I've been involved with the financial services industry since 1991. Over the past 27 years, I have interacted with thousands of small business owners.
When choosing an employee benefits plan, make sure you can seperate fabrication from truth. Below, I have highlighted the myth in each header. The following paragraphs explain the truth.
1. Traditional insurance is a win for everyoneThe truth is traditional benefit plans (administered by life insurance companies) only return about .60 cents of each premium paid, back to employees for claimed health and dental benefits. That means, .40 cents of each dollar paid covers the cost to administer the plan. This is referred to as the ‘loss ratio’ and it favors the insurer. With a health spending account (HSA) the whole dollar is paid to the employee. There’s an administration fee charge at the time of claim. Until there’s a claim there’s no cost (pay as you go model).
2. You need a minimum number of employees to provide benefitsMinimum or maximum number of employees does not factor into providing benefits for employees. If you have employees, you can have benefits. Paying a salary is a benefit to the employee. Health and dental benefits have special treatment under the income tax act and can be paid to employees tax-free. If you have 1 employee or if you have 1,000 employees, you can provide tax-free health and dental benefits. You simply repeat the process for each employee. The benefit amount can be the same for all employees or can vary for different occupations, tenure, pay levels, positions etc. The only limitation is your imagination.
3. Insurance is always required in an employee benefits planBenefits can be categorized into unplanned events and planned events. Unplanned events such as death, disability and critical illness, should always be insured. Most persons do not have enough savings or wealth to provide for their family and dependents if they were to die or become disabled. We should insure these risks. Planned events such as dental, vision, prescription drugs, massage, chiropractor and naturopathic remedies are not insurance events.These are best handled when paid directly to the employee using a tax-free health spending account.
4. You need insurance for prescriptionsMost people use prescription drugs occasionally. A health spending account deals with the occasional prescription drug effectively. Daily drug therapy for more common conditions such as high blood pressure, cholesterol and other common well controlled health conditions are generally not a high cost treatment. For high cost drug therapy there are provincial drug plans that provide support. These plans can be used to back stop a health spending account for those requiring higher cost drug therapy.
5. There are limited options for small businesses
To the contrary, the options for the small business owner are as flexible and unlimited as they are for any large employer. What needs to be decided is what kind of benefit to provide? Do you want to provide health and dental benefits? Do you want to provide insurance benefits for accidents, sickness, critical illness and death? Do you want to provide a flexible work schedule? Do you want to provide a health and wellness benefit to pay for preventative activities like fitness memberships, exercise equipment and running shoes? A benefit is anything provided by an employer to an employee. First, decide what kind of benefit you want to provide. Once you know what that looks like, take the next step and search out information on how to provide that benefit.
6. Painting everyone with the same brush
Different people have different needs. A good benefit plan allows the employee to decide how they want to make use of the benefit provided. A benefits plan can be as simple as an allocation of money annually. For example: each year in advance, employees could be given the freedom to decide how to allocate their benefit budget for that year. Do they want the money made available on demand on payroll as an after-tax benefit to pay for their gym membership, running shoes and related fitness expenses? Do they want the money deposited into a registered retirement savings plan? Or do they want the money to fund a tax-free health spending account to fund their family health and dental bills?
7. Benefits must be bundled together to include insurance
Tax-free health and dental benefits were never intended to be bundled with insurance. The employer can set up a simple health spending account plan and allocate the benefit to the employee without involving any form of insurance. Insurance can be added into a benefit plan as individual coverage requiring health evidence or as group coverage for basic amounts without the need for health evidence.
Related Reading: Top 5 Pitfalls when choosing Employee Benefits for Small Business