We know that group insurance can be a bit confusing, and providing a benefits plan to employees can seem like a daunting task. We want to cut through the noise and explain things in a way that everyone can understand.
So we’re going to “unpack” group insurance and drill down to the very basics behind it: what it is, why employers should provide it, and how it works.
What is Group Insurance?
Without boring you with an official definition, group insurance provides a select group of people (in the case of an employer, this is typically their employees) with typical examples being health, dental or disability insurance. Employers can pay all of the premium or a portion of the premium cost of the plan, with employees paying the rest.
A group insurance plan is considered part of an employee’s total compensation package, and as we’ll talk about below, can be a cost-effective way of increasing an employee’s compensation.
Why Should I Provide Group Insurance?
The obvious reason is that providing a benefits plan keeps employees healthier, reducing turnover and absenteeism and increasing employee engagement in their work. But there are many other bonuses to providing a group insurance plan, some more subtle than others.
Here are a few of the big ones:
You can attract and retain top employees – Employee benefits are one of the most significant considerations when looking for a new position. Providing a benefits plan is a big plus for many top employees (and that makes it a plus for you)!
You get a tax incentive – Costs paid into a group insurance plan are considered a tax-deductible business expense. You won’t get what you spend back dollar for dollar, but hey, it’s something!
It’s cost-effective – Providing a benefits plan can be less expensive than a pay raise since there are no additional Canada Pension Plan (CPP), Employment Insurance (EI) or Worker’s Compensation Board (WCB) payments.
Employees are more productive with higher quality work – Surprise, surprise. Healthier employees are happier and work better and more efficiently. What employer wouldn’t want that?
How Does Group Insurance Work?
There’s a lot that happens behind the scenes during the quoting, implementation and onboarding of a benefits plan, but we’re going to focus on how it all works.
Once a group is set up (or onboarded in benefits lingo) they’re given a plan effective date, which is when coverage begins. The cost of the plan (premium payments) are deducted from an employee’s pay and paid into a pool of money. The reimbursement of claims comes from this same pot. Consider a scale:
If the cost of claims reimbursed exceeds the amount in the pool, the scale will tip, and rates may go up as a result. On the flip side, if the cost of claims is less than the amount in the pool, it will tip the other way, and rates may go down. Groups are given a target ratio of premiums paid versus claims reimbursed to hit to keep the scale balanced.
Have some questions or looking to implement a plan? Give us a call. We are here to help!
BBD (January 22, 2019) Unpacking Group Insurance for Employers: the What, the Why and the How. Retrieved from https://www.bbd.ca/blog.