Online management of your group benefit program almost eliminates your HR benefit burden and provides convenient self-service access for your employees.
1. Establish premium risk by comparing group health benefit budget
Traditional insured health benefits are increased each year using a “Trend Factor” (TF). The trend factor is based on an experienced rating of past costs of benefits in your plan and is increased by a factor for age, demographics, medical cost inflation, administration inflation, and others. For small businesses, recent TFs are in the 10–20% range per year.
COMPARISON OF EFFECTIVENESS OF A 3 YEAR PREMIUM COST GUARANTEE:
- Get the yearly group benefit costs for your company for the past year.
- “Unbundle” the group benefit of premium into the group insurance premium (which pays for life insurance, long-term disability insurance, dependent life insurance and others) from the premium for group health benefits (which includes drug, dental services paramedical services and more). You may wish to perform this exercise for the two or three previous years in order to get an idea of your trending in costs.
- Use the following example as a guide and estimate your costing in three years.
|TOTAL PREMIUM @10%||$10,000.00||$11,000.00||$12,000.00||$10,000.00||$10,000.00||$10,000.00|
|TOTAL 3 YEAR ADMIN COST||$11,600.00||$3000.00|
|TOTAL 3 YEAR BENEFITS||$21,500.00||$27,000.00|
|TOTAL 3 YEAR PREMIUMS||$33,100.00||$30,000.00|
* NO EXPERIENCE RATING
33% INCREASE IN HEALTH BENEFIT PREMIUMS AND 22% DECREASE IN BENEFITS
WHAT IS THE FINANCIAL IMPACT OF A 10% DEFINED BENEFIT PLAN INCREASE IN THREE YEARS?
DB plan cost jumps from $10,000 to $12,100 (at 10%) or a cumulative $33,100, a 33% increase compared to the same yearly DC plan premium costs of $10,000 or a cumulative $30,000. *
*At 15%, 48% increase in 3 years; at 20%, 65% increase in 3 years.
DB plan admin cost increases over three years at $11,600 vs. DC plan admin cost of approximately $3000. Why do DB admin costs increase each year for the same work? Where is expected productivity?
Admin cost savings are kept in your plan for premium savings or increased health benefits for your employees.
DB plan allocates $21,500 for employee benefits over the 3-year period vs. approximately $27,000 for your DC plan.
An RHSA DC health plan eliminates premium increase risk and provides better benefits.
It’s time to consider whether your plan is sustainable.
2. Assess the health benefit use distribution for your employee group.
As part of his service to your account, your group insurance broker will, on request, provide information to better understand how you're plan is being used by your employees.
Assess the costs and cost trends for prescription drugs, dental services, hospital services, and services for paramedical such as physiotherapy and chiropractic care.
Understand the breakdown and costs of your premium dollar allocated to pay benefits for your employees (called the loss ratio) and the costs associated with the servicing and administration of your account.
For privacy reasons, you are not advised to request information about cost for individual employees. However, it is important to know the percentage or number of employees spending less than $500 per year on health benefits, $500–$1500 per year, $1500–$2500 per year, and more than $2500 per year.
It is important to understand how many employees (if any) are using expensive medication and whether this is for short periods of time or for a lifetime.
For the average small business between 90 and 95% of employees spend much less than the premium that you pay on their behalf. One to 2% of employees have serious illness and/or disability and have triggered the insurance provisions of your plan. The remaining 3–4% have very high spending patterns, which are driving costs in your plan.
It’s time to decide whether you want a health benefits plan that meets the needs of the majority of your employees, rather than just a few.
Can your plan sustain the catastrophic drug risk?
Assess whether your employees with serious illness and/or disability will be adversely affected buy a change to a defined contribution health plan.
3. Decide to implement a defined contribution health plan.
Determine different levels of employee contribution at your company: executive, manager, and worker.
Determine the level of funding for the defined contribution benefit account and age level, for example, executive ($5000), manager ($3500), and worker ($2500).
Add the number of employees along with the funding levels to determine your total annual premium.
Decide whether the accounts will be funded monthly or quarterly.
4. Have an employee meeting to explain the benefit plan shift.
Be sure to cover the following:
- How their benefit value will double (or more) with integration with their spousal plan and through tax savings.
- The concept of an individual tax-free health benefit account and the need to spend funds wisely.
- Willingness to look at individual situations that have been predetermined to potentially disadvantage the employee. Accommodate as necessary.
- Ensure that employees with serious illness and/or disability will be protected.
5. Initiate employee enrolment.
Enrolment in a health benefit plan is easily accomplished by automated Internet enrolment. Each employee creates their own DC health account online, just as they would with an online bank account. The DC health account is password-protected.
All necessary details about the employee and their family and eligible dependents are confirmed without intervention from your human resources administration department.
Almost all questions are answered online, which saves your time and internal resources.
6. Your employees are reimbursed.
- Your employees will purchase their health benefits as they would any other good or service. Employees must retain receipts.
- Employees submit receipts online, by fax, or by mail to be adjudicated to CRA standards to confirm allowable medical expenses.
- If the expense is eligible for reimbursement, an email is sent to the company confirming that payment will be made in three working days.
- TPA bills company account and reimburses the employee into their personal account via electronic funds transfer (EFT).
- Summary records of payments are available monthly, quarterly, and yearly.
7. Administration annual renewal is easy.
- Review your costs and disbursements over the past year.
- Review use of your plan, looking at the distribution of payments and use of insurance protection for the seriously ill.
- Documentation for the premium refund of unused benefits by your employees.
- Decide on the levels of funding for different classes of DC health accounts for employees in the next benefit year.
No longer is there any need to shift costs to employees in order to make your plan sustainable. No more plan design incorporating bigger deductibles and larger co-pays, and more excluded items.
All you need to do is determine the amount of funding for each DC health account—that’s it!