MP Benefits Inc. is a business, in business, for businesses and as such our thermometer ALWAYS reflects the mood of the economy. When our clients hurt—we hurt.
In the last year, with the combination of a downward economy, the increase to minimum wage, additional taxes on the horizon, never mind the increased marginal tax rate, and job loss, business is tough all over. Retaining a benefit plan in this environment is hard enough, but add to this toxic mix, a tough renewal which proposes to increase rates.
Just like there are a number of factors adding to the tough times in Alberta, there are a several realities impacting the cost structure of the benefit plan:
- an aging population
- increased disability claims
- employees pending layoff using the benefit plan the maximum
- retained employees using as much of the benefit plan as an entitlement in the event it suddenly be cancelled
- and fewer participates left holding the bag of increased costs (to pay the bill).
Before running off to conduct a market study to ‘shop’ for better rates, as in anything else related to business, take a moment to analyze and find out exactly what is going on with the benefit plan. After close to two decades as a benefit specialist, we can see that comparing groups who have moved carriers several times over the years to achieve better rates are no further ahead than those who have remained consistently with the existing carrier. In fact, I would suggest those who have retained their benefit plan with the existing carrier, capitalizing on longevity, broader policy wording, amongst other factors, are in fact better off price-wise.
Attack the problem strategically:
Plan Design: As the benefit plan should mirror both the overall business plan, and the compensation strategy for the employees, like both of those items, the plan design does need to be tweaked from time to time to remain consistent. Trim the fact, retain the necessary insurance items and perhaps look at better options to provide ‘enhancements’ while staying within the allotted budget. A good example would be the core benefits, removing the paramedical services, vision care, major restorative and orthodontic dental and opting to add in a health spending account to take care of these additional benefit options, but within a set limit. Instead of being seen as a take away, employees appreciate the flexibility and control of using their benefit dollars where they need them most.
Rates: Without question, demographic changes impact the insurance costs. Remember, group is essentially one-year term insurance and we age. When the renewal comes around, even if the plan members have remained consistent, they are still one year older. Given the aging workforce and the amount of disability claims on the insured books, most employers can expect a 5-8% increase for life and disability rates, depending on the male to female split and the change in covered numbers from one year to the next.
Understand the numbers: Pharmacy, professional services (massage, chiro, physio. etc.), health services, vision, and dental care services are priced based upon usage (claims), plus the administration expenses to process the claims, adjusted for inflation, looking a trending measures year over year, to arrive at the projected premium expectation. Just as you are in business to make money, cover expenses and make ends meet, so too is the insurer/benefits provider.
There’s always cheaper – but you get what you pay for – don’t sacrifice critical coverage for paying for the same service with after-tax dollars. If we can all agree the number one reason to have a benefit plan in the first place is the tax advantage, ensure the rates match the coverage, which will then protect the dollars spent, keeping them in a tax-friendly environment.
The best way to handle a tough renewal is to clearly understand if the renewal is accurate or fair. If it is you now have your new baseline for what you are offering in coverage. Take the time to understand discounting, inflation adjustments, manual rates, funding arrangements, and your usage. Then you can decide how to reduce your costs if you are not comfortable with where the correct premium sits.
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