Benefitsconsultant.ca

What is the Life Insurance Conversion Option?

Benefits Consultant — Wed, 21 Dec 2011 21:31:15 +0000

The Life Insurance conversion option provides an employee whose group insurance coverage is ceasing to convert their current Basic and Optional Life insurance amount to an individual insurance policy without the need to provide evidence of insurability. To exercise the conversion option, the employee must fill out and return the relevant forms to their group insurance provider within 30 days and choose an individual life insurance product from the same insurer.

For example, if an employee had basic life insurance coverage under the employer’s group insurance contract in the amount of $100,000, upon termination from the organization, the employee could convert his life insurance coverage to an individual insurance product within 30 days and not be required to provide evidence of good health.

For a broader discussion, please see our group life insurance tutorial.

No Related Posts.

Group Insurance

Benefits Consultant — Wed, 21 Dec 2011 20:41:36 +0000

What is Group Insurance?

Group insurance provides a mechanism for employers to provide employee benefits as part of an employee’s total compensation package, as part of one group, outside of government-provided benefit programs. Group insurance benefits commonly provided in the Canadian marketplace include:

Basic Life Insurance
Optional Life Insurance
Supplemental Life Insurance
Basic Dependant Life Insurance
Optional Dependant Life Insurance
Survivor Income Benefits
Paid-Up Life Insurance
Critical Illness Insurance
Accidental Death and Dismemberment Insurance
Short Term Disability Insurance
Weekly Indemnity Insurance
Sick Pay Programs
Salary Continuance
Long Term Disability Insurance
Health Insurance
Dental Insurance

Reasons for Providing a Group Insurance Plan

There are many reasons that an employer may wish to provide employee benefits through a group insurance plan for their employees including:

Advantages for Employees

Demonstrating concern for the welfare of the employee and their family
Reduce or eliminate the need for an employee to use after-tax income to purchase individual insurance products for protection
No need for the employee to provide evidence of good health
Group insurance is typically less expensive than individual insurance because the risk of loss is pooled among the entire group

Advantages for Employers

Costs paid into a group insurance program are considered a tax deductible business expense
Attracting and retaining talent
Providing employee benefits for employees generally leads to a healthier workforce because employees have access to medical services when they need it usually at a lower out of pocket cost (depending on plan design)
Employee benefits can be provided in exchange for some element of cash compensation

Group Insurance Conditions

For a group insurance plan to exist there needs to be an element of risk for a potential loss that can be measured and predictable. To arrange a group insurance policy the following key ingredients must be in place:

Employees covered under the group insurance policy must be actively at work and working a minimum amount of hours per week to be eligible (usually 20 or 24 hours)
The amount of coverage and choices available must be restricted in some way
Where employee contributions are required towards the costs of the group insurance plan, they must be deducted from the employee’s pay
The employer must pay a portion of the costs towards the group insurance program
The associated risk of loss must be spread among the group of employees covered

Elements of Group Insurance Policy

A group insurance policy is a legal contract between an employer or plan sponsor and an insurance company. The group insurance policy will outline the terms of the agreement between the two parties with details surrounding:

When coverage begins and ends
Who is eligible for coverage
Underwriting requirements under the program
How premiums are to be calculated
How the insurance company will administer the plan including setting up the policy, paying claims, invoicing for the premium due, etc.

If you are interest in starting a group insurance plan and need help understanding the process, considerations and options available, please contact us.

No Related Posts.

What is a Benefits Consultant?

Benefits Consultant — Tue, 20 Dec 2011 01:57:28 +0000

What is a Benefits Consultant?

A benefits consultant is an individual or firm that advises an employer or plan sponsor in matters relating to group insurance or employee benefits. Benefits consulting firms typically provide their services on a fee-for-service basis outlined in detailed scope of work. Fees are charged for the benefits consultant’s time on an hourly or project-based rate; however it has become more common for benefits consulting firms to accept commission for payment of services.

