.
Perhaps if these trends continue, some employers could be placed at a competitive disadvantage.
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Legally required benefits historically provided a form of social insurance. Prompted largely by
the rapid growth of industrialization in the United States in the early nineteenth century and the
Great Depression of the 1930s, initial social insurance programs were designed to minimize the
possibility that individuals who became unemployed or severely injured while working would
become destitute. In addition, social insurance programs aimed to stabilize the well-being of
dependent family members of injured or unemployed individuals. Furthermore, early social
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
10-1 Discuss the
origins of legally
required benefits.

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insurance programs were designed to enable retirees to maintain subsistence income levels.
These intents of legally required benefits remain intact today.
Workers’ compensation insurance came into existence during the early decades of the twentieth century, when industrial accidents were very common and workers suffered from occupational
illnesses at alarming rates.2 The first constitutionally acceptable workers’ compensation law was
enacted in 1911. By 1920, all but six states had instituted workers’ compensation laws.3 State
workers’ compensation laws are based on the principle of liability without fault4 (i.e., an employer
is absolutely liable for providing benefits to employees that result from occupational disabilities or
injuries, regardless of fault). Another key principle of workers’ compensation laws is that employers should assume costs of occupational injuries and accidents. These expenses presumably represent costs of production that employers are able to recoup through setting higher prices.
Income discontinuity caused by the Great Depression led to the Social Security Act as a
means to protect families from financial devastation in the event of unemployment. The Great
G many businesses failed and masses of people became
Depression of the 1930s was a time when
chronically unemployed. During thisAperiod, employers shifted their focus from maximizing
profits to simply staying in business. Overall, ensuring the financial solvency of employees durT and following work-related injuries promoted the welling periods of temporary unemployment
being of the economy and contributedEto some companies’ ability to remain in business. These
subsistence payments specifically contributed
to the viability of the economy by providing
temporarily unemployed or injured individuals with the means to contribute to economic activity by making purchases that resulted,in demand for products and services. The Social Security
Act of 1935 also addresses retirement income and the health and welfare of employees and their
families. Many employees could not meet their financial obligations (e.g., housing expenses and
food) on a daily basis, and most employees could not retire because they were unable to save
enough money to support themselves E
in retirement. Furthermore, employees’ poor financial situations left them unable to afford medical
A treatment for themselves and their families.
Until recently, employers offered health insurance on a discretionary basis. President
N American should have health insurance. The Patient
Barack Obama maintained that every
Protection and Affordable Care Act (PPACA),
enacted on March 23, 2010, is a comprehensive
law that requires employers to offer health
to employees (the employer mandate). As
an aside, if individuals do not have insurance through employment, they are required to purchase
their own insurance (the individual mandate).
In either case, monetary penalties are assessed for
failure to meet the law’s insurance mandates. Since the act’s passage, the employer requirements
have been implemented in phases. The full implementation of all provisions will be complete by
2018. The federal government documents the features and implementations of the PPACA on a
dedicated Web site (
10-2 Summarize the
four main categories
of legally required
There are four categories of legally required benefits: Social Security programs (unemployment
insurance, old age, survivor, disabilitySinsurance, and Medicare under the Social Security Act of
1935), workers’ compensation (various state compulsory disability laws), unpaid family and medical leave (Family and Medical Leave Act of 1993), and health insurance (Patient Protection and
Affordable Care Act of 2010). All provide protection programs to employees and their dependents.
Social Security Programs
The Social Security Act established the following programs:
Each of those programs will be reviewed in turn.
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
ISBN 1-323-59381-0
š Unemployment insurance
š Old Age, Survivor, and Disability Insurance (OASDI)
š Medicare
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UNEMPLOYMENT INSURANCE The Social Security Act founded a national federal–state
unemployment insurance program for individuals who become unemployed through no fault of
their own. Each state administers its own program and develops guidelines within parameters
set by the federal government. States pay into a central unemployment tax fund administered by
the federal government. The federal government invests these payments, and it disburses funds
to states as needed. The unemployment insurance program applies to virtually all employees
in the United States, with the exception of most agricultural and domestic workers (e.g.,
Individuals must meet several criteria to qualify for unemployment benefits. Unemployment
itself does not necessarily qualify a person, although these criteria vary somewhat by state.
Those applying for unemployment insurance benefits must have been employed for a minimum
period of time. This base period tends to be the first four of the last five completed calendar
quarters immediately prior to becoming unemployed. In addition, all states require sufficient
G by each state. Other criteria are
previous earnings during the base period, which is determined
listed in Table 10-1.
Individuals who meet the eligibility criteria receive weekly benefits. Because the federal
government places no limits on a maximum allowable T
amount, the benefits amount varies
widely from state to state. Most states calculate the weeklyEbenefits as a specified fraction of an
employee’s average wages during the highest calendar quarter
S of the base period. Unemployed
individuals usually collect unemployment insurance benefits for several weeks. The average du, average duration refers to the mean
ration of benefits has ranged between 12 and 18 weeks. The
number of weeks for which unemployment insurance claimants collect benefits under regular
state programs. Provisions are in place to provide extended benefits during periods of high unD
employment, which was the case during and following the 2007–2009 recession.
E and state taxes levied on employUnemployment insurance benefits are financed by federal
ers under the Federal Unemployment Tax Act (FUTA). State
A and local governments as well as
not-for-profit companies (e.g., American Cancer Association) are generally exempt from FUTA,
N Employer contributions amount
although some states have elected to participate in this program.
to 6.2 percent of the first $7,000 earned by each employeeD(i.e., the taxable wage base). FUTA
specifies $7,000 as the minimum allowable taxable wageRbase. Relatively few states’ taxable
wage base is as low as the FUTA-specified minimum. In 2015, states’ taxable wage bases ranged
Ado require employee contributions.
from $7,000 in Louisiana to $40,900 in Hawaii. Some states
OLD AGE, SURVIVOR, AND DISABILITY INSURANCE OASDI contains a number of benefits that
were amended to the Social Security Act following its enactment
in 1935. Besides providing
retirement income, the amendments include survivors’ insurance
and both disability
insurance and Medicare (1965). The phrase old age in the title refers to retirement benefits.
Virtually all U.S. workers are eligible for protections under2the OASDI and Medicare programs.
T they have earned through eligible
survivors’ and disability programs, based on how much credit
payroll contributions. They earn credit based on quarters S
of coverage, which each equal three
OLD AGE BENEFITS Individuals may receive various benefit levels upon retirement, or under
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TABLE 10-1 Eligibility Criteria for Unemployment Insurance Benefits
To be eligible for unemployment insurance benefits, an individual must:
š Not have left a job voluntarily
š Be able and available for work
š Be actively seeking work
š Not have refused an offer of suitable employment
š Not be unemployed because of a labor dispute (exception in a few states)
š Not have had employment terminated because of gross violations of conduct within the workplace
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.

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consecutive months during the calendar year. In 2015, a worker earned credit for one quarter of
coverage for each quarter in which she made at least $1,220 of Social Security taxable income.
This figure is based on the average total wages of all workers as determined by the Social
Security Administration (SSA). Workers may earn up to four quarters of coverage credit each
year. Individuals become fully insured when they earn credit for 40 quarters of coverage, or
10 years of employment, and remain fully insured during their lifetime.
An individual who has become fully insured must meet additional requirements before
receiving benefits under the particular programs. Under the retirement program, fully insured
individuals may choose to receive benefits as early as age 62, although their benefit amounts
will be permanently reduced if elected prior to full retirement age. Congress instituted changes
in the minimum age for receiving full benefits. It increased the full retirement age from age
65 for people born in 1938 or later because of higher life expectancies. The age for collecting
full Social Security retirement benefits is gradually increasing to age 67 in 2022. The average
monthly benefit for all retired workersGwas $1,328 in 2015.5
status and the survivors’ relationshipTto the deceased. Dependent, unmarried children of the
deceased and a spouse of the deceased
E who is caring for a child or children may receive
survivors’ benefits if the deceased worker was fully insured. A widow or widower at least age 60
or a parent at least age 62 who was dependent
on the deceased employee is entitled to survivors’
benefits if the deceased worker was ,fully insured. In 2015, the average monthly benefit was
SURVIVOR BENEFITS The SSA calculates survivors’ benefits based on the insureds’ employment
to seriously disabled workers and family members.
In particular, Social Security pays only for total disability. Disability under Social Security is
based on a person’s inability to perform work done before becoming disabled and the inability
A medical condition. The disability must also last, or be
to adjust to other work because of the
expected to last, for at least 1 year or to
N result in death.
Disability benefits are available to disabled workers who are unable to work as a result of a
serious medical or mental impairment that lasts at least 12 months. Seriously disabled workers
R as long as they meet two criteria. First, the worker must
are eligible to receive disability benefits
have accumulated at least 40 credits. Second,
the worker must have earned at least 20 credits of
the last 40 calendar quarters in the last 10 years ending with the year of disablement.
Younger workers need fewer quarters of coverage because they have fewer years to accumulate them. For example, workers ages 21–31
1 may qualify with half as many credits between age 21
and becoming disabled. Becoming disabled at age 29 requires credit for 4 years of employment
(equivalent to 16 credits based on earning 4 credits per year) since the 8-year period beginning at
age 21. The average monthly disability2benefit in 2015 was $1,146.7
Tconvalescent care, and major doctor bills. The Medicare
insurance coverage for hospitalization,
program includes five separate features:
MEDICARE The Medicare program serves nearly all U.S. citizens age 65 or older by providing
Most individuals who are eligible to receive protection under Medicare may choose to receive coverage in one of two ways. A person may receive coverage under the original Medicare
Plan or Medicare Advantage Plans as illustrated in Figure 10-1.
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
ISBN 1-323-59381-0
š Medicare Part A —Hospital insurance
š Medicare Part B —Medical insurance
š Medigap —Voluntary supplemental insurance to pay for services not covered in Parts A
and B
š Medicare Part C: Medicare Advantage —Choices in health care providers, such as through
HMOs and PPOs
š Medicare Part D: Medicare Prescription Drug Benefit —Prescription drug coverage
Original Medicare Plan
Part A
Part B
Medicare provides this coverage. Part B is optional. You
have your choice of doctors. Your costs may be higher
than in Medicare Advantage plans.
Part D
(Prescription Drug Coverage)
You can choose this coverage. Private companies
approved by Medicare run these plans. Plans cover
different drugs. Medically necessary drugs must be
Medigap (Medicare Supplement
Insurance) Policy
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Medicare Advantage Plans
like HMOs and PPOs
Called “Part C,” this option combines your
Part A (Hospital) and Part B (Medical)
Private insurance companies approved by Medicare
provide this coverage. Generally, you must see
doctors in the plan. Your cost may be lower than in
the Original Medicare Plan, and you may get extra
Part D
(Prescription Drug Coverage)
APart C plans cover prescription drugs. If they don’t
you may be able to choose this coverage. Plans cover
T drugs. Medically necessary drugs must be
You can choose to buy this private coverage (or an
employer/union may offer similar coverage) to fill in gaps
in Part A and Part B coverage. Costs vary by policy and
FIGURE 10-1 Options for Receiving Medicare Benefits
Source: Based on U.S. Department of Health and Human Services. (2011).
NMedicare & You. Available: www.medicare.
gov, accessed February 14, 2011.
The original Medicare Plan is a fee-for-service plan that A
is managed by the federal government.
We will discuss the features of fee-for-service plans later in this chapter. Participants in fee-forservice plans possess the choice to receive care from virtually any licensed health care provider or
facility. On the other hand, Medicare Advantage Plans offer 1
a variety of insurance options, including health maintenance organizations, preferred provider organizations, Medicare special needs
plans, and Medicare medical savings account plans (MSA). Medicare Advantage Plans are run
2 the Medicare program. Restrictions
by private companies subject to strict regulations specified in
pertain to pricing of the different plans.
T insurance covers both inpatient
MEDICARE PART A COVERAGE This compulsory hospitalization
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and outpatient hospital care and services. Social Security
S beneficiaries, retirees, voluntary
enrollees, and disabled individuals are all entitled. Both employers and employees finance
Medicare Part A benefits through payroll taxes of 1.45 percent on all earnings, to be noted shortly.
Examples of Part A coverage include:
š Inpatient hospital care in a semiprivate room, meals, general nursing, and other hospital
supplies and services.
š Skilled nursing facility care, including semiprivate room, meals, skilled nursing and rehabilitative services, and supplies for up to 100 days per year. Examples of skilled nursing
care include physical therapy after a stroke or serious accident.
Individuals who meet the eligibility criteria do not pay a premium for Part A coverage; however, those who do not meet the eligibility criteria paid a monthly premium up to $407 in 2015.
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.

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MEDICARE PART B COVERAGE This voluntary supplementary medical insurance covers 80
percent of medical services and supplies after the enrolled individual pays an annual deductible
for services furnished under this plan. Part B helps pay for physicians’ services and for some
medical services and supplies not covered under Part A. Medicare Part B pays for medical
care such as doctors’ services, outpatient care, clinical laboratory services (e.g., blood tests and
urinalysis) and some preventive health services (e.g., cardiovascular screenings and bone mass
measurement). Part B also provides ambulance services to a hospital or skilled nursing facility
when transportation in any other vehicle would endanger a person’s health.
Part A coverage automatically qualifies an individual to enroll in Part B coverage for a
monthly premium. The premium amounts will be revised annually. In 2015, monthly Part B premiums ranged from $104.90 to $335. …
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