Every day we are approached by small businesses ranging from sole proprietors up to 100 employees who are looking to shop their employee benefits package or set one up from scratch. Everyone is looking for the best price, value and coverage. Many do not realize that price, value and coverage are often on different ends of the spectrum as we will explain later.
An employee benefits plan can include benefits such as group life insurance, group disability insurance and group critical illness. These benefits are extremely important, however, not every group wants, or can afford to add every benefit possible. The main driver of your business’ rates each year will typically be the health and dental usage which virtually every small business and their staff want included in their employee benefits plan.
Not all insurance brokers are the same. When looking for an insurance broker to shop your employee benefits plan, you definitely want to have a benefits expert handle everything for you. You want to choose a broker that specializes in employee benefits, not a broker that sells investments, home, auto, life insurance, and may sell employee benefits on the side because it is convenient, and they are scrounging for every dollar possible. This goes hand in hand with why you would not want to ask your family doctor to perform a life saving heart surgery.
Additionally, the employee benefits industry has an abundance of rules and regulations that need to be followed. Each insurer also has their own rules and different options, making things more complex.
When seeking an employee benefits broker, it is important to ensure that your broker is truly independent and looking out for your best interests. Ask your self, “Do they work for a big-name company?” If so, it is likely that they are not truly independent as they will be limited to what options they can provide you and their advice may be biased toward only the providers that they deal with.
An important question to ask when seeking a broker is, “Do they deal with an MGA?” An MGA is a managing general agency, which acts as an intermediary between an employee benefits broker and the insurer. An MGA will typically run quotes, prepare presentations and handle renewals for your broker. In this regard, a broker may tell you that they deal with an MGA to help streamline the process for yourself and them, yet this does not come without a price tag. The truth is that the MGA is getting paid as well. This means that more money is taken from your bottom line and your business can claims less. Why, you might ask? You now have the insurer who needs to make a profit, a broker who is being paid a commission and an MGA who is also taking a percentage of the premium. A broker should be up-front and disclose to you that they deal with an MGA. It is in your best interest to inquire if your broker is using an MGA and what portion of the commission is being subsidized toward the MGA. It is also important to note that some insurance companies will not offer quotes to brokers who deal with MGAs which, in turn, could limit your options as you may not be offered all of the quotes that you could have access to otherwise.
Much like we noted above, not all insurance programs are the same either. Most employee benefits plans run on a traditional claims rated system. At renewal, your rates are adjusted based on claims usage, inflation is added, reserve dollars are set aside amongst other factors, which we will save for another article. This system typically provides a great price up-front, but if the usage is moderate or high your renewal will go up accordingly. It could be said that your price will not increase or may even decrease under a traditional system if the usage is low. Nevertheless, for most small businesses this is not the case. If you take the lowest price up-front, you have less to work with at renewal and your rates are more likely than not, going to increase substantially. Then, if you try and shop your plan the second year, a lot of carriers will decline due to first year marketing. If your claims are high, you will not have many options either. At minimum, you are simply fighting against time until someone in your group needs to claim more health, drugs or dental and your price goes up.
Then there is the Chambers Plan. Yes, we are one of the exclusive brokers for the Chambers Plan in Scarborough, Cobourg, and Port Hope, Ontario, and there is a reason we offer this plan. Simply put, if it were not a better solution, we would not offer it to our clients.
The Chambers Plan is unique in that it is a not-for-profit employee benefits program. It offers two systems depending on the size of your firm. Firstly, a partially pooled system with lower inflation than traditional insurers, it does not set aside your money for reserves and all surpluses are put back into the program as it is run on a not-for-profit basis. This plan is an ideal offering for firms from ten to one hundred employees. The end result is that your renewals will be more stable, year after year when compared side by side to a traditional carrier and pooling will help protect your rates. Secondly, if your group has less than ten employees (even one), the Chambers Plan offers a fully pooled system where your claims usage does not impact your renewal price at all. The plan is fully pooled for every benefit option. This means that the insurer accepts the entire risk should claims paid exceed premiums, true insurance. This helps you by keeping your premiums stable and predictable over time by protecting you from a high claiming group or individual.
What about a stand-alone health care spending account? (“HCSA”) Yes, you could get a stand-alone health care spending account, but please do not confuse this type of plan with insurance. Let’s say you have six employees and decide to budget $500.00 per employee per year. You would pay $500.00 x 6 = $3,000.00 plus an admin fee, advisor’s commission, and taxes (fees and structures vary), something around $3,500.00+. The great thing is, your staff can claim what they want, but only up to $500.00 which does not go very far at all in today’s society. With a real insurance plan of any type you could have prescription drug coverage, paramedical, vision, medical supplies, diabetic supplies, hospital, out of country emergency travel and much more which would allow your staff to claim a lot more. While, a stand-alone HSCA offers freedom, it is limited to budget. An employee benefits plan with true insurance offers much more value and the ability to claim much more than you pay with most plans, and by comparison it does not cost a lot more. Some stand-alone HCSA’s will add only catastrophic insurance coverage to the HCSA, but this is not always the ideal set-up either as there will be gaps which the staff will not want to pay. Most businesses prefer to have their traditional employee benefits plan in place and when their budget matures they will add a top-up HCSA, which offers the staff insurance they can use with added freedom. Employee benefits are a retention tool, when a stand-alone HCSA budget restricts a key staff member from claiming unaffordable medical and dental bills, they may be forced to seek out employment with your competitors who offer a plan with better coverage in order to make ends meet. It is no surprise that each employee will have a different idea as to what their ideal plan is and having the insurance with a top-up HCSA solves this problem.
