What do benefits really mean?
Well, certainly as a benefit broker (I do not work for an insurance carrier) I’m jaded when it comes to espousing the “value” of an employee benefit plan. Like many things in life, until you actually experience something, you can not understand the real worth. Group Insurance is no exception.
Despite the service interruption due to pandemic 2020, this past year has seen claim spikes like never before. This, of course, can be aligned with people’s mental health, isolation, and a congregation of other factors. We are all in this together, yet each experience and cope in very different ways.
I could go into detail here how those plans with Short Term Disability and Employee Assistance Program were paramount to personal pandemic recovery in protecting people’s income when they couldn’t work due to infection, or medically required isolation, and their mental recovery and coping through isolation, family, and financial matters, to name but a couple of off the top. But instead I will focus on the “compensation” element and greater employee retention, and access to care portion of the plan.
This is a real, not uncommon example and employee usage this past year:
- Pharmacy claims at 289.8%
- Extended Health Care claims more than 354%
- Vision Care at 89% for claims
- Dental Care usage at 128.1%
Translated, this means for every dollar in premium, employees received back—tax-free:
- $2.90 in prescription claims
- $3.54 in health care services
- $0.89 for vision costs
- $1.28 in dental care
It is safe to say, when it comes to this example, insurance companies—who are “for profit” entities—did not earn any money off this customer. Of course, the argument is the “spread” of risk over a greater portion of customers and they would, of course, make money off of other non-high-users. Let’s put a pin in that for a moment.
When this is broken down on a per employee compensation basis, we can highlight five main areas which all Human Resource professionals should be capitalizing.
- The employee typically pays less than 50% of the overall premium for these benefit lines. In some cases, the employer pays 100% of the premium (receiving 100% of the corporate tax deduction), leaving the employee deductions to the “taxable” benefit options like Life and Disability Insurance.
- The employee has an ability to access care they may not otherwise be able to afford if it were not available under a benefit package. In terms of individual insurance, they may not even be able to qualify due to “existing” health conditions.
- All approved claim reimbursements are received on a non-taxable basis for health and dental (outside the province of Quebec).
- The translated value, on average, per employee within this example, was an additional $2,600 on top of their annual salary. Depending on their tax bracket, convert the after-tax worth if they had to spend this out of pocket. Now, you begin to see the real significance of a benefit plan.
- If an employer were to simply “bonus” the employee the $2,600, the employee would then be taxed at their existing tax rate and the value would be substantially reduced, never mind whether it would be enough to cover their actual “needs” when it comes to care.
Benefit to the employer:
- They had a realized gain of 215% on the (100% corporate tax deductible) money they contributed into the benefit plan. What other investment tool is giving that kind of return?
- Retention of top talent in the ability to protect them and their family members against unforeseen, or on-going, expensive medical costs.
- The added bonus of care for the non-essential, but critical to “wellness” benefits, which supports overall culture of the company.
- The insurance company may recoup these kinds of losses over time, but that money is lost in the year incurred and the insurance provider may lose that business prior to ever having any recovery.
It’s time to alter the perception and make benefits part of the overall compensation strategy, mirroring it to the corporate culture, and part of the incentive package for productivity.
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