Tuesday, November 16, 2010
Planning for a Group Benefits Program
When thinking of group benefits for employees there are two ways to look at it. If you wish to start out insuring against the “big ticket” items, then it’s best to start with some life insurance and a long-term disability plan. You can have the best drug plan in the world, but if there’s no income to pay the bills, then the importance of the drug plan fades very quickly. Fortunately, it isn’t every day that someone becomes disabled, but when they do it is a traumatic experience. There is the financial hit, and there is also a significant psychological hit as the person copes with no longer being part of a team, or being identified with what they do for a living. For this reason, it is advisable to at least think about adding an Employee Assistance Program to your plan. This will provide some counselling for the employee (and family members) as they feel their way through the maze of emotions that go along with a disability. When we talk of disability being a big ticket item, imagine how much money you would have to set aside to pay someone a monthly benefit of, say, $2,000 from now until you turn 65?
If you noticed, we didn’t mention short term disability insurance. Employees are covered by Employment Insurance (EI) and it contains a short-term disability plan that pays after two weeks of disability, and pays for up to 15 weeks of benefit.
Now that the big ticket items have been taken care of, we can look at medical and dental benefits. Generally speaking these are more frequently claimed on, but the amount of each claim is small when compared to a life or disability claim. If employees are going to contribute to the premium, then there is an argument for the coverage to be more comprehensive than if the full premium is being paid by the employer. Employee contributions lead to lower deductibles or higher percentages of coverage for certain services under the plan.
Some employers are interested primarily in what the employees ask for, and given the more common usage of medical and dental benefits, these are what grab the employees’ attention. Some plans are what we call fully pooled, so this year’s claims don’t directly impact next year’s rates. Others are experience-rated, which means this year’s claims will have a direct effect on next year’s rates. Experience-rating does not apply to life or LTD benefits, since the incidence of claims is quite low, and the impact of each claim can be very significant. As with any expenditure, it’s best to find a benefits broker you feel comfortable with, and work with one. By working with more than one, you will get two (or more) different philosophies and you are not going to get the full market assessment since insurers will only quote for one broker on any given company. If you have comments or questions, please let us know.