Originally Published by: ReFined Kingston
Historically, owners of small and medium-sized businesses have had one funding option for their health and dental benefits.
But in recent years, some additional options have emerged. Owners of smaller businesses can now choose one or a combination of these funding options.
How you choose to proceed will depend on the level of premium risk and claim risk you are willing to accept on behalf of your business and employees. An employee benefits specialist can help you examine these options and recommend the right funding option, coupled with an appropriate plan design for your business.
The Fully Insured Plan:
With a fully insured plan, the business agrees to pay a monthly premium to the insurance carrier. In turn, the insurance carrier assumes responsibility for all eligible claims payments, as defined by the chosen plan design. The employees immediately have access to all the benefits included in their plan, which could include prescription drugs, dental, semi-private hospital coverage, vision care, etc. A review of claims and plan pricing is then negotiated annually. An advisor specialising in employee benefits will negotiate with the insurance carrier on your behalf and explain how your claims experience is impacting your plan pricing.
Administrative Services Only (ASO):
From the employee point of view, the ASO plan functions identically to the fully insured plan. Where this option differs is in the premium risk to the business. With ASO funding options, premiums are a function of the claims paid plus an administration fee to the insurer for processing the claims. Assuming claim patterns are normal during the year, the claims paid plus the administration fee can total less out of pocket money in comparison to the fully insured monthly premium. However, for this cost savings, the risk of a higher than anticipated claims is transferred to the business; and there lies the “risk/reward” decision. It’s important to remember there is an additional potential upside; claims being less than expected. That is where ASO funding becomes very attractive. The business owner must understand and be prepared to assume premium fluctuations resulting from claim volatility.
Healthcare Spending Accounts (HCSAs):
With healthcare spending accounts, the premium risk is shifted away from the business. HCSAs are simply an account funded by the employer to a specified maximum, for example $1,500 per employee each year. The employee can claim against their annual allotment for any Healthcare or Dentalcare expense. As a result, the premium risk to the business is low as the expense is capped at the annual allotment multiplied by the number of employees. Where HCSAs differ from both of the previous options is in the increased claim risk to employees. If an employee or family member is faced with a large health expense, they can hit the HCSA limit quickly. In simple terms, an HCSA provides no insurance to the employee in the face of a catastrophic health situation.
Benefits Consulting Plus Inc is an independent employee benefits and insurance advisory firm. Bryce Parisotto, CFP, works with local businesses to design and implement tailor-made employee benefits solutions. Shannon Bennett-Parisotto, CHS, has 15 years of specialized knowledge with life, disability and critical illness insurance and works with clients on their personal and corporate insurance planning.
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t: 613 546-2282