In Part 1, we covered the various elements of a insured funding arrangements for a group benefits plan. In Part 2, we address self-funded arrangements also known as Administrative Services Only or ASO. With this arrangement, the plan sponsor is completely responsible for ALL of the financial - claims and related expenses - as well as the legal aspects of the group benefits plan.
This arrangement means there is no insurance and the risk is placed on the plan sponsor or employer. In a nutshell, the insurer handles the administration of the plan as the employer has outsourced this responsibility. Typically, ASO arrangements are provided for extended health care, dental care as well as short term disability benefits. With benefits such as life insurance and long term disability, most companies under 1,000 employees will continue to fully insure these benefits.
When plan sponsors assume the risk under an ASO arrangement, they generally benefit from lower administration fees partially attributed to the elimination of the reserve charge and risk charges. For larger employers, this can result in noteworthy savings. In the past, plan sponsors with over 250 employees or more were considered strong candidates for this type of self-funding arrangement. With increased competitition and improved technology, group size thresholds have dropped so that small and mid-sized employers may consider an ASO funding arrangement.
Adopting a self-funded or ASO arrangement can be more risky, but it offers the potential for greater administrative cost savings. Variances in monthly claims fluctuations can seem daunting compared to the stability of claims expense management for a policy period with an insured arrangement. A decision to insure or self-fund a plan should not be made lightly.
Knowledge is power. The more you understand the differences, risk factors and choices available, the more confident you'll be about your funding arrangement and group benefits plan design. Call or email us if you have specific questions about funding arrangements and what's best for your group plan. We're here to help so that you can focus on what you do best.
Making an important decision is always easier when you're well informed. Sometimes getting all the details you need to feel confident about your choices can be challenging.
Knowledge is power. If you don't understand something, how can you make an informed decision? When it comes to employee benefits, there is a lot to understand.
With group benefit plans, there are different funding arrangements to consider. How a group's claims and experience are paid for is called 'funding'. The optimal funding arrangement factors in: the number of employees, the plan sponsor's risk tolerance and past claims experience. This two part blog focuses on the difference between an insured versus a self-funded plan. Let's focus on the various types of insured arrangements first.
There are differences in terms of the type of insured arrangements such as: non-refund accounting, refund or retention accounting (a mix of fully insured and self-insured). It's likely easiest to address funding arrangements when we think about extended health and dental benefits.
There are a few general rules of thumb that guide decisions for small to medium sized employers. Most small business in Canada generally prefer a fully insured funding arrangement where the insurer bears the risk. In return, the insurer charges a rate based on the employee's status (single or family). The arrangement is such that the insurer funds the cost of the benefits, which includes claims incurred, reserves, claims adjudication charges, administration, premium tax and advisor compensation*.
Terms that get tossed around when discussing insured funding arrangements are:
Here's an easy example to help explain a fully pooled or non-refund accounting arrangement:
With funding arrangement decisions, insurers generally have minimum requirements or thresholds in terms of the group size and premium generated by the benefit plan and the unpredictability of the benefit. Often, larger size groups with greater premium requirements are considered for refund accounting arrangements.
In part 2 we explore self-funded arrangement known as Administrative Services Only (ASO) plans. Have questions about funding arrangements and what's best for your plan? Call or email us. We're here to help so you can focus on what you do best.
Many of us push away the winter blahs with trips to warmer climates. Planning for these getaways can be fun, but also a bit stressful when we think about all the preparation necessary before the trip. Packing lists are made and suitcases are pulled from the closet. We remember to pack our camera, sunscreen and favourite flip flips. What else should be on your packing list?
Aside from vital government documentation like a passport, it is easy to forget to pack important documentation such as your group benefits travel insurance information. Out of Country (OOC) coverage isn't normally top of mind, but remembering to pack OOC documentation could mean a world of difference if you have an unforeseen medical emergency while on your trip.
Insurance providers and benefits administrators report that Out of Country travel coverage is often misunderstood and top of the list in terms of frequently asked questions. Most plan sponsors offer travel coverage through their group extended health coverage, but it isn't something plan members carefully consider when planning a trip outside of Canada.
If you have group benefits coverage with OOC travel coverage, it is helpful to read and understand the insurance policy especially for the limitations and exclusions. Insurance carrier call centers often get questions related to: the number of days of coverage, the definition of a sudden and unexpected emergency, preexisting conditions and coverage eligibility for a plan member during the third trimester of a pregnancy.
OOC coverage often is confused with travel assistance. They are different. OOC coverage provides benefits for medical costs associated with medical emergencies for you and your eligible dependents including the services of a physician, lab and hospital fees. "What is a medical emergency?" is the most frequently asked question. For Out of Country coverage, it depends on what's written in the group benefits plan. Most definitions include wording such as:
Travel holds the possibility of creating wonderful experiences and great memories. An unforeseen medical emergency can be compounded with unnecessary stress if you don't remember to:
Pack your travel insurance documents and carry them in a safe place. Record the toll free number on your travel assistance card as well as your group benefits plan number and certificate number, provincial health insurance number, name, address and phone number of your family physician in Canada.
Have adequate coverage. Aside from your OOC coverage, will you need additional travel insurance?
Understand how to submit a claim and who has the burden of proof. It is the plan member's responsibility to manage his OOC claim and sometimes completing the forms can be confusing. To facilitate the most efficient reimbursement process, insurance carriers generally ask plan members to submit their OOC directly to them. This allows for the carrier to coordinate payment with the provincial governments quickly and easily.
Know what to do if you or an eligible dependent has a medical emergency:
When you're packing your bathing suit and a book to read at the beach, remember to pack your travel insurance documents including the toll free travel assistance number along with your group benefits plan and certificate number. If you have questions about Out of Country coverage or travel assistance, please call your designated insurance provider.
For information about how we can help optimize your benefits plan, give us a call or send an email. We're here to help so you can focus on what you do best.
Dave Dickinson, B.Comm, CFP, CLU, CHFC
Experienced Benefits Specialist ready to optimize your group benefits and pension plans.