Group benefit plans are an important element of an employee contract, yet can be very costly for the employer. To meet their goal of reducing benefit costs, employers use a number of approaches to minimize their out-of-pocket expenses.
A common strategy is for the employer to share the premium cost with employees. For example, they may establish a plan that pays 100% of the amount claimed, but requires the employee to pay a portion of the premium.
The typical minimum an employer pays is 50% of the premium. While there are no legal implications (CRA or otherwise), this is the common industry minimum. The exception is disability premiums (long-term disability, short-term disability), where the employee must pay 100% in order to be eligible for a tax-free benefit.
What about other ways of reducing benefit costs?
Does cost sharing really achieve the goal to keep benefit costs down? Let’s look at another scenario where instead of requiring employees to pay a percentage of the premium, the employer reduces the amount they will pay for health and dental benefits at point-of-sale or service delivery.
Plan designs with reimbursement amounts of 90%, 80%, 75%, and even 50% put part of those health care cost in the employee’s hands. This can achieve two things:
- Employees receive fairer treatment, because employees who don’t claim don’t need to contribute or feel that they must claim to recover their contribution.
- Employees will be more cost-conscious when choosing providers’ products and services. In fact, according to Great-West Life, a 20% increase in employee co-payment actually translates to a 27% saving to the plan for the employer.
Another cost-saving strategy some employers try is to pay 100% of an employee’s portion of the benefits and leave it to the employees to cover family benefit costs. However, this often results in employees choosing to opt out of family benefits.
When this happens, only the employees with high family health costs remain in the group plan, thereby driving plan costs to unaffordable levels. This is called anti-selection, and in some cases the carrier will decline a plan with that opt-out policy.
Finally, making a plan mandatory as an employment requirement is also important to keeping costs down. This ensures that risk is spread across the staff as effectively as possible.
While employees will often resist and wish to opt out of parts of the plan, this is generally unacceptable to carriers and can open the employer to liability issues. It is not uncommon for an employee to sue when forced to pay a high claim, claiming not to have understood the implications of opting out.
Strategies for reducing benefits costs aren’t always clear cut. Employers should consult their advisors before making decisions about cost sharing with employees.
ASSOCIUM Benefits is a very unique employee group benefits provider, focused on supporting benefits advisors and their employer clients. We provide Brokers and Plan Sponsors with a range of solutions from traditional group benefits to more customized, cost and tax effective employee compensation. Let’s connect to find out how we can help.