The work landscape is ever-evolving. Constantly, trends are coming and going, shifting the priorities of business owners and employees alike. Group Benefits are no strangers to change as the old rigid plans with massive amounts of coverage aren’t cutting it in the eyes of the youngsters joining the workforce.

Inflated plans are unfortunately still commonplace among businesses. A lack of available information causes Plan Sponsors to go for these plans thinking it’ll be great for their business. Unfortunately for them, they learn quite quickly the financial implications are often too much to bear.

So what’s the solution? Well, let's start from the beginning when the inflated plan first pokes its head into a small business.

The beginning of the end

It all starts with the first meeting to discuss Group Benefits. You talk about plans, costs, and coverage until the cows come home. At the end of it all you’re fired up – you’ve designed a plan that will cover everything under the sun, and then some. The best part? It’s a great price (until a year later when you get your renewal, but you weren’t told that).

Nothing could possibly go wrong, right?

We hate to break it to you, but... wrong.

Time for a financial check-up. Doctor’s orders.

The decision to opt for a plan with ultimate coverage often stems from the desire to do everything you can for your team and their health. That’s an amazing gesture! However, the financial implications of a premium-based plan are, well, brutal.

Health and dental expenses are transactional in nature. They are low-risk and high-frequency. That means that once the insurance company sees actual usage numbers your premiums are almost guaranteed to increase. When your plan is inflated to cover everything under the sun, not only is this almost guaranteed, but the premium increase could be huge due to the bloated coverage. “Why wasn’t I warned?!” you cry. Insurance companies can be sneaky. They often promise low rates to win business, then raise the premiums each year to recoup their costs.

Group Benefits providers need to get paid too, but they should be honest about how much you’re paying for the service they provide.

At the end of the day, it’s all about the cost of paying claims. Insurance companies will set a “Target Loss Ratio” – the percentage of every dollar in premiums used to pay claims. (If you want to learn more lingo that is on your renewal report, check out our guide here)

It goes something like this: 50% of every dollar goes to paying claims = We’re charging you a 100% admin fee. That means that on top of every $1 in claims, your business pays the insurance company an extra $1.

Financial implications lead directly into our next topic: sustainability.

The opposite of the Energizer Bunny

Yup, these kinds of plans can’t keep going and going and going. In the short term, it seems great! Your team has comprehensive coverage, they’re able to claim to their heart’s content, and you (seemingly) got a great deal!

Let’s fast-forward to renewal time though. The past year of usage has been high, and your insurer needs to recoup some costs. They hike your premium to the heavens and now you’re stuck with a few options:

1. Soak the cost and keep the plan going until your pockets are empty
2. Cut the coverage down and hope your plan costs get cut down with it
3. Make Plan Members pay a portion of the premiums
4. Get rid of the plan and enter the vicious cycle of plan shopping

This is all too common. That’s why one of our most asked questions is “what will my costs be next year?” Plan Sponsors are worried about sustaining their plans!

Striking a balance between providing flexible coverage and maintaining long-term sustainability is vital in these economic times!

How did we even get here?

It’s a common question Plan Sponsors ask themselves when faced with a 50% increase in premiums.

The answer is quite simple; perceived value.

The plan you were offered was not only appealing coverage-wise but also was probably presented to you at a reasonable price. Your team, even if they had to co-pay, most likely saw the plan as valuable. With “high percentages” and maximums, the plan looks like it covers a lot. However, that isn’t reflected in the price. Surely, they’d get the value out of their plan even if they are paying into it right?

Wrong again. We wrote a blog about the perception of value and used the cost of massages as an example. It shows how a typical scenario can be quite costly.

So how do you find a plan that not only has real value, positive financial implications, and can sustain high usage?

We’re so glad you asked.

Enter the Health Spending Account

Surely you saw this coming. A Health Spending Account (HSA) is a flexible, cost-controlling wonder of a benefits solution. Let’s break it down.

Financial Implications

An HSA provides your team with tax-free funds for their medical expenses while being tax-deductible for your business. Already you’re lining your team’s and business’ pockets with more money.

Due to the transactional nature of health and dental expenses, an HSA is the perfect vehicle to cover them. Plan Members can accumulate funds, so any transactional expense can be planned and saved up for. Regardless of if it's a simple routine check-up or braces for your kids!

Finally, no premiums. You set the budget and stick to it. No more renewals that break the bank, no more worrying about increased usage. Your costs are back in control and the power is in your hands.

Remember that Target Loss Ratio where your cost to pay a claim could be 100% of the dollar value of the claim? An HSA is based around an Admin Fee which can bring your cost to pay claims down to 10%!

Sustainability

There isn’t much to say about sustainability when it comes to an HSA other than it is the most sustainable solution out there. With you setting the budget, you only pay what you can afford.

The lack of premiums makes an HSA really easy to add in as a line item because you know exactly what you’re getting into year after year.

Perception of Value

We live in a diverse world, with people who have diverse needs. That’s why rigid plans don’t work. If one member of your team doesn’t use their benefits, they’re essentially taking a big pay cut compared to someone with high usage.

The beauty of an HSA lies within its equity.

Spending is completely up to the discretion of the Plan Member, and they won’t be held back by any categorical maximums. Contributed funds also rollover so you don’t have to adopt a “use it or lose it” mentality. Moreover, for our HSA Rollback, after a set period of time, unused funds roll back to the company. This feature allows Plan Sponsors to set a comfortable budget, but additionally reclaim some funds if some years have low usage.

We can take it a step further and introduce our HSA Rollover, which is the ultimate when it comes to value. All contributed funds are rolled over as usual, however after a set period all unused funds are rolled into a Group RRSP. So even if your team doesn’t have use for their benefits, they still can get value out of them.

Count me in!

We throw a lot at you in these blogs, so we know you have questions. Get in touch with our Growth team today! If you’re still wondering about premiums, plan designs, or the Group Benefits industry in general, check out our Resource Page.

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