- What benefits are included in a group benefit plan normally?
- How does the life insurance component work?
- What is Accidental Death & Dismemberment? (AD&D)
- How long does Short Term Disability last?
- How much of my income is protected by Long Term Disability (LTD)
insurance ? - How does Critical Illness insurance work?
- What is usually covered under the health benefit portion of the plan?
- What is normally covered under the dental portion of the benefit program?
- How does the claims process work for health and dental?
- Does a company need to take all of the pieces of a group plan, or only some of them?
- Why do health premiums tend to increase every year?
- Can the employees pick and choose which benefit they would like to have?
- If a company implements a benefit plan, do they have to offer it to all staff?
- Can a benefit plan be run on a “self-insured” basis?
Q. What benefits are included in a group benefit plan normally?
A. Normally there are six components available in a group benefit program;
- Life and Accidental Death & Dismemberment
- Short Term Disability
- Long Term Disability
- Critical Illness Insurance
- Health Benefits
- Dental Benefits
Q. How does the life insurance component work?
A. The life insurance component is usually either a flat amount of coverage, or a function of annual income. The premiums for this component are based on the average age of the group members, and the male/female ratio. The higher the average age in the group, the higher the premium will be. However, the higher the percentage of females in the group, the lower the premiums will be.
Q. What is Accidental Death & Dismemberment? (AD&D)
A. Accidental Death and Dismemberment is included with the life insurance component on almost all group benefit plans. Most people remember this type of benefit due to the rather gruesome wording found in benefit booklets. Essentially there are different dollar amounts assigned to different types of injuries ie. Loss of finger $3,000, loss of leg $8,000
Of course, there is also a flat amount payable if the insured happens to die due to an accident (as opposed to an illness)
Q. How long does Short Term Disability last?
A. Short term disability plans (also known as “weekly indemnity” plans) pay the individual a portion of their income if they are unable to work due to sickness or injury. Usually, these plans start a week or two after the individual cannot work, and continue either four or six months. In many cases a company which has a Short Term disability plan, also has a Long Term Disability plan, so the length of the Short Term disability period ends where the Long Term Disability plan begins so there is no interruption to the income of the claimant
Q. How much of my income is protected by Long Term Disability (LTD) insurance
A. The most common coverage amount found in LTD is 66 2/3 % of the monthly income of the employee. People often wonder why 100% of the income cannot insured and the answer is really quite simple. The insurance companies would like the claimant to have less money during the claim than was available while working so that there is some incentive to return to work!
The premiums for LTD are affected by various factors including average age in the group, type of work performed, and percentage of male/female content. A higher average age will mean higher premium, while white collar occupations usually mean lower premiums. Interestingly, if the higher the female content, the higher the premiums will be (which is the opposite of life insurance premiums).
Q. How does Critical Illness insurance work?
A. Critical illness insurance is a relative newcomer to the insurance business in Canada, but has rapidly grown in popularity as an option for group benefit programs. The critical illness plan will have a list of illness. If the insured employee contracts any one of these named illnesses (usually things like heart attack, stroke, cancer, coronary artery bypass), and survives for thirty days, the benefit is paid to the individual. This benefit has grown in popularity as employees see an opportunity to have plan benefit where they can receive money themselves. Also, many people believe that our health care system is deteriorating, and that the critical illness insurance will provide them with money to ensure top notch health care if it is not available here in Canada.
Q. What is usually covered under the health benefit portion of the plan?
A. When most people think of health benefits, they tend to think mainly of the prescription drug portion of the plan. The fact is, most of the usage in a health plan is normally found in the prescription drug element. However, there are a variety of other health care issues covered in the Health Benefit portion of the plan:
- Professional services, such as chiropractors, psychologists, chiropodists, etc
- Semi-private hospital coverage
- Home care nursing
- Paramedical supplies
- Out-of- province medical protection
- Vision care
The different types of benefits supplied under the health portion of the plan are often offered under a “co-insurance” type of system. At 100% co-insurance, the insurance company would pay for all of whatever benefit is being covered. At 80%, the insured will pay 20% of the cost of the medical treatment or drug purchase, and the benefit carrier will pay the rest. The higher the co-insurance number, the higher the premium will be.
These different components and co-insurance options can be mixed and matched to provide the best value for your company.
