Premiums for traditional group insurance in Canada continue to rise each year due partially to increasing pressures on the current health care system as well as a growing demand for expanded coverage.
Dealing with constant rising costs of group benefit plans can be very challenging for employers. In fact, many employers are shocked when renewal time comes around and premiums are increasing by 10% or more each year when inflation is currently running at less than 2% annually.
Generally speaking, traditional group insurance plans will increase substantially in cost each year. This is known as "premium creep" and is often an unforeseen and significant expense for employers.
But why do premiums always rise and seemingly never go down? According to Frederick Sykes, a Senior Actuary with a well-known Canadian firm, premiums generally don't go down for a couple of primary reasons.
First, he said many insurers discount new group policyholders to get them in the door so they show up as an increase in business on the books. Over time they increase the price to these policyholders. Second, he also stated "insurance companies know that a majority of employers are too lazy to shop around."
Constant price increases are not the only weakness associated with traditional group insurance plans. These policies are typically restrictive in terms of coverage, only accepting a short list of health and dental expenses, excluding many pre-existing conditions, and forcing employees to pay out-of-pocket for a share of some expenses (co-pays).
Not surprisingly, the resulting culmination of increasing expense and inflexible employee coverage is now leading many employers to anxiously investigate an alternative solution.
The Go-To Solution
A Health Spending Account (HSA) is a Canada Revenue Agency (CRA) approved plan that has been around for over 25 years. This is an amazingly flexible plan and a great alternative to traditional group insurance for businesses of all sizes.
How Do HSAs Work?
HSAs can be set up through third-party administrators/trustees or insurers that specialize in administering these plans.
Let's assume a business owner has agreed to fund an HSA for his 10 employees for up to $2,000 a year for each worker.
The employee (or a family member) visits a health practitioner and pays for an out-of-pocket medical expense, such as prescription drugs, eyeglasses, or physiotherapy.
The employee then submits their claim online to a third-party administrator (such as Olympia Benefits).
The administrator ensures the claim is legitimate and that the expense falls within the limit funded by the business. Once it's approved, the administrator reimburses the claimant (employee) for the entire expense amount.
The employee receives the benefit tax-free and the employer gets a 100 percent tax deduction.
There are very few restrictions as to what can be claimed, and there are no co-pays, age restrictions or penalties for pre-existing conditions. These are significant HSA advantages as compared to traditional insurance plans, which generally have limitations on cost and as to what can be claimed.
Importantly, HSAs provide cost-certainty for employers. Gone are the days of unexpected plan price increases; with an HSA, the employer decides how much they would like to spend each and every year.
Are you an incorporated business owner with arm's-length employees? Learn how the Olympia Health Spending Account can provide cost-certainty and significant value for your employee benefit program by downloading our free guide: The Beginner's Guide to Health Spending Accounts.