Your broker would want to offer you an option for a group health benefits plan that was better for your company and your employees, even though the plan produced less commission for the broker.
Your broker would employ a strategy to subsidize your health benefit premium dollars to keep costs in line, rather than shifting costs to employees and diminishing the value of their health benefit plan.
Your broker would not permit your company to pay for duplicate catastrophic drug coverage, which you are paying for in your taxes.
Your broker would understand how to maximize their tax-free perk for your employees.
THERE ARE ONLY TWO GROUP HEALTH BENEFIT PLAN OPTIONS:
Defined Benefit (DB) Plans vs. Defined Contribution (DC) Plans
DEFINED BENEFIT (DB) GROUP HEALTH PLANS
Large insurance companies offer DB plans and these plans have been the standard product presented by brokers to small businesses in Canada.
DB health plans provide insurance payments for purchase of “everyday health expenses” such as prescription drugs, eyeglasses, and dental services.
DB plans are characterized by ever-increasing premium costs, decreasing benefit levels for employees, and complex rule-based plans which are hard to understand and difficult and costly to administrate, both for the insurance company and your HR department.
DB plans for small business typically allocate $0.65 of each premium dollar to pay for your employee benefits, and $0.35 of each premium dollar to pay for administration and brokerage commissions.
That means, every $2 of health benefit attracts $1 of administration cost.
DB plan renewal is complex and consists of reducing benefits to employees by “cost shifting” or “going to market” to get quotes for similar products from other large insurance companies.
DEFINED CONTRIBUTION (DC) GROUP HEALTH PLANS
- DC plans guarantee no increase in premiums until your company decides on a benefit increase.
- DC plans guarantee double the benefits for your employees with the same premium your company pays now.
- DC plans are totally transparent with low administration costs, typically $0.10 on the premium dollar, leaving $0.90 to pay for benefits for your employees.
- DC plans are easy to renew. Just decide on your premium and allocate to each employee group. As a result, broker commissions are lower and appropriate.
WHY HASN’T YOUR COMPANY EVER HEARD OF THE DC PLAN OPTION BEFORE NOW?
IS DB INSURANCE THE ONLY OPTION FOR GROUP BENEFITS?
Insurance evolved to protect individuals from rare but serious events by charging everyone a small premium from a large group (insurance pool). Small premiums are aggregated together to be able to provide generous benefits for these rare and serious events for the unfortunate.
Group insurance provides protection for rare and serious events such as death (life insurance), sickness and disability (short-term and long-term disability), and/or catastrophic costs (mainly catastrophic drug costs).
Group insurance is a tremendous value for employees because they get high levels of protection at a low group cost.
Group health insurance is a poor option for small businesses in Canada.
Most health insurance is used to pay for routine everyday purchases such as low-cost prescription drugs, prescription eyeglasses, and dental services, as well as paramedical services. These purchases are low-cost and could never be categorized as “rare and serious”. In fact, they're 100% predictable expenses for most employees.
GROUP INSURANCE IS THE WORST WAY TO PAY FOR EVERYDAY HEALTH EXPENSES
A DC health account has low administration costs and is the best way to pay for everyday healthcare needs. A small business allocates the insurance premium to each employee's individual healthcare account, permitting the employee to spend the funds on the benefits they need and want on everyday health care items.
DCHA is a bonus for your compensation package because these funds are 100% tax-free to the employee and go a lot further.
CATASTROPHIC DRUG COVERAGE
Insurance covers rare and serious conditions and helps pay for extraordinary costs. Every health benefit plan should have catastrophic drug coverage. Even though claims are rare—one or two per hundred employees—they routinely add up to $25,000 a year, $100,000 a year is not uncommon, and some claims now are approaching $1 million a year.
Catastrophic drug claims are the #1 threat to the sustainability of privately funded health benefit plans.
The insurance companies’ response? More insurance. Catastrophic drug insurance. Another level of cost for your small business. Much higher premium costs in the future. This is now becoming a standard offering for insured health benefit plans.
Is there another option? Yes. Provincial pharmacare plans provide catastrophic drug coverage, which is paid for through our taxes. With a DCHA, there is no need to purchase supplementary catastrophic drug insurance from an insurance company.
DCHA integrates with the provincial catastrophic drug offering. DCHA provides a caseworker to assist an application for this provincial benefit.
Which type of catastrophic drug coverage is better?
Defined benefit plans provide catastrophic drug coverage. However this coverage usually comes with a co-payment of 20% of the cost of the drug. If an employee, for example, claims $25,000 of drug costs a year, the co-payment would amount to $5000 after-tax or a wage equivalent of approximately $9000. For many employees, the cost is too great therefore they forego necessary drug treatment.
Defined contribution plans integrate with provincial catastrophic drug coverage. If the same employee banking $50,000 a year were to claim the same drug cost of $25,000, they are subject to a 4% deductible payment of $2000. It is much more affordable to access this plan than the defined benefit plan example above.
Which type of catastrophic drug plan would you want to provide for your employees?
Say goodbye to costly premium increases. Say goodbye to car shifting to employees reducing their plan benefits.
DCHA premiums are guaranteed for three years. Set a premium that is affordable and sustainable today and it will remain for the next three years on renewal.