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Insuring your health

April 18, 2017

How do employee benefit plans work?

Employer-sponsored benefit plans deliver more than just drug and dental coverage. The more you understand about these plans, the better.

Government health insurance doesn't cover all the average Canadian's healthcare costs. That's why it's important to understand and take advantage of  employer-sponsored health plans, including group life and health arrangements, that you may be offered at work.

What kinds of benefit plans are there?

Employers can sponsor group life insurance, accidental death and dismemberment insurance, extended health care, dental care and disability benefit plans. It’s important to note that when you make a claim, it will be paid based on your employer-sponsored plan’s specific coverage.

A couple of highlights on each:

  • Group life insurance provides for the plan member’s (i.e., employee’s) family if he or she dies while a member of the plan. The benefit is typically based on a multiple of the plan member’s earnings. Sometimes it’s a flat amount, sometimes it’s a mix of the two. Employers may also sponsor optional and dependent life insurance, which provide additional coverage.
  • Accidental death and dismemberment insurance provides additional benefits to a plan member’s family if he or she dies accidentally. Should the member become paralyzed, lose a limb, or lose his or her hearing, eyesight or speech in an accident, benefits will be paid to the plan member and his or her family.
  • Extended health care coverage reimburses eligible medical expenses not covered by the plan member’s provincial plan. That can include prescription drugs, vision care, hospital care, medical services and equipment, paramedical services and assistance with out-of-province emergency travel.
  • Dental care coverage is exactly what you think it is. It covers preventive and diagnostic dental treatments.
  • Disability benefits are designed to replace a portion of a plan member’s income if he or she becomes ill or injured and can’t work. Employers typically sponsor a combination of short- and long-term disability coverage to assist their members.

There are a couple of other terms you should know: flexible benefits and health spending account:

  • Flexible benefit plans have become quite popular with employers in recent years. Instead of designing one basic plan to cover all members, flexible (or flex) plans offer a list of benefit options that members can choose from. Members are given credits that they allocate to options that are right for them and their family. If they choose benefits over and above their credit limit, they pay extra.
  • Health spending accounts are sometimes sponsored in addition to a flex plan. Again, members have credits that they can apply to health care expenses, some of which may not be covered by their employee or provincial plan.

What role does my employer play in the plan’s management, and who else is involved?

The employer sponsors the plan. Typically, a group insurance provider is hired to insure the plan members and run the various aspects of the program, which includes paying claims. Benefit plan consultants are also often hired to support the plan sponsor with vendor selection and various other responsibilities.

Some employers choose to sponsor what’s called an Administrative Services Only (ASO) plan. If your employer sponsors an ASO plan, then any claims you or your fellow employees submit must be funded by the employer itself. (Check your plan documentation or call your human resources department if you’re not sure.) These employers pay a group insurance provider, or some other institution, to settle claims and provide management reporting. The most common ASO plans cover health and dental benefits.

What happens if I leave my employer?

Talk to a human resources representative before you leave. Typically, plan members can convert life, health and dental plans into individual coverage within a certain time after leaving. If you’re not immediately joining another employer that sponsors a comprehensive benefit plan, you’ll be glad you investigated your options. Talk to a financial advisor, too; he or she can help.

Do I make contributions to participate in a plan?

Benefit plans are provided as a form of compensation to employees. Charges can apply where flexible benefit plans are concerned. If you select a list of benefits that goes beyond the level paid for by the employer, then you will be expected to make up the difference. Typically, this money is taken off your paycheque on a regular basis.

Increasingly, employers are complementing their existing benefit plans with voluntary benefits, provided by the plan’s group insurer. This optional coverage is sold directly to the plan member at rates that are less expensive than those found outside the workplace.

What are the advantages of being a member of an employer-sponsored plan?

Four things:

  • Canadians who do not enjoy employer-sponsored benefit plan membership are at a significant disadvantage. Provincial plans provide limited levels of coverage. What’s more, your reimbursements for health and dental claims are not taxable. So you’re almost always better off if your employer sponsors a plan versus paying you a higher salary.
  • Even in those cases where plan members do have to pay for coverage, group benefit plans provide coverage at rates that are less expensive than you’ll find on the retail market.
  • Because these plans are provided on a group basis, which is to say that a group of people are covered, you don’t need to go through a medical exam to determine whether or not you are eligible for basic coverage. (Evidence of insurability is required for coverage above plan maximums, or for anything other than basic coverage.)
  • Plans typically cover dependents, in addition to the employee him or herself.

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