In the September 2020 edition, our President, Robert J. Crowder, CLU GBA, was published in Workplace.ca, a leading publication on Canadian management and workplace resources. The topic discussed was how benefits advisors and business owners needed to plan for a post-Covid world for their health and benefits plans. Below is a summary of the article.
How to engage staff is a challenge but is especially trying in a pandemic. And what about after we emerge from it? Any organization should have a strategy for Covid-19 with an eye on the employee health and benefits plan. Keep in mind Covid-19 may not be the last pandemic.
For many organizations the health and benefits plan is the third biggest expense, after salaries and rent. So, how do you engage with staff in a post-Covid world? This period will probably last 18 months, if not longer. It’s best to have a strategy in place before the next crisis. If not, this is what could happen.
The owner of a distribution facility with 25 employees paid $9,500 per month in premiums for an employee benefits plan that included comprehensive health and dental coverage. As the Covid crisis unfolded in March, company sales plummeted and customers held back payment, causing a cash crunch.
The owner reduced non-essential expenses and negotiated a reduction in rent. Benefits represented a major part of expenses but actual usage dropped to zero for dental and paramedical services. The owner asked his insurer to temporarily pause unused coverage to conserve cash which would have meant a savings of over $6,000 per month. But it wasn’t possible. By mid-June, the company had paid out almost $20,000 in cash during a crisis when not one employee had gone to see a dentist, physiotherapist, massage therapist or any other practitioner covered under the plan.
In a post-pandemic strategy, try to minimize the number of transactions for claims – health, dental, etc. – and reduce exposure to further costs. For example, you can buy 90 days’ worth of prescriptions, ensure your people see para-medical practitioners only when necessary, and reduce the number of trips to the dental office for routine activities.
Some parts of Ontario, including the GTA, recently moved into Stage 3 of a 4-Stage process and the health and benefits plan should strategically coordinate with those stages. But during the first three months of Covid full-premium costs put lots of small businesses on the brink and many of them felt powerless to do anything. Federal bailout programs addressed salaries and rent but ignored health and benefits plans, so all the more reason to have a strategy. The key is being able to adjust premium costs to match claims.
Stage 1
This is the initial onset when you lay off employees but maintain basic employee benefits. No claims are coming in for dental so your strategy should include a 100% reduction in premiums for dental programs. For other healthcare expenses, the reduction might be 50% and this would match revenue decline. Altogether it means a 50% drop in costs for benefits premiums.
Stage 2
Dental and medical offices re-open with strict protocols and you gradually rehire laid-off employees. So, gradually increase coverage by adjusting the level of premiums paid. That means dental premiums could increase from zero to 50% and premiums for other healthcare providers to 75%. The net result is a reduction of 25% in costs for employee benefits premiums.
Stage 3
All remaining businesses re-open with new protocols. Your employee benefits strategy would monitor claims using monthly financial statements so the cost of premiums gradually increases with the number of claims. The premiums match the claims in real-time.
Stage 4
Return to business as usual with conventions, sporting and cultural gatherings, and no restrictions. Does your benefits plan return to normal? No because the adaptable strategy just illustrated isn’t possible with traditional benefits plans.
Most small businesses paid too much during the first three months of the pandemic for health and benefits plans; they paid their benefits provider 100 per cent of their pre-Covid commissions when claims were down. In your next renewal don’t be surprised if your insurance provider introduces ‘The Covid-19 Adjustment Factor’ which will adjust your claims experience to make sure you don’t get any of that overpayment back next year.
Business owners should understand what their benefits funding model is and be aware of options. A budgeted administrative services only (ASO) plan provides the resiliency and flexibility needed in a post-Covid environment.
It estimates health and dental claims, and provides a fixed monthly contribution towards expected claims. Unlike traditional group benefit plans, which lock into a 12-month model based on historical data and future estimates, the ASO plan mirrors what’s happening in the current business environment in real-time. Contributions are directly related to your claim levels and surplus premiums paid are returned to the business at the end of the year, or are used to fund future contributions in tough times. The plan sponsor can adjust contributions due to changing financial circumstances any time.
This way you have control over premiums plus the ability to change finding mechanisms to closely mirror what is going on.
