Congratulations! You took the plunge and set up a benefits plan for your small business.
Now, of course, as a business owner, your mind is occupied with a million different things. Just in case that pesky insurance agent didn't quite explain how this works, we thought we would tell you 5 things you need to know about your first group benefits plan.
1 - THE PRICE WILL CHANGE
The salesmen didn't mention that? When you sign up your company for a benefits plan you enter into a contract with an insurance company. This contract - among other things - guarantees the price quoted to you will not change for a period of time.
After the first year, the insurance company evaluates the plan and offers you a new price for the next year. This is commonly referred to as a renewal.
The new renewal price is based on a myriad of underwriting factors but is mostly linked to the number of claims your group made during the year. In other words, how much your company used the plan. The higher the percentage of claims made, the more likely you will be facing a price increase on your renewal in year 2.
Don't worry. As you will soon learn, that nasty year 2 price increase can be avoided and you can still use that benefits plan as much as you need.
2 - DON'T GO OVERBOARD
The whole point of getting a benefits plan is that you don't want to pay out of pocket for medical and dental expenses. Why not get a benefits plan that will pay 100% across the board?
The first year of a benefits plan is very often the year in which employees make the most claims. They are excited to get that massage, they have put off dental work for years, and frankly, they don't know - and probably don't care - about how renewals work. Employees are really prone to over-use a brand new benefits plan. You want to give them benefits because you care about their health and wellness, but you also want them to think twice about that 9th massage.
Let's talk about a few ways you can create a sustainable benefits plan from year 1 and keep renewals under control.
Add deductibles - A deductible is a small amount of money that the employee must pay out of pocket before the benefits kick in. Adding deductibles deters employees from making frivolous claims on the plan as now their own money is a factor, not just yours.
Lower Coinsurance - Coinsurance is the percentage amount the insurance company will pay for a benefit. For example, if paramedicals are covered at 80% coinsurance, and the trip to the chiropractor costs $100 the employee will need to pay $20 out of pocket. Just like in the case with deductibles, putting some level of financial responsibility on the employee deters them from making unneeded claims.
The general idea is to design your first-year plan with adequate coverage but at the same time share some of the financial burden with employees to prevent over usage. Avoiding over usage is the main factor in maintaining the costs of a benefits plan.
After a few years, the amount of claims your company makes is more predictable as there is some historical data to look back on. Now that you have some stability in your plan you can make increases in coverage with less risk of a future price increase.
While we are on the topic of cost, let's talk about the real cost.
3 - THE REAL COST
Money matters. Making a living was probably a major reason you started your company in the first place. You may be thinking a benefits plan is just too expensive and only for big companies. There are a few tricks that may be helpful to know.
Firstly, you can split the cost of the benefits plan with your employees. Some carriers allow the employer to pay only 25% of the plan. Most insurance providers will allow a split as low as 50/50. Splitting the plan 50/50 is actually a very common practice.
Simply deduct half the monthly premium from each employee's paycheque. Most employees are more than happy to contribute to these programs as the value they receive in return far exceeds the small monthly deduction. The deductions are a mere drop in the bucket, and would likely not even account for 1% of their usual paycheque.
Secondly, the amount that you pay as the employer is tax deductible. There is some nuance required here as some provinces charge HST or small premium taxes on certain benefits. Additionally, the tax policy of each province has the potential to changes as provincial governments change so remember to discuss the tax implications and savings with your accountant!
But in general, the amount that you pay as the employer is tax deductible.
So now that you are deducting the premiums and splitting the cost with your employee that $100 premium just became a $50 tax deduction. Nice!
4 - IT'S FLEXIBLE
Not only are group benefits plans flexible in their design, they are also flexible in administration. You can cancel the plan at any time provided you give notice to the insurance company. Most frequently the required notice is 30 days.
You can also alter your plan at any time. You can raise coverage, lower coverage, add benefits, take away benefits often with no paperwork required. A simple email to your agent or provider should do the trick.
Do you have some employees that are more senior than others? Would you like to provide some employees with different coverage? No problem. You can create benefits classes by job type or tenure. The only caveat being you need at least 2 employees per class.
This is a great way to reward managers, incentivize staff to move up the ladder, or encourage people to stay on board longer. This can also be looked at as a cost-saving mechanism as well, as the majority of staff can get a basic plan, while managers and key staff get a more comprehensive plan.
This sort of flexibility allows you to feel good about committing to a health and wellness plan.
5 - NO MEDICAL UNDERWRITING REQUIRED
Some employees may have pre-existing conditions and are not sure if they will qualify for the new benefits plan. They will.
Unlike individual health plans, group benefits plan require no medical underwriting. There is no medical examination required. Not even a medical questionnaire. Having said that, if you would like to purchase coverage through your group that goes beyond what is being offered you will be subject to a medical questionnaire. The amount of coverage you are able to get without proving medical insurability is called the Non-Evidence Maximum (NEM for short).
It is very common for employees to have chronic conditions that require recurring treatment. The fact they can get coverage through the group plan and stop paying out of their own pocket is huge. This is a major morale booster in the form of removing a financial burden from their life.
We hope after reading this you feel more at ease with your new benefits plan. It is an eternal mission at Easy Group Benefits to demystify the insurance world and spread the joy of benefits to all. Whether you are in the shopping phase or a seasoned benefits veteran we are always happy to help.
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Benjamin Bondar
ben@easygroupbenefits.ca