Q. What is normally covered under the dental portion of the benefit program?
A. The levels of dental coverage are really divided into three stages or categories:
- Basic and preventative
- Major and restorative
- Orthodontics
Basic and preventative is exactly like it sounds…treatments which are basic to the health of your teeth are covered under this level. Things like cleanings, fillings, x-rays. Usually, any treatment which is required for the health of your teeth will fall into this category.
Major and Restorative covers other, more serious (and expensive) treatments such as caps and crowns. These treatments are normally viewed to be more cosmetic than a requirement for the health of the teeth
Orthodontics are not covered in many plans today, and when they are it is usually with a 50% deductible and a cap on benefits payable.
Q. How does the claims process work for health and dental?
A. Depending on the type of benefit plan in place there are a few different methods of having claims paid. Many plans today have a drug card. If this is the case, then the individual goes to the drug store and picks up their prescription and only has to pay the druggist whatever amount the insurance company is not going to cover on their prescription. If the plan does not have a drug card the procedure is still very simple. The individual pays for the prescription up front, then sends the receipt and the claim form to the benefit company, and then is re-imbursed for the amount due under the plan. The same procedure is followed when the bill is for some medical supplies or paramedical service.
For most dental claims, the insured has to pay the dentist at the time of treatment. Then some dentists will file the claim with the benefit company directly, while others just provide a form to the insured to send in on their own. In either case, the insured will have to be re-imbursed for the cost of the dental work.
Q. Does a company need to take all of the pieces of a group plan, or only some of them?
A. For most groups, there is an obligation to take the Life and AD&D portion, and then at least one other component (ie STD, LTD, Critical Illness, Health, or Dental).
Q. Why do health premiums tend to increase every year?
A. There is very heavy upward pressure on health premiums in particular since inflation in the medical world is approaching 15% a year. There are several factors driving this rate. New drugs which are released in the market every year tend to be extremely expensive, and it does not take too many claims at $50,000 a year to drive up the inflation figure. At the same time, the population is getting older, and the workforce is aging since the number of new workers is not increasing fast enough. This also drives up the claims. Finally, governments are trying to download as many costs as possible to the private sector so they can balance their books. This means that group plans end up paying for expenses that they did not have to previously. (Government cancellation of payment for eye examinations is a good example of this trend)
Q. Can the employees pick and choose which benefit they would like to have?
A. This is a very common question, and most companies and employees can’t understand why this ever an issue until we have a short discussion about “anti-selection”! For any benefit, whether it is Long Term Disability, or Health insurance, the insurance company will set the rates on what they think the “average” user should be. Obviously, in a group of individuals there will be some healthy individuals, but there will also be some unhealthy individuals. The premium will recognize this and be somewhere in the middle. Now, let’s suppose that the employees have the option of joining the plan or not. Who do you think will join? Experience has shown that unhealthy people join in droves while the healthy people will generally not bother. Now what do you think happens to the claims ( and the rates!) if this is allowed to happen? Usually the rates go up dramatically which the company providing the benefits does not like very much.
This is what’s called “anti-selection”, and this is the reason why most plans have what are called “participation limits”. In smaller groups, it is normally a requirement that all staff join in all the benefits offered. The only exception occurs when spouse has benefits elsewhere, that employee is allowed “opt out” of the benefit that their spouse already has..
Q. If a company implements a benefit plan, do they have to offer it to all staff?
A. The company is not obligated to offer the plan to all staff, but they are obligated to offer it to homogenous and clearly defined groups within the company. For instance, you can have a plan which is offered to the Accounting department, but not the Sales Department. However, you could not implement a plan which only includes your favourite staff members from each department.
Q. Can a benefit plan be run on a “self-insured” basis?
A. The larger your company, the easier it becomes to self-insure components of your group benefit program. Generally, only very large multinational companies self-insure the life insurance or Long Term Disability portions of their group benefit program. The fact is that a single claim in those instances is so large that it takes a large company to absorb the costs.
However, self-insurance is becoming a very viable option for small and mid-size companies for health and dental benefit component of benefit plans with the development of fairly low “stop-loss” insurance certificate options. With Stop-Loss insurance, the company is only at risk for a certain amount of claims, and everything above that amount is paid for by an insurer. Depending on the group structure and the company, this can be a very effective method of reducing the costs in the health and dental benefit portion of the plan. Most “leading edge” plan structures in today’s market have some element of self-insurance built into the program.
After reading the Benefits Made Simple many people desire some additional information. We would be delighted to respond to any other questions you have if you’d like to contact us directly.
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