In part 1 of this article, we talked about the difference in working with an employee benefits specialist vs a generalist when it comes to managing group benefits for your employees. Notably, 50% of group benefit plans in Canada are sold by advisors that don’t specialize in benefits. However, group insurance is a complex and constantly changing area that requires a high level of expertise. Those small details in your employee benefits contract are significant. Clients, together with their advisor, should review their contract on a regular basis. An employee benefits specialist will help ensure that there are no new liability risks facing your business and that your employees and their families are getting the protection they expect.
Have you had a discussion with your advisor on how to reduce risk & liability within your plan? We often see issues with drug pooling levels, LTD non evidence limits and credibility factors for small businesses.
Prescription Drug Coverage and “Pooling Levels”
A “pooling level” refers to the threshold after which your drug spend no longer counts toward your claims experience. For example, when your drug plan has a pooling level of $15,000 this means that, in any given year, any drug claims over $15K do not count towards your claims experience. Why is this important? Because your claims experience has a direct impact on your premiums. In other words, the higher the claims experience, the higher the rates. Higher pooling levels means greater potential for higher claims for the client.
Unfortunately, pooling levels have increased substantially in recent years. 10 years ago, $5000 was a common pooling limit. Today, a $10,000 threshold is one of the lowest in the industry, with many plans having a pooling level of $15,000. What does this mean for clients? Essentially, a higher pooling limit means both higher risk and higher rates for the client. In extreme cases, an employee benefits plan can become unaffordable as premium rates rise due to high drug claims that have gone out of control. Do you know what the pooling level is in your plan?
Employee Long Term Disability (LTD) Insurance
Clients need to pay attention to their group LTD Non-Evidence Limits (NEL’s). A NEL is the amount of insurance that employees are eligible for without providing any medical information. For example, a common NEL of $1000/month means that employees get $1000/month in the event of disability. However, your employee benefits booklet most likely states that the disability coverage is equal to 66.67% of employees’ salary. An employee earning $60,000 per year would therefore be eligible for $3,350/month. But, in order to get anything over $1000/month NEL, this employee needs to submit a medical questionnaire in order to get proper coverage. Unfortunately, many employers and employees tend to forget about this requirement. If your plan is not audited on a regular basis, you may have employees capped at the NEL. This can result in an unpleasant surprise at the time of the claim. In our example above, the employee thought they would get $3,350/month, but in reality they were only eligible for a NEL of $1000/month. This is also a potential lawsuit for the employer if they failed to advise the employee about the need to submit medical evidence when they were eligible.
Small Business “Credibility”
We see small groups being renewed using their own claims experience more and more often, rather than being a part of a pool. “Credibility” is the term that refers to the portion of claims that are experience rated. Small groups’ claims experience tends to fluctuate from year to year and even one larger claim can have a huge impact on the claims data. Traditionally, small businesses have enjoyed a lower “credibility” factor. This means that small companies would be a part of a larger pool, which would provide small employers with more rate stability and less risk.
However, credibility formulas are changing. Today, we are seeing small groups with less than 10 employees renewing at nearly 100% credibility. Even groups that are a part of the association/ pooled plan are being renewed fully on their own claims experience. A plan design that allows the claims to get out of control doesn’t help either.
Conclusion
The above mentioned nuances may not be obvious to an advisor who doesn’t specialize in employee benefits. To catch these issues, a thorough analysis of the employee benefits program is required, including an audit of your booklet, contract, billing statements and claims. Curious to know if your benefits program has liability risks for your business? We recommend getting an employee benefits specialist to conduct an independent audit of your benefits program. We provide this service free of charge to current and future clients. Get in touch with us to learn more.
