With a hybrid plan, small and mid-sized businesses can achieve much greater flexibility than conventional packaged plans offer. In addition, employers can provide a range of benefits to different groups in their organization depending on the compensation budget and goals for each group.
What is a Hybrid Plan?
A hybrid plan is a balance between a defined benefit plan and a defined contribution plan. While these terms are most commonly used in connection with pension plans, they are equally applicable to a discussion about benefits plan design.
Defined Benefit Plan
- Conventional benefits plan
- Premium rates are set annually in advance by the insurer
- Percentage of reimbursement, eligible and ineligible expenses, and annual and lifetime maximums, are all defined
- Typically includes Life, AD&D, Long Term Disability, Extended Healthcare, and Dental Care
- Tax advantages if defined properly for key executives
- Insurer controls costs
Defined Contribution Plan
- Health Care Spending Account (HCSA)
- Contribution amount per employee defined annually in advance by plan sponsor
- Employees can claim from their HCSA as they incur Canada Revenue Agency eligible expenses
- Employer controls costs
How Do Hybrid Plans Work?
A hybrid plan combines the advantages of both conventional benefits plans and HCSAs, resulting in a very flexible and cost-effective solution. The employer can choose where they would like their plan to fall along the defined benefit – defined contribution spectrum.
This means they can decide on larger or smaller HSCA amounts for different groups within their organization, along with conventional core benefits. This allows an employer to create a truly customized plan that is designed to meet the unique goals of their business.
Hybrid Plan Example
The following is an example of a hybrid plan for a 10 person group in a highly profitable professional services company. Originally, they had a 100% non-contributory conventional plan, with standard plan maximums. This group was looking for a more flexible alternative, and wanted to provide different coverage for three distinct groups with different roles in the company.
Their advisor helped them to build a customized hybrid solution with the following key elements:
For All Employees
- Keep the conventional pooled benefits (Life, AD&D, Long Term Disability, $5,000 Stop Loss, Out of Canada Emergency Medical Coverage). This provides essential insurance protection in case of a catastrophic event.
For 3 Executives
- Provide a 100% defined benefit plan, covering all CRA eligible medical and dental expenses with no deductibles or caps. For individuals in the top tax bracket, this provides a tax-effective way to pay for medical and dental expenses through the business, rather than out of pocket.
For 2 Key Team Leaders
- Add a $2,000 HCSA to the existing conventional plan design. This supplements the conventional benefit plan with a flexible HCSA to cover expenses in excess of the defined maximums, or expenses not covered by the conventional plan.
For 5 Staff
- Revise the conventional plan to provide an 80% drug plan, semi-private hospital, and a $500 HCSA + $250 for each year of service (capped at $2,000). This continues the convenience and familiarity of the drug card, and adds an HCSA targeted at rewarding employees for longer service with the company. For the employer, overall compensation costs for this group of employees are reduced.
Hybrid plans combine the advantages of conventional benefits plans and HCSAs, while giving employers the control and flexibility to ensure that their benefits plan aligns with their business objectives.
Our solution for small businesses, SelectFlex, is a hybrid plan designed specifically to meet the needs of small groups. Click here to learn more about SelectFlex.
Contact us today for more information about specialized hybrid plan designs for your Ontario organization.