How small business owners can manage benefit costs while protecting employees.

How small business owners can manage benefit costs while protecting employees.

Written by: Adam D. Peros CLU®, CEBS®, CHS™

November 27, 2024.

There are risks and costs to action, but they are far less than the long range risks of comfortable inaction. John F. Kennedy.

It is widely known that small businesses are significant contributors to Canada’s economy. In fact small and medium-sized businesses contribute over half of GDP, with roughly 99% employing 1-99 workers. Of these small businesses, 72% offer workplace benefits. A comprehensive benefit plan allows businesses to compete for talent promoting company growth. The obstacle however is balancing costs while ensuring employee satisfaction.  

Less known are the options forreducing benefits costs while maintaining support for staff. Workplace benefit premiums are a tax-deductible business expense for employers. Selecting low maximums, co-insurance, splitting premium and limiting benefits are common options to reduce this premium. There are however other alternatives that further reduce costs. Considering current economic conditions and inflation, specifically within healthcare, it’s prudent to explore these possibilities. Furthermore, we’ll analyze common plan changes that provide the greatest savings beginning with the most drastic.

In 2023 CLHIA (Canadian Life and Health Insurance Association) paid a record $128 billion in claims, a 13% increase from the record set in 2022 ($114 billion), which was also an increase from another record set in 2021 ($113 billion) according to CLHIA’s annual reports. This is a 68% increase from a decade ago.

Canadians are claiming now more than ever, especially in mental health. Consequently, it is important for business owners to focus on managing the well-being of staff while mitigating costs. This was evident during the global pandemic when insurance providers saw many businesses continue to offer pooled benefits (life, accidental death and dismemberment, dependant Life, short and long term disability) while changing the catastrophic portion of their health plan. Health and dental benefits typically covered under traditional plans were self-insured through a Health Care Spending Account. These benefits are excluded under provincial health plans that must be CRA approved eligible expenses. The catastrophic portion of the extended health plan are claims that occur less frequently but significantly expensive such as; drugs, out of country/travel, accidental dental, hospital and private duty nursing.

Self-insuring requires offering a flat dollar amount in the form of a HCSA for certain health claims such as paramedical practitioners (massage therapy, chiropractor, physiotherapy etc) and potentially medical services and supplies (orthotic inserts, orthopedic shoes, crutches etc.) Dental can also be claimed under a HCSA if not insured with the benefit plan. Catastrophic coverage is viewed as “true insurance” whereas other health benefits like getting a massage are elective. Dental coverage, conversely, is preventative and used to avoid future health issues.

By only insuring catastrophic claims and offering a HCSA for health and dental, the monthly premium should be less than fully insuring the entire plan considering the insurance provider’s risk of claims normally paid have decreased. This has now been passed to the employer who has further mitigated this risk by limiting how much each employee can spend on specific benefits, offering a flat dollar amount used towards health and dental claims or not offering certain benefits.

Standalone HSA’s are offered in the form of a PHSP (private health services plan). Both of these approaches are typically the least expensive benefit plans and often are used by business owners working independently or offering basic coverage for the few employees they have.

Larger businesses typically offer more traditional benefit plans that insure pooled benefits and health and dental. In these cases there are more options available to minimize risk and cost for businesses.  The plan design changes that generally result in significant savings are establishing limits on drug coverage, reducing co-insurance and lowering dental maximums. Cost containment options typically provide to businesses by carriers are the following;

General

  • Family plans starting at two employees (can be for spouses, common law partners with family coverage with one employee waiving health and dental) as long as they work a minimum of 20 hours a week and choose a minimum of number of benefits depending on the carrier
  • Splitting premium with employees (although there are potential cons to this)
  • Pooled plans that offer renewal caps (subject to claims experience)
  • Co-insurance vs 100% coverage, flat life benefits instead of multiple or large maximums, couples rates vs family rates
  • Negotiating rate guarantees and renewal caps
  • Negotiating weighting at the renewal
  • Deductibles
  • Tiered benefit plans
  • Using preferred providers
  • Longer waiting periods
  • Calendar vs policy year

Extended Healthcare

  • Drug stop loss below 10K which is the industry standard
  • Dispensing fee caps, using less expensive pharmacies, receiving a larger drug supply (90 days)
  • Generic drugs instead of brand, changing drug formularies
  • Restricting therapeutic drugs
  • Restricting paramedical practitioners and combining maximums
  • Using cost plus for certain benefits like vision care

Dental

  • Reducing maximums, recalls, fluoride, scaling, bonding,
  • Using older fee guides
  • Basic dental only
  • Limit fluoride treatment
  • Excluding the hygiene instruction benefit

It’s important to speak with your Benefits Consultant prior to making changes to understand the implications for your business and employees.

Adam D. Peros CLU®, CEBS®, CHS™,Principal, Principal, Mercato Consulting

Resources

http://clhia.uberflip.com/i/1526931-canadian-life-and-health-insurance-facts-2024-edition/0?

https://www.bluecross.ca/benefitsstudy/

https://ised-isde.canada.ca/site/sme-research-statistics/en/key-small-business-statistics/key-small-business-statistics-2023

https://publications.gc.ca/collections/collection_2024/isde-ised/Iu186-1-2023-eng.pdf