A group benefits plan typically provides coverage to employees in the following areas: Life Insurance, Accidental Death and Dismemberment, Dependent Life Insurance, Critical Illness, Short Term Disability, Long Term Disability, Extended Health Care and Dental. Health savings account (HSA) programs are also gaining popularity due to the flexibility of these plans.
Due to our shrinking workforce, companies are looking for ways to retain valuable employees and attract new employees. One in five changes their job every year! It is estimated that the average turnover cost per employee is 25-30% of that individual’s salary/benefits package. For an employee earning $30,000 a year with a benefits package worth $1500, the turnover cost (based on 25%) would be $7,875.
A benefits package can often be the deal breaker for a prospective employee so companies need to ensure competitiveness in this area. Employees are less likely to actively search out new employment and are more apt to resist attractive outside job offers when they see their benefits plan as a valuable asset. They will even recommend their company to others, which is a huge advantage as word of mouth is one of the best forms of advertising. Surveys consistently indicate that employees place a high degree of value on their benefits plans.
The generational spread in the workforce has created different needs for this diverse workforce making flexibility of great importance. The old “cafeteria” style flex plans were often complicated and involved a lot of administration. Now, there are other, more simplified ways to achieve flexibility that are still cost effective and require minimal administration. These strategies are discussed in the discovery meeting which is part of the benefit process. See “Chart your Course”.
The various types of group benefit plans today either implemented on their own, or in combination are:
Insured – This is considered a “traditional” benefits plan. The employer enters into a contract with an insurance carrier and pays a premium for specified benefits and the insurance company bears the risk.
Health Spending Account (HSA)/Cost Plus – This is basically a dollars in and dollars out program governed by Canada Customs and Revenue Agency (CCRA). Each calendar year a specified dollar amount per employee is deposited with and administered by a trust company. The employee can then spend the allotted amount on eligible CCRA health and dental expenses. The trust company charges an administration fee for processing claims. GST is charged on the administration fee only.
Refund/Retention Accounting – A company must have $150,000 minimum of claims flow in order to be eligible for a refund plan. In this type of accounting, the insurance carrier holds a second reserve called a Rate Stabilization Reserve (RSR) or a Claims Fluctuation Reserve (CFR) that is normally between 10% and 15% of paid claims. This reserve is held so that if the claims to premium ratio is greater than the Target Loss Ratio the insurer has a fund to draw from. If the claims are 10% to 15% below the TLR a refund is given back to the company.
Administrative Services Only (ASO) – is simply “self-insuring” the Extended Health Care, Dental and/or Short Term Disability portion of a benefit plan. ASO plans can be set up to allow for level premiums to be paid throughout the year (Budget plan), or payment of total claims per month, plus the administration charges (Non-budget plan). The Budget ASO plan must be closely monitored since it will show a surplus or deficit every month. The Non-budget ASO plan takes only the amount of money needed to cover claims plus the administration fee. The consultants at Navigate will help the company develop ‘Deposit” rates or “Phantom” rates that will help the company determine the required employee deductions, if there is a cost sharing arrangement.
Individual Benefit Plans
The high number of self employed individuals in Canada has promoted a very competitive market with respect to benefits for individuals. At one time, Blue Cross was the only provider of individuals. Now, however, every major insurance carrier provides an individual benefits product.
With individual benefit plans, one needs to be aware that medical underwriting may be required, depending on the plan design. So often, healthy people fall into a false sense of security and don’t feel the need for coverage as they are not experiencing any problems. If you are applying for a medically underwritten plan, you or your family member may be excluded for any treatment, medications, etc. related to any current or pre-existing health issue and, in some circumstances may even be declined coverage. It is important to be proactive and obtain coverage before something “unforeseen” occurs.
We, at Navigate can help you sort through the various options available and determine a plan that best suits you and your family’s needs. Not only will you be providing protection for you and your family, but benefits premium for self employed individuals may be tax deductible – please talk to your accountant.