The Financial Advisor Guide to Employee Benefits Self

121 Pages·2012·0.39 MB·English

by  Alex Nicholson

Employee Benefit Plans
Self-Study Course # 3
EMPLOYEE BENEFIT PLANS
In this self-study course, the student will learn about the following:
• Introduction and history of Employee Benefit plans
• Demographics of our changing aging marketplace when it comes to
Employee Benefit plans.
• How Canadians view Health Insurance and how plans are changing to
keep up with the changing requirement of the employee
• The traditional distribution sources for Employee Benefit plans
• Description and types of different types of Employee Benefit plans and the
taxation of Employee Benefit pans
• What benefits are included in an Employee Benefit plan
• The five fundamental principles of Employee Benefit Plans.
• General Provisions of a Master Contract
• A review of the factors that affect a Group renewal premium and how the
premiums are arrived at.
• Corporate and Government Benefits
• Understanding how CPP, EI and WSIB can complement a benefit
package.
• PHSP / Health Care Spending Accounts – Are they the way of the future?
• Employee Assistance Plans
• Group Critical Illness Insurance - The Cost of Living with a Critical Illness
• What illnesses will critical illness insurance cover?
• Best Doctors and more…
AN INTRODUCTION AND HISTORY OF EMPLOYEE BENEFITS (GROUP
INSURANCE BENEFITS)
Even though Group Insurance benefits (also known as Employee Benefits) have
been in existence since 1920, there have been substantial gains, to the point
where today they are more significant than individual insurance. Employee
benefits do however, have limitations that make it clear that it is to be regarded
as an add on and not to be relied on as the main foundation of any individual’s
financial security.
Many businesses, industries and associations are concerned with holding on to
their employees. Although Employee benefits can be considered an expense to
many companies, the employees look at it as a fringe benefit. Currently where
job vacancies are very competitive, many applicants want to find out more about
benefits before they accept a position with the company.
Although a Company does not have to be incorporated to have Employee
benefits, there are many benefits of incorporating a business for the opportunity
to obtain tax advantaged Employee benefits.
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The benefits provided could cover the many formats of Employee benefits to
plans that provide individual retirement accounts or traditional Registered
Pension Plans and a host of other plans.
The health-care system in Canada ensures that virtually everyone living here has
access to medical services in any part of the country. You likely have a provincial
health card that gets you into doctors' visits, hospitals, covers various blood tests,
X-rays, and other medical procedures. As lauded as the Canadian system is, it
doesn't cover everything. With a few exceptions, provincial plans don't cover
dental care or pay for medications received outside of a hospital. These plans
also won't pay for glasses or contact lenses. That's why many of us turn to
private plans purchased by our employers or, increasingly, to individual private
health-care plans.
Unlike the emergency health insurance, you may consider buying when you go
out of the country on vacation, regular individual health insurance is designed for
the day-to-day troubles, surgeries, and treatments that, while routine, can add up
to big bills. Responding in part to the changing workforce where more people are
working on short-term contracts or for themselves, insurers are offering a variety
of health-care packages to cover the needs of individuals and their families.
What started as a basic plan has become a virtual buffet of services where
consumers can choose which benefits they want and need. If you work for a
company that offers health-care but not dental-care benefits, for instance, you
can purchase your own dental benefits.
If you have prescription needs but can't afford a full package, choose a basic
health plan including a drug plan, and skip the dental or vision portions.
If you have a growing family and want as much coverage as possible, order the
works. There are also some packages designed for health-care catastrophes that
would pay much more than the regular plans for serious illnesses that would
result in substantial drug or therapy charges.
The choices are improving, and, for some people, the cost of health insurance
can be used as a tax deduction.
Of course, wanting insurance and getting it are two different things. Insurers will
have you think that everything is simple. One brochure insists you can enroll in a
plan in five easy steps and in less than 10 minutes.
Well, maybe it's that simple if you are young, in excellent health, want very basic
service, and have no interest in the details.
For the rest of us, it makes more sense to pick up the phone and ask questions.
Lots of them.
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You won't want to be sorting out misunderstandings when you are sick. Take
care of it before you sign up and keep notes, so you will remember your
understanding of what you bought.
Health insurance plans usually provide coverage for serious diseases that by
their very nature can be unpredictable and catastrophic.
Medical treatment can be extremely expensive, and a purchased individual
health insurance plan can help relieve tension to some extent. This is not say
that health insurance plans do not cover routine check-ups and common
ailments. The point is that even if companies provide group insurance plans, it is
better to safeguard yourself for the future.
Most plans provide limited coverage and if you decide to opt for the ones with
greater benefits, the cost factor might become an issue.
This is a situation that calls for utmost discretion and it is for you to perform the
balancing act between cost and coverage- you cannot go beyond the budget, but
good health too is of utmost importance.
Most companies provide group dental insurance coverage to their employees as
a major perk to keep their employees happy. Because of the large number of
employees, the insurance companies can provide greater coverage at reduced
rates. People with group dental insurance plans do not require additional
individual dental coverage.
This is not so with health insurance. Even if the company provides medical
coverage, buying individual health insurance is a safer option that will prove
beneficial in the long run.
For many reasons, millions of Canadians are without an employer group health
plan, and therefore vulnerable to health care costs not covered by their
Government Health Insurance Plans so supplemental health care coverage
should concern them.

