This blog update comes thanks to Chris Day of Fully Managed. I sat down with Chris a while ago and he suggested I write a post about the ins and outs of group benefits since most people are not in the know.
So….here it is!
A group benefit plan is an extended health plan for a group/company with 3 or more employees. The advantage of a group benefit plan is that insurance can be offered to individuals with no discrimination as there is no medical underwriting on groups with 3 or more people. The other advantage is that the premiums are tax deductible to the company making extended health coverage an affordable business expense. (You do want to pay attention to how premiums are paid as they will have tax consequences to the employee; premiums paid by the employer are considered a taxable benefit).
How are the rates calculated?
Typically, the rates are based on the company’s total usage (or expected usage for a new company). For new companies, the rates are determined by comparing the demographics of the applying company to a similar company in the same industry. The rates are based per employee and depend on their salary, job description, sex, age, and marital status. Rates for single individuals are usually less than half the amount of rates for a married individual with a spouse and/or kids to cover.
As insurance carriers are profit companies, they usually want to be keeping 30% of the premiums the company is paying in order to cover admin costs, commissions, and of course profit. This means that the total amount of claims the company puts through to the insurance carrier should not exceed 70% of the total amount paid in premiums.
For example:
$1,000 Monthly Premium = $12,000 yearly total premium paid
Therefore, claims submitted should not exceed 70% of $12,000 which equals to $8400 for the year.
The premiums for a group benefit plan are guaranteed for 12 months at a time and are renewed based on your usage (known as your claims experience). For some carriers, the first year’s rates are guaranteed for 15 months. Once the 12 (or 15months) expire, your rates are renewed at a new price reflecting your claims experience (the total amount of claims submitted for the year). If the company is under its 70% usage, it will see only a small increase to cover increasing medical costs. If the company has claims exceeding 70% of the total amount paid in premiums, the company will see a much larger increase in its monthly premium.
To save money on your company’s insurance premiums, you want to decrease the dollar amount of claims submitted.
There are 2 key ways to do so:
- Increase the co-insurance amount: This is the amount the employee has to cover themselves. By making the employee more accountable for the claims they submit, they will ultimately be more conscious of the expenses they incur. Ideally, a benefit plan should have no more than 80% co-insurance, and can even go as low as 60%. If coverage isn’t completely free, the employee will be less compelled to make unnecessary claims.
- Add a dispensing fee deductible: This means that the employee will have to pay each time they fill their prescription. By adding a dispensing fee deductible, this puts the onus on the employee to be more conscious of corporate spending. Therefore, rather than going once a week to get a prescription filled, they will choose to go monthly, so they only incur one charge instead of four. Furthermore, it will encourage employees to get their prescriptions filled at places like Costco or Walmart where the dispensing fee is around $5 versus Shoppers or other pharmacies where they charge around $12.
If you are a business owner or employee and want more advice on your group benefit coverage – please call me: 778 245 2262.
Thanks again to Chris Day for the inspiration!
Follow Chris on Twitter: @CDot
Chris Day
President & CEO
Fully Managed |