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Employee Benefits: How Government Benefits Influence Plan Design
Elaine Gringauz can guide you
through the changes to plan design.
Canada is world-renowned for its universal healthcare, but everyone who lives here knows it doesn't cover everything necessary for your health needs, including drugs, dental, massage, and other options and necessities that make up a comprehensive health plan.
For most people, it's their place of employment that steps in to fill the gap the government leaves in their healthcare coverage by providing the insurance coverage necessary through their group benefits plan. Given the way health insurance works together with government coverage to meet your health needs, a group insurance plan's design and its future are heavily influenced by what the government will and won't cover now and years from now.
"A recent trend of healthcare is that the government has been unloading more and more services onto the private sector," says Elaine Gringauz, a Retirement and Benefits Solutions Account Executive at NFP Canada.
For example, while doctors and hospital visits still make up the core of universal healthcare, other specialists like chiropractic or ophthalmologists are no longer covered by your provincial health coverage and have moved to private insurance.
"This definitely has an effect on what private insurance has to cover and the claims experience under those group benefits programs, which drives up premium cost," says Gringauz. "One of the ways plan administrators are combating that higher cost is by off-loading certain services from their private insurance plans as well."
For example, a big push from the government in the last few years has affected the cost difference between generic and brand-name prescription drugs. In Ontario, the government has put a cap on the cost of generic drugs at 25 per cent of the cost of brand-name drugs. So now, to save costs, many group benefit plans have announced that they will only cover up to the cost of the cheaper generic drugs and not their brand-name counterparts — unless a special medical explanation is provided by your doctor.
"You have some insurance companies now that are going down a road that's almost like managed care, where they have certain high-cost drugs that you need prior authorization on in order to receive coverage. Under this model, insurance companies are going as far as consulting with your doctor to make sure you've tried lower-cost options first, which is a very U.S. model," says Gringauz.
While healthcare costs have always outpaced inflation, an aging population combined with high rates of smoking, obesity, and chronic illness like diabetes and high cholesterol has placed a huge cost burden on both governments and group insurers, which is why people are seeing cuts to healthcare coverage from all sides.
"In the past, the insurer may have been the second payer," says Gringauz. "Maybe a chiropractor was covered by OHIP up to a certain amount each year and then private insurance would pick up anything after the OHIP coverage. Now, the insurance company is the first payer."
Unfortunately, coverage is probably going to become more limited and restrictive down the road, so prepare for this environment as the norm — rather than the exception — in the future. Now that the group insurer is the primary payer in the majority of cases, plan administrators are seeing these huge cost increases at renewal because of their own aging demographics and increased use under the plan.
"Plan administrators are trying to control their costs and they can do that through plan design, which may allow for off-loading and cost sharing with plan members," says Gringauz. "We're going to have to start making some radical changes in the way we deal with these rising costs."
On the extreme end, there's the pure Defined Contribution model, where an employer tells a plan member, "Here are X amount of dollars that we are contributing to your health insurance, and you can use that money as you see fit for allowable expenses, but once you've reached our cap, you've reached our cap." This way, the company now has a means to control expenses.
However, this is an extreme model, and many employers NFP has spoken to about it are uncomfortable with it. Thankfully, there is a half-way point, and that is through Flex Benefit Plans, where the proposal is similar except that coverage is still structured around a plan design. Plan sponsors can determine which level of coverage they are comfortable to pay up to, but if the plan member wants additional coverage for other services not covered at their level, they can always buy up to the next level for more coverage.
"The two biggest drivers of cost are plan design, as that determines what benefits are covered, and the overall health of your workers," says Gringauz. "The largest proponent of health claims in Canada are drugs, and for the most part, they are maintenance drugs for things like diabetes and cholesterol. The only way to really reduce those costs is to try and influence an employee's health."
You can do this by promoting wellness in your office with exercise competitions sponsored by the office, such as a fun run or by providing payment incentives to those employees who improve their health through possibly weight loss, diet, or how many kilometres they walk to work every day. Maybe so many pounds or so many kilometres earns them so many dollars in bonuses.
“As an employer, if you're instituting a wellness program, don't be afraid to start small. A lot of it can be grassroots through things like organizing team activities and promoting a healthy attitude in the employment space," says Gringauz.
"Helping employees to manage their healthcare long-term can maybe prevent the need for those long-term maintenance drugs for diabetes or high cholesterol. Additionally, some plan administrators have looked at creating a much more detailed drug program, where they reimburse certain maintenance drugs at higher levels to make sure people with those conditions stick to their maintenance regimens to a avoid long-term higher costs attributable to complications."
Of course, such incentive programs cost money as well, and many employers don't want to incur these extra costs for long-term benefit. That's why you don't see as many of these company-sponsored wellness programs in Canada as there are in the United States.
"In the last few years, companies have just wanted to put things to bed, lock down their costs, and move on. They just want to work on the next hurdle to try and stay solvent. Granted, we're starting to get out of that mentality, but it's still a challenge," says Gringauz.
If you're an employer facing the currently restrictive services environment and trying to control rising costs, Gringauz recommends balancing short-term and long-term solutions. She would also advise you to review and trim the outdated fat that still exists in many plan design and that costs you unnecessarily.
"Things like scaling on dental plans can be trimmed back. Scalings are units of cleaning, and one unit of scaling is 15 minutes of cleaning," she says. "A lot of old plans included default coverage of up to 16 scaling units. No one needs that much cleaning when the average cleaning takes a half an hour."
Hospital insurance is another area where cuts can be made. Under your government insurance plan, you are technically only entitled to a ward room from the hospital unless one is not available or the doctor prescribes semi-private or private accommodation. If you get a semi-private room or a private room from the hospital due to these reasons, often the hospital will bill your group plan — even though they shouldn't — which leaves many group plans open to abuse if they provide hospital room coverage.
In a Flex Benefit model, the employee has the power to choose the right coverage that fits their needs, and they can choose how much money they want to spend on healthcare since they're making up the difference in premiums at the higher benefit levels, so they have more control.
"Typically, employees are looking at being locked in to these flex plans for one to two years, but will have a chance to make changes on an annual or biannual basis. This is a place where the employee will have to take responsibility for what their needs are," says Gringauz.
At the end of the day, whatever method employers choose to try and save money and cut costs in this new, more restrictive environment, they're certainly facing a very tough reality.