Benefits consultants are not partial to any insurance company and will work with all insurers to retrieve the best value for their clients. Remaining independent from any insurance company maintains the ethical placement of coverage with the insurer who demonstrates the best fit for the plan sponsor.

Different from brokers and agents, benefits consultants typically have a broader resources and more in-depth knowledge of group insurance and employee benefits, supported by internal tools, research teams, data and surveys. Benefits consultants historically worked with large employers but now work with clients of all sizes and are able to leverage their internal resources and challenge insurers for the best service and value for their clients.

How Can a Benefits Consultant help?

Getting an in-depth understanding of your business and your internal employee benefits philosophy
Providing expert advice on the marketplace including differences (strengths/weaknesses) between insurers, marketplace trends and changes in the legislative framework affecting benefits and tying that back to your employee benefits philosophy
Project managing the tasks associated with your employee benefits program
Explaining complex concepts in an easy to understand manner
Answering ad-hoc questions
Managing expectations surrounding cost, service and deliverables from all involved parties
Provide support all year round

Typical Benefits Consulting Services

Benefits consulting firms provide traditional brokerage services, the day-to-day management of the employee benefits plan, as well as special projects that plan sponsors seek such as:

Plan design development
Competitive placement of coverage with an insurer
Annual group insurance insurer renewal
Financial accounting audits
Benefit plan financial management
Plan utilization reviews
Competitive plan benchmarking
Underwriting review and modeling
Vendor service monitoring
Mergers and acquisitions and plan harmonization
Disability process reviews and audits
Insurer claim audits
Health and wellness consulting
Taxation support

How to Choose a Benefits Consultant

There are many firms that operate in a group insurance and employee benefits advisory role to plan sponsors, however how do you know why one is better than the other? Like choosing any service, you will need to strike the right balance between reputation, knowledge, service, responsiveness and price.

You will want to consider the following:

Understanding of the plan sponsor’s business
Rapport between the account team and the client team
Ability to communicate clearly and concisely
Quality and depth of personnel
Willingness to be held accountable for results
Program design and innovation
Scope of services provided
Quality of service
Knowledge of the marketplace
Relationship with carriers
Leverage in the marketplace
Cost of service

How you choose the right benefits consultant will largely depend on a combination of the above factors and your organization’s needs.

No Related Posts.

Underwriting: Fully Pooled

Benefits Consultant — Sun, 11 Dec 2011 21:27:10 +0000

Fully pooled is the underwriting method used for all group benefits for small groups. It is also typically the underwriting method used for those benefits that have low incidence of claim but the claim amount is high, irrespective of the size of group. It is typical that group life insurance, accidental death and dismemberment, and long term disability benefits are underwritten under a fully pooled basis for groups up to 200 to 300 employees for most insurance carriers, which is the point where experience-rating is used to some degree. Under a fully pooled underwriting arrangement, the insurance carrier does not review the claims experience of any one particular group, however focuses on analyzing the experience for their entire block of business to determine required premium rates and rate adjustments annually. Insurance companies will aggregate the claims experience of similar groups into a pool and derive a pooled rate. The claims experience of each individual group does not provide enough credible data to derive a rate so by combining the claims experience of many small groups into one pool, applying a credibility factor to that pool's experience, and blending with the insurance carriers block of business, a credible premium rate can be determined. The key distinguishing factor of the fully pooled underwriting method is that each individual group's past claims experience is not used in determining the rate or rate adjustment. If one group's plan experience has been unfavorable in any one 12-month period after the plan's inception, but the majority of the groups in the pool have favourable claims experience, then it is likely that the plan's premium rates will remain stable or decrease in that benefit year. On the other hand, if the pool's claims experience in aggregate is unfavourable, then the plan's premium rates may be subject to an increase in that benefit year even if the individual group had positive claims experience. The insurance company's manual rates (or book rates) are used in determining the rate or rate adjustment annually. Manual rates are premium rates established based on