With an increasingly restless and stressed-out work force facing erosion of medicare benefits and ever-spiralling prescription drug costs, employers are under more pressure than ever to provide comprehensive private group benefits packages for their staff.
But for small businesses, the expense can be a huge challenge and for many, it seems impossible.
When they do manage to put together a modest package to stem the flow of employees to larger firms with better compensation and opportunities, they face a Catch-22 trap: The higher their staff turnover, the more expensive it is for them to buy insurance; the poorer the insurance package, the higher the turnover.
A recent survey reported that 46 per cent of Canadian workers would consider quitting their job if a comparable one became available. And small companies are the least able to afford to lose employees.
“Employee health benefits are essential not only for peace of mind and attracting and retaining good employees, but [they] are also one of the best tax breaks small businesses can find.”
Yet recent data from the Canadian Federation of Independent Business shows it’s just not happening in a huge swath of the small business world.
When the CFIB surveyed its members in 2002, it found that 46 per cent were offering no employee benefits at all, and a further 13 per cent were offering them only to the owners’ family members.
The chief reason given was the prohibitive cost — 84 per cent said the premiums were too high. As well, 25 per cent said that there were no suitable plans.
Of those who did provide some kind of benefits package, 78 per cent reported their premiums had gone up in the past year.
The CFIB’s own basic employee benefits package (which costs about $2,000 a year per employee) has been rising in cost by 15 per cent a year, “and that can’t be maintained forever,” says president Catherine Swift.
She says her organization has been nagging insurance companies for years to provide more options for small business, with limited success. “The trouble is, a whole lot of little wee guys are harder to service than a large corporation. . . . And the economies of scale stink.”
The cost for a package of life, disability, extended health and dental coverage has a vast range — from $1,500 to over $3,000 per employee per year plus applicable sales taxes for a core package of benefits.
“The bigger the group of employees to be insured, the lower the cost per capita.” Premiums are set using a formula of past claims plus expenses plus reserves in the group insurance plan. “Big companies have the advantages of more predictability on average, a spreading of risk, and economies of scale.”
Most reputable insurers offer small-business benefit packages, but many are not prepared to be as flexible as they are with larger companies.
“What high turnover means to the insurer is that people come in, become eligible, pay premiums for a couple of months, then have several hundred dollars worth of dental work and leave without making further premium payments. . . . That’s a big problem for an insurance company.”
Sergio Sgaramella, publisher of the successful Canadian design magazine Azure, says he struggled with employee churn for a long period of the firm’s 20-year history.
He couldn’t afford to provide benefits at first. And without a lot of opportunities for advancement in the 12-employee operation, staff would frequently bail out to go to bigger publications.
But the magazine took off in the late 1990s, when it expanded its circulation base and became more international in scope, and employees now enjoy a modest package of health benefits and life insurance.
You can obtain an affordable group plan and contain rising costs
It isn’t easy, but small business can provide excellent benefits with flexibility to employees. Here are some tips from The Leslie Group Limited:
We can help you obtain proposals from the group insurance industry to ensure you receive the best value for your benefit dollars. We will also continue to represent you in negotiating claims disputes and at renewal times to ensure your renewal costs are fair and competitive and ensuring that your plan continues to meet your current and future requirements.
We will review the plan design on a regular basis such as an example to review eliminating or limiting the prescription drug dispensing fees charged for prescription drugs. Pharmacies in Ontario charge between $9.99 to $12.99 per prescription. By introducing a limit of $8.00 per prescription overall drug plan costs will reduce by
almost 10%, while providing employees with a choice of pharmacies that offer low dispensing fees (i.e. Loblaws, Zehrs).
Figure out what you want spend and structure an attractive plan within your budget. The cost will, in most cases, rise every year, as the cost of prescriptions and dental services continue to increase so don’t offer benefits that you will have to take away later. By designing your plan correctly with appropriate cost containment features, your annual cost increases will be significantly reduced from the average in the marketplace.
A core basic life insurance and long term disability coverage are the most important items to include, followed by a prescription drug plan and dental coverage.
Review offering a Health Care Spending Accounts to offer increased plan flexibility and tax effectiveness. A Health Care Spending Account top ups when the core group insurance plan reimbursements fall short and provides your employees with expanded coverage typically only available to larger employers.
This article was taken and edited for content from the March 17, 2005 edition of the Globe and Mail Creative and flexibility in your plan design maximizes plan satisfaction by employees. The Leslie Group Limited can assist your firm in establishing a new program or reviewing an existing program to meet your short term or long
The Leslie Group is a full service benefits consulting firm that is, in keeping with market conditions and legislative changes, committed to providing you with the best advice needed to manage your group benefits program. We would be pleased to address any questions and can be reached at (416) 510-8966.