Corporate and Government Benefits can cover your client’s needs in the
following areas:
• Health Benefits
• Disability Benefits
• Retirement Benefits
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For this course, we will only deal with the first two.
Throughout this course, we will look at the flexibility of different Employee Benefit
Plans, as well as how the Government Plans complement or sometimes integrate
into Corporate Employee Benefit Programs to provide a comprehensive and
wide-ranging support system for employers and employees in Canada.
We will study such Employee benefits as Life & Accidental Death &
Dismemberment, Health, Dental, Short Term Disability (Weekly Indemnity), Long
Term Disability (LTD), Employee Assistance, Group Critical Illness and Best
Doctors.
We will also cover Health Spending Accounts, Health & Welfare Trusts, Cost
Plus, Administrative Services Only (ASO), and Individual Health & Dental plans.
In the Beginning…
While employer medical and dental plans were originally designed to be
supplementary to the publicly funded government plan, because of the federal
and provincial cut backs in healthcare services employers and private insurers
across this country companies have had to alter and redesign their medical and
dental plans to keep up with emerging trends of higher claims and new cost
realities. In an age where publicly covered services continue to be reduced, we
are likely to see corporations in Canada share continue to increase in the coming
years.
In the midst of these economic pressures on the current healthcare system,
employees are demanding better company medical and dental benefit plans.
While the traditional corporate employee medical and dental benefit plans in
Canada provide coverage for semi-private hospital rooms, prescription drugs,
dental, chiropractors, physiotherapists, vision care, extended health coverage
and travel medical insurance, employees are asking for more options than ever
before.
Opinions on what to add are largely influenced by age and experience - items
like teeth whitening can compete with orthotics. Older employees want expanded
drug coverage, while younger workers are concerned about their deductibles.
The end result is employees want choice and employers want/need to contain
their costs.
The vast majority of Canadian small and mid-sized businesses offer medical and
dental benefits to their workforces by utilizing insurance carriers.
With the consolidation frenzy of the last decade, the number of insurance carriers
has dwindled to make the Canadian players more globally competitive. This new,
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streamlined landscape has been good for the carriers, but not for the small and
medium sized Canadian business, which have been underserved by the carriers
focused on delivering shareholder value with big premium clients which are
$500,000 or more in annual premiums.
The increasing pressures on the current healthcare system, the consolidation of
the insurance industry and the growing employee demand for more flexible and
expanded coverage is having the greatest impact on the small and medium-sized
Canadian business.
With health and dental care costs escalating, small and medium sized employers
are facing uncontrollable and unpredictable costs to their businesses to provide
these benefits. Employers have tried to curtail these costs by introducing annual
limits, co-insurance, deductibles and exclusions to their medical and dental
plans.
Canadians and Health Insurance
There are more than 150 life and health insurers operating in Canada (including
37 foreign-owned life insurers) providing a competitive Canadian marketplace
with a wide range of financial security products for businesses and individuals.
These products include Employee benefits and individual plans that provide life
and health insurance protection and retirement savings solutions to ensure the
financial security of over 28 million Canadians.
When it comes to Health insurance, Government programs cover basic physician
and hospital expenses for all Canadians and provide financial assistance to
Canadians who are unable to work because of disability or illness. The majority
of Canadians are also protected through extended health care (Ext. health),
disability and other insurance provided by insurers.
During 2017, 25 million Canadians were covered under Extended Health plans
with over $27.5 billion spent on premiums.
Most health insurance is purchased through group plans provided by employers,
unions or professional associations. Canadians may also supplement
government and group protection with individual plans.
The industry pays out 86% of health insurance premiums as benefits to
policyholders (this includes funds set aside for future benefits on disability and
other longer-term contracts), 8% for operating costs and 3% in federal and
provincial taxes. The remaining 3% is the average profit margin.
Insured health benefit plans played an essential role in providing protection
against financial loss for millions of Canadians
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The Aging Landscape and Health Insurance in Canada

