Why are benefits costs going up so quickly?
A recent article in Benefits Canada Magazine identifies a number of factors putting pressure on healthcare costs in Canada, with the net result that “between 2010 and 2011, benefits costs escalated by an average of 6.2%, more than twice the rate of inflation”. This trend may be especially troubling to small businesses owners who feel they have little choice but to accept the benefits cost increases dictated by their insurance company.
For this month’s blog, we’d like to address some of the most serious issues raised in the article, and discuss the steps employers can take to gain control over their benefits plan costs.
Factors Driving Benefits Costs
As more Canadians choose to remain in the workforce longer, benefit costs are impacted directly via increased healthcare claims, and indirectly because some insurance plan components (e.g. travel insurance) can carry significantly higher premiums for employees over 70.
Detailed monthly reporting makes these extra costs clear so that there are no surprises at renewal.
Increasing Use of Multiple Medications
The spiralling costs of prescription drugs (new biologics, osteoarthritis treatments, cancer treatments, etc.) can threaten the integrity of a benefits plan.
To protect against catastrophic medical expenses, stop loss insurance is key. Working with a provider that offers different stop loss levels allows small business more control over their costs.
Employee Illness or Disability
Because insurers vary in their underwriting approach to different industries, there can be considerable differences in disability insurance premiums between insurers.
While a traditional package may not provide the most favourable disability rates for your business, a third party administrator can shop the market independently for each component in a benefits plan, “unbundling” to find competitive rates.
The Benefits Canada Magazine article details several other factors contributing to higher benefits costs, including risky health behaviours, stress management, depression, and other mental health issues. Due to the widely varying needs of employees and their families, it may be impractical for small businesses to provide adequate coverage for such individual factors.
A plan design that includes health care spending accounts (HSAs) allows the employer to set a fixed budget for available benefits, while giving employees the freedom to prioritize their own healthcare spending.
What Other Steps Can Employers Take?
Small businesses can achieve a greater degree of control and transparency with an ASO plan that provides monthly financial reporting. An employer who understands their own group’s claims experience can make choices with their advisor to modify their plan design and control rising costs. More plan design options are now available to small employers as well, including hybrid benefits plans, health care spending accounts, and customized plan designs based on the employer’s compensation philosophy.
There are also many different ways for employers to share benefits costs with employees. According to the 2012 Sanofi Health Survey quoted in the article, “37% of employees are willing to pay a higher premium in order to maintain their current levels of benefits”.
Click here to check out our blog series about sharing benefits plan costs.
It’s important for everyone – advisors, employers, employees – to understand what is behind their own benefits costs. The Benefits Trust can help you further understand your benefits costs, and what’s more, help you gain control over them.
>> We can help you design a customized benefits plan that addresses your unique needs and goals. Contact us today!
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