Do you have the right employee benefits plan?

Chris Redfern

credfern@orrinsurance.net

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It’s no secret that there are plenty of different ways to fund a group benefits plan… but are you using the right one? Are you currently giving an insurer way too much in premium when your employees are using barely half in claims? Or is it the opposite – year after year your employees claim more than you’re giving the insurer, resulting in huge increases at renewal. Sure, we all know claims can go from great to really bad, but there are plans out there to protect you in both scenarios.

WHEN TIMES ARE NOT SO GOOD – CLAIMS ARE HIGH

It’s renewal time… and let’s say you gave an insurer $1,000 in premium for the Extended Healthcare benefit (EHC)… and your employees used $2,500 in claims for EHC. Well, we all know what happens then – big increase. You would be said to have a “loss ratio” of 250% – not so good. At this point you’re fed up with the big increases and no matter what, you need to make a change or the plan is going bye-bye.

There are three main things you can do to combat the high increases:

– Change the plan design (put lower maximums in place, remove benefits etc.)

– Introduce/increase cost-sharing with employees

– Switch to a pooled plan

The first two we all know are not very popular, especially with a crowd that is using the plan significantly and/or already cost-sharing. But the third option, a pooled plan, is the best “win-win” you’re going to get. Instead of the insurer looking at that 250% ratio for your group only, they will lump you in with thousands of clients across Canada… making that increase a little more tolerable. Oh.. and renewals can sometimes be every 2 years too.

WHEN TIMES ARE GOOD – CLAIMS ARE LOW

This one is much more fun to explore. It also involves getting your money back. With traditional plans, if you give the insurer $1,000 for EHC, and your employees only use $500 on the health… well, at renewal time you get a wonderful 2% decrease on your EHC

rates… whoop-de-do. Where did the other $500 of your money go? The insurer’s pocket, obviously.

There is a type of plan out there that doesn’t eat your money like a vacuum when claims are low… it’s called Administrative Services Only (ASO). Give the insurer $1,000 for the health, use $500, and the rest is yours (minus 10%). Oh, 10%? Well, better than 30-40% with a traditional plan. The ASO plan has a 10% admin fee on each claim, and that’s it. Your employees continue to claim low, you get your money back.

WHEN TIMES ARE… OKAY?

A pooled plan or an ASO plan isn’t for everyone… sometimes we just like to keep things simple and go traditional. If your ratios hover around 80% year after year, maybe you feel like sticking with a traditional plan is the best thing for your business, and that’s okay. The longer you’re with an insurer the better they treat you (usually), and the more comfortable your employees become with that insurer.

But it’s important not to forget you can move insurers – a broker can market your plan to all insurers at any time, and they should do this every 3-4 years regardless. Insurers keep us honest, so shouldn’t we return the favour?

Exploring the different kinds of plans out there is good due diligence for your benefits plan – there could be something out there that is a perfect fit for your group of employees.