Canada’s population is aging. Statistics Canada reports that over 15% of our
population at the last census was over 65; it was 7.6% in 1960. For the first time
there are more people aged 65 and older than there are children aged 0-14
years. Based on population projections the share of Canadians 65 and older will
continue to rise and that by 2024 they will account for 20.1% of the population.
By 2036 seniors are expected to make up 25% of the population. People aged 85
years and over make up the fastest growing age group in Canada — this portion
of the population grew by 127% between 1993 and 2013.
And Statistics Canada projects, based on a medium-growth scenario, there will
be over 62,000 Canadians aged 100 and older by 2063. However, the quantity of
years will be meaningless without a corresponding improvement in quality to
complement it. An “age-friendly” system must aim to create a continuum that
reduces dependency and enhances care as much as possible.
Key points from the previous information
• As Canadians are living longer, we will have long-term health care needs
• Health insurance responds to these needs, without threatening personal
savings, assets and financial security
• Health insurance provides the flexibility to deal with individual needs as
they arise
Are traditional benefits good enough?
Employees Needs Are Changing
Employers usually aren’t excited about making significant changes to benefits
plan designs because they require a large amount of effort, planning and
communication, as well as financial investment.
Yet it’s important to understand that meeting the demands of a workforce ranging
from those fresh out of school to those working well past the typical retirement
age requires more than a traditional Employee benefits approach.
With so much generational diversity in the workplace, employers need to
evaluate how well their existing benefits plan meets the needs of workers in the
early, mid- and late career stages, considering how a broader range of voluntary
services and choices could better address multiple generational needs, improve
health and enhance member engagement.
Here’s a brief description of the career stages and what employees in these
stages may be looking for.
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Employees early career needs:

Employees new to the workforce may not yet have experienced health-related
costs other than those associated with minor injuries or short-term illnesses.
Their interest in benefits may be less focused on long-term risk issues and more
on current lifestyle needs. One insurance company survey indicates younger
employees tend to spend less time reviewing their benefits (30% spend less than
15 minutes), so there is a challenge in even getting new employees engaged
with their plan.
Earning entry-level incomes and perhaps carrying student debt, this group may
not be that concerned about managing day-to-day health expenses such as
vision care and dental work.
These employees may be less attracted to traditional benefits packages and look
more favourably on healthcare spending accounts (HCSAs), as well as lower-
premium, less-comprehensive coverage options and the ability to trade some
benefits for cash or vacation.
A 2012 employee benefit plan member survey also suggests a preference for
personalized or voluntary benefits. For example, rather than spending benefit
dollars on prescription medications, younger workers may want benefits
supporting personal health and wellness, such as reduced-cost gym
memberships or on-site facilities for fitness and health promotion.
In the early stages of a career, employees want to develop their skills through
training, mentoring and professional development. This is also the beginning
stage of financial planning.
Employees may benefit from counselling on how to pay off debt and save for
future expenses such as home ownership or travel. While generally healthier
than their older colleagues, these employees also report higher levels of
perceived stress, so supporting mental health through peer or employee and
family assistance programs (EFAPs) may be a priority.
Employees mid-career needs:

