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Employee Benefits

A business owner recently said to me,

“We had a group plan years ago. It just got so expensive that we had to drop it.”

You know that an employee benefits program is important. Your Employees know it’s important.

Some business owners suffer from analysis paralysis. Do we or don’t we. Other’s look at it as a major expense that the employees don’t use or don’t care about. Some take the view of a current plan that ‘if it ain’t broke don’t fix it.’ They only look at it at renewal time. Complain about the cost and continue as before. Not knowing that there are other options.

You don’t want to run the risk of losing valuable people because you don’t have a benefits plan or don’t have a competitive program. You also don’t want to jeopardize your company’s bottom line in the process. It’s a delicate balancing act to get the right plan at the right price.

Let’s dispel a few things to understand the impact of your decision.

1)

A group plan is insurance

There are elements of the plan that are insurance which include Life, Accidental Death (AD&D) Accidental Death and Dismemberment (AD&D), Long Term Disability. Critical Illness. Most of your costs (usually 70-80% of it) come from the Health and Dental portion. These are the things that the employees use the most. In terms of cost, think of it this way. Today’s claims represent tomorrow’s premiums.

2)

If my premiums go up, I’ll just change insurance carriers

That may work for your first year, but usually by your first renewal, your costs are at or most likely above the premium level. Insurance companies also have an IBNR reserve. IBNR stands for Incurred But Not Reported, which refers to the estimate of the liability from claims that have taken place but have not yet been reported to an insurer. While carriers do their best to value incurred claims at the present-day amount, liability claims have the potential to adversely develop over time. This reserve (usually about 8 to 15% of what you’ve paid in the year) is a major contributor to your first renewal rate. When you change carriers the IBNR is absorbed as income by the previous carrier. Every time you move insurance companies, each charge you this IBNR.

3)

It’s impossible to get cost certainty with a group plan

One of the most popular trends is installing a Health Care Spending Account (shorten to HCSA or HSA). As the business owner you predetermine a benefit amount to be spent by the employees on health and dental care. The employees decide where they want or need to spend this amount. If, for example, they want all of it for dental care, they can. If they want to split the amount between dental care and massage therapy, they can. (Please note Canada Revenue Agency have clearly defined information about what can be claimed).

The cost certainty for the business comes from the fact that once the employee uses the entire amount it’s gone until the new benefit year starts. Nothing else is charged to the business.

This is good for the business from a budgeting perspective. The challenge however could be this. The employee uses the entire amount in January. In September of the same year, they have another major need. They may/will have to pay that cost out of their own pocket. Sometimes, employees “forget” that the business already covered them earlier in the year. They feel that the company should protect them year-round. Installing a HCSA is a great idea. It’s important to remind the employees of how it works when you install it. It’s equally important to remind them of this each year.

4)

We’re too small to have a group plan

For Insurance companies they do have an employee number threshold. Most, require a minimum of 2 employees. Correct, 2. IF, in the past, you’ve been told you’re too small for a group plan maybe it’s because the insurance broker didn’t want to waste their time working with you. This is not to say that they wouldn’t. Most, want to help in any way they can. The challenge they face is from their brokerage. Most brokerages have set limits on the size of clients they want. They, want larger clients that will make them (the brokerage) more money. It’s important to understand who you are working with.

5)

We can’t afford a group plan

The cost comes down to the funding model used and the plan design offered (the coverage you are offering to the employees). The cost per employee, per year, varies. It could be less than $1,000 to $10,000 or more.

If, for example, you want unlimited prescription medication, a large benefit amount for use of massage therapy, and dental services, then yes, your cost will be high. As previously written, today’s claims represent tomorrow’s premiums.

We suggest a fairly conservative plan to start. It’s far easier to increase down the road. This would be great news for your employees. If you must claw back the benefits, this provides the exact opposite effect on the employees.

Having a plan with smaller benefit amounts with a HCSA to cover some of the short-fall may be your best option.

Reach out to us now to discuss your Group Benefits needs.

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