Small businesses often come to us to set-up a brand-new plan, some having absolutely no experience or knowledge as to how the employee benefits industry works. Quite often small businesses will approach five to ten “brokers” which essentially creates more confusion and work for themselves. When you approach a true employee benefits broker, they will first gather some information about your business, the employees and discuss the plan design direction with you. Once they gather some information from you, they will obtain a quote from the benefits providers that they deal with. Once a quote is released to a broker, the other brokers that you asked for quotes will be denied their quotes as the insurer will only release the quote to the first broker that approached them. If five brokers have five quotes, you are now in quite a mess when trying to figure out the best direction for your plan. You will have differing opinions, approaches and plans designs. Some brokers will have clients sign an agent of record or “AOR” marketing letter to block out all of the other brokers, which is fine as long as you understand and only want to deal with that broker. An important question for you to ask a broker who is shopping your plan for you is, “How many and which companies will you be approaching for our quotes?” The reason being, a lot of brokers approach only a few big-name carriers, and those may or may not be the best options for your needs and budget. Worse yet, if your firm is smaller they may have little to no options for you. You are best to find a full-service broker who has more options, is likely experienced and works with you to design a plan based on your needs and budget. Playing brokers against each other may actually backfire on you and you could end up with an option that is far from the best.
As discussed above, we are employee benefits brokers first, we do not offer investments, mortgages, tax preparation and our main line of business is employee benefits for small businesses. We do not need our hands in every pocket of the market place as we focus on what we do well and know our clients deserve our full and focused expert attention.
We are independent brokers. We do not have to sell for any specific company and have no quotas to meet. If such demands were forced upon us, we would stop dealing with those companies because the situation would challenge our integrity as we would have to offer solutions on a potentially biased basis.
We do not deal with an MGA for employee benefits as we have the expertise and experience to accomplish everything without outside help and want to ensure that our clients are getting the best price possible.
We deal with up to twenty different employee benefits providers, this does not mean that they are all ideal for each client, but it allows us to have the ability to find the best solution for our clients based on their needs and budget as no one client is the same. Additionally, having access to exclusive products, like the Chambers Plan, allows us to offer our clients stable solutions that are unique when the plan fits our client’s needs. If you are shopping your plan with another brokerage, you are likely missing out as we have more options.
We were asked to quote a small business in Toronto with ten employees, their broker set-up the plan and literally did nothing but collect commissions for fifteen years. The plan was run under a traditional, claims rated system where claims effected the rates at each renewal. After carefully assessing the case we subsequently advised the client that they have been receiving price increases of 5-15% each year with little to no claims usage and that this should stop immediately. Additionally, they trusted their broker’s word that this was “normal inflation” and the broker continued receiving raises on their own commissions as the rates went up, year after year. Again, this plan used a renewal system that was based on claims, so it was far from “normal inflation” when the group had little to no claims. The broker was not a benefits expert and likely did not know how to actually manage the benefits plan, unfortunately. After a thorough analysis of the plan design, demographics and claims history (amongst other factors), we were able to save this client well over $20,000.00 annually. Needless to say, the client switched to our insurance brokerage and has never looked back. On an ongoing basis, we help them with administration, claims issues and manage their renewals to ensure that they continue to have an employee benefits plan that is fairly, transparently and correctly managed.
Recently a small business asked us to set-up a brand-new employee benefits plan for them. The employer had no background in benefits whatsoever, they asked us to shop the market on their behalf. We did so, only to find that other brokers (at least three) had already gone to market, yet only approached two to three companies for them (the same two to three companies). The business owner agreed to sign an AOR letter letting us shop their plan exclusively, we obtained nine quotes based on their needs. By allowing our insurance brokerage to shop the plan for them, the business owner was able to get quotes that were $6,000.00 less than what our competition had offered them. Had they not allowed us to look into a variety or carriers, their employee benefits budget could not have afforded them the option to set-up the plan based on the other prices. It is important to note the plan designs requested were identical outside of carrier specific deviations.
We also quoted a group that had seasonal and contract staff who had also approached another broker. After discussion with the owner they assigned us marketing rights. Once we were assigned to shop the employee benefits plan we quickly discovered that the other broker was not experienced enough to note that this company had seasonal and contract employees. Some of the quotes the competing broker was presenting to the client would have been declined by the carrier had proper preliminary fact finding been conducted by the other broker. Once we took over, the insurance carriers were provided with proper information and pulled their quotes as the group was not eligible per the insurers rules. Imagine how the business owner would feel if that broker had them complete all of the paperwork with their staff, only to come back and say, “Sorry, we can’t set-up the plan, let’s try another one”.
You might be wondering why a small business may pay more for a benefits plan like the previously mentioned Chambers Plan’s fully pooled system. It comes down to value. We have a small business client of 8 employees who signed up to the Chambers Plan’s fully pooled system because they did not want to take on the risk of having massive increases in their premiums should they have claims. The owner said himself, what good is the cheaper insurance if I have to pay more every time we use it? This small business owner made the conscious decision to pay a slightly higher premium up-front, in comparison to the other market quotes, but that is because they valued the long-term protection and stability that the plan would offer. Fast forward a few years and one of the owners is claiming an extremely expensive treatment regimen. Due to privacy we would not normally know who is claiming on an individual basis, but the owner appreciated the fact that his renewal only went up 4% when he knew that it would have been a triple digit increase with the rest of the carriers in the market and let us know. They say, you get what you pay for and the Chambers Plan offers long-term value.