Depending on their income level, mid-career employees may have a tough time
balancing career and family needs. This age group may be caring for not only
their children but also their aging parents. Hefty mortgages and family expenses
may create financial pressures, driving greater interest in benefits for
dependents, as well as disability and/or critical illness insurance to provide risk
protection against income loss. Typical core health benefits are best aligned with
these employees’ needs, but employers can also help address their financial
concerns through voluntary benefits providing discounts on purchases such as
home and auto insurance.
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Since the onset of chronic diseases such as mental illness, diabetes and arthritis
is more likely at this stage of life, mid-career employees may benefit most from
workplace health and wellness programs. These programs help identify early
stages of chronic disease and offer resources to maintain good health or improve
health status. Non-traditional benefits such as easy access to online health
resources, time off to care for a sick child or parent, flexible work arrangements
and healthy take-out meals available in the company cafeteria can help time-
starved employees better balance home and work life.
Mid-career is also when many people start thinking about what they’ll need in the
future and what their retirement will look like.
These days, with dwindling access to retiree benefits for private sector non-
unionized plans, employees may want access to advice to understand what their
future benefits needs may be and how this will impact their retirement savings
plans. They will also want to explore options for rolling over health benefits in
retirement and adding insurance coverage for critical illness and long-term care.
Employees late career needs:

Older employees are more likely than other age groups to have at least one
chronic disease and be on at least one chronic disease medication—perhaps an
expensive biologic. While health issues may force some to retire earlier than
planned, the high cost of medications and other healthcare needs may
encourage others to stay in the workforce longer.
These employees are often more focused on saving money for retirement— and
may need help doing so—but they don’t necessarily factor health costs into their
planning. If they don’t have retiree health benefits through their company, they
may be surprised to discover there is less public protection than they thought for
expensive prescription drugs, mobility aids, home care and long-term care.
Retirement planning and counselling should include education on how to manage
potential health costs.
With a higher prevalence of chronic illness, older employees would benefit from
services to detect risk factors and manage chronic diseases. They may also want
help navigating the complexities of private and public healthcare to access
resources in a timely way. Also, they may need support for episodic absences
due to ill health or caring for a sick spouse. This group may no longer be as
concerned about dependents and may show interest in more personalized
benefits such as massage, physiotherapy and travel insurance.
Considering the various options:
Plan sponsors have a variety of ways to determine whether their current benefits
do enough to meet employee needs and help with attraction and retention.
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Employee feedback, surveys and industry research—as well as analysis of
claims patterns, employee choices in benefits selection, and public and private
programs—can help employers assess which benefits are relevant and have
perceived value in the workplace.
As well as looking at current needs, it’s important for employers to project how
those needs and employee behaviour might change in the next few years. Most
companies continue to offer fixed or traditional benefits plans because they are
simpler, easier to communicate to employees, allow greater economies of scale
and spread of risk, and have comparatively lower administration costs.
Yet flexible benefits plans—whether they’re set up as optional components in a
traditional plan, as an HCSA or as a modular plan allowing choice between
different packages—can be tailored to meet the diverse needs of a
multigenerational workforce.
Portable voluntary or personal benefits are another possible solution for going
beyond traditional offerings to expand the range of benefits. Fully funded by
employees, voluntary benefits have the potential to better meet employee needs
without adding costs for the employer or having to negotiate a change in benefits
that may be part of a collective agreement. Through agreements between
employers and service providers, employees can access services and products
at lower prices than what they’d get on their own. Plus, benefits can often be
purchased through payroll deduction without individual underwriting, making it
easy for employees.
Yet despite these advantages, most employers have not yet embraced voluntary
benefits. A 2011 LIMRA report, The Building Blocks of the Canadian Employee
Benefits: Employer Perspective, found while more than 60% of employers were
familiar with the concept, only 39% of that group actually offered voluntary
benefits to their employees—even though nearly half agreed personal products
provide a way to offer a wider array of benefits to employees.
The International Foundation of Employee Benefit Plans’ 2011 Employee
Benefits Survey says 47% of Canadian organizations (both public and private)
offer some type of voluntary benefit, most commonly life insurance (90%),
accident insurance (43%) and critical illness or cancer insurance (39%).
Voluntary critical illness is growing in popularity, but the employee-pay-all portion
of a benefits plan could include a lot more generationally relevant options:
insurance covering everything from accidents, travel, automobiles and homes, to
pets and long-term care. Enhanced coverage for typical core needs (e.g., dental,
disability, health, vision, life) could also be offered as voluntary benefits.
Employee benefits plans could include other relevant services and resources as
well, such as training or educational programs, credit counselling, childcare,
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