How Much Do Group Benefit Plans Cost? Here’s What Matters
News 8 minute read

How Much Do Group Benefit Plans Cost? Here’s What Matters

Rise | April 11, 2017

If you’re headed for a renewal of your group benefits plan, understanding what influences your costs can help you determine the fairness of your new premiums. It can also assist you in budgeting for impending changes as well as ensure that you’re getting the best deal from your advisor.

The price of group benefits is affected by a myriad of factors, from the demographics of your workforce to the current interest rate in Canada to the commission that your advisor receives from providers. Which factors are affecting your individual plan depends on which kind of benefits you’re receiving.

There are two main categories of group benefits: pooled and experience-rated. Let’s take a closer look at each of them.

Pooled benefits: Includes long-term disability, life insurance, and accidental death and dismemberment. Pooled benefits are influenced by the group your advisors work with, rather than by your individual company.

As a Benefits Advisory article states, “Under a fully pooled underwriting arrangement, the insurance carrier does not review the claims experience of any one particular group, however, focuses on analysing the experience for their entire block of business to determine required premium rates and rate adjustments annually”.

Your premiums are determined not by your usage or demographics as an individual company, but by the larger group you are a part of. Think of it like the bell curve in university.

If you get a bad mark—or in this case, an unfavourable plan experience—but the majority of companies in your group have good ones, your benefits premiums are likely to remain stable, and vice versa.


Factors influencing the price of pooled group benefits:

Demographics of your carrier’s pool: This includes an aggregate average of data such as age, gender, geographic location, and occupation. For example, if there is little employee turnover in your carrier’s pool and much of the staff remains the same, this would result in a +1 for the age demographics (meaning everyone is a year older).

That could lead to a 5-10% increase in rates. However, employee turnover makes this calculation more complicated. The average occupational demographics also influence pooled benefits premiums. If the majority of your carrier’s pool work in high-risk industries, your life insurance and long-term disability premiums are likely to increase more than if the majority worked in safer, low-risk industries and occupations.

Current interest rate in Canada: Although the impact of the interest rate on benefits premiums tends to be relatively small, it is still worth noting. In general, a low-interest rate means higher premiums, according to Small Biz Advisor: “Interest on reserves, and on cash flows, generate income, so when interest rates are low, less income goes into the reserve – and greater premiums are needed to fund them.”

5 perks of pooled benefits (according to Inc.)

  1. A community premium rate tends to be lower than individual rates because the membership gains collective leverage that forces insurance carriers to modify premium and deductible demands
  2. In many cases, premium increases are capped for the first several years of the policy
  3. Centralised administration of the policy among all of the companies covered under it, which results in savings in work hours and paperwork
  4. Standard rates and benefits that do not fluctuate according to company size or workforce health history
  5. Selection of plans from multiple insurers (some plans allocate plan selection power exclusively with employers, while others allow workers to select from a menu of plans)


Experience-rated benefits: Includes health care, dental care, vision, and short-term disability, the cost of these benefits are influenced by your individual company’s usage.

Unlike pooled benefits, the cost experience-rated benefits are determined solely on your company’s individual data. The overall demographic data of your provider’s pool makes no difference.

According to Small Biz Advisor, “Much like pooled benefits, health and dental costs are driven by employee demographics, however, they are also heavily influenced by claims experience, inflation/trend and credibility.” The factors determining the premiums of experience-rated benefits can seem more complicated than pooled benefits, as there are so many of them. Let’s take a look.


Factors influencing the cost of experience-rated benefits:

Type of billing: Does your plan use traditional billing, refund accounting, or administrative services only (ASO)? ASO plans tend to be the lowest cost, but are also the highest risk. It’s important to understand which type of billing is right for you. Learn more about ASO here.

Turnover of employees & company growth: Because the cost of experience-rated benefits is influenced by plan usage, a high turnover can increase your fees. On average, new employees tend to use more of their benefits than ones who’ve been with your company for a while. Therefore, a company that is in rapid-growth or is constantly adding new people to the workforce is likely to have higher premiums at each renewal.

Demographics: Similar to pooled benefits, the cost of your experience-rated benefits can be influenced by factors like age and gender. If the average age of your employees is under 35, the types of benefits your team uses will be noticeably different than if you were working with an older workforce.

Lifestyle/health of workforce: Are your employees leading healthy lifestyles, on average? If so, it could be saving you thousands of dollars per year in group benefits premiums. That is, healthy employees tend to require fewer medical treatments, meaning that your premium rates won’t increase.

Technology: In terms of costs to your group benefits plans, technology is both a blessing and a curse. Healthcare technology can help deliver critical care to your workforce, allow you to access and utilise data, and increase awareness around health and wellness best-practices—all of which can lower your premiums in the long run. However, it does come at a cost and the overall impact of technology currently causes an increase to your premiums on average.

Provider contracts: “The insurance company charges you to insure your employees, but who is charging the insurance company to provide the care?” ABD Insurance and Financial Services asks. “It is, of course, the physicians and hospitals, who enter into contracts with the insurer to provide care at agreed upon fees. An insurer with the ability to successfully negotiate a competitive contract with provider groups is able to keep their own rates competitive, assuming that is the strategy they are following.”

In other words, the contracts that your provider has entered into behind-the-scenes can have an impact on the costs of your benefits. Talk to your advisor about what this may look like. At Rise, our knowledgeable, licenced benefits advisors are happy to answer any questions you have. Give us a call.

Location: Generally speaking, if your company operates in a high-cost area, then your premiums will be higher than if you live in a low-cost area. Check out this list of Canada’s ten most expensive cities to see where yours ranks (hint: Vancouver is at the top of the list).

Plan design: This one may seem obvious, but the design of your plan can have a huge effect on your premiums, and it’s one of the few factors you can actually control.

“An increase to an office visit copay by $5 or to the deductible from $250 to $500 can reduce claims by 1% to 2%,” writes ABD Insurance and Financial Services.

“Moving to a consumer-driven health plan such as a high deductible PPO with an HSA or HRA, depending on the specific plan design, can save at least 10% in premiums while keeping your employees more engaged in the healthcare costs they’re utilising.”

Ask your benefits advisor if there are minor changes you could make to your plan design. while maintaining high coverage and value for your employees.

Service Industry Code (SIC): The industry you work in has a code, and that code can determine the cost of your experience-rated benefits. For example, if your SIC shows that your industry is in technology or computer science, you’re likely going to have a cheaper rate than groups in industries like logging, mining, or forestry, which tend to be higher risk.

The costs of both experience-rated and pooled benefits are influenced by the commission your advisor receives. Do your research to make sure you advisor is giving you a fair rate, and ask around to see what other companies similar to yours are paying.

At Rise, we’re changing the way businesses approach group benefits. The Rise all-in-one platform makes it easy to manage benefits for your team in a single place. Request a demo today and learn how Rise can help you grow your business.

Give your employees, and yourself, the experience we all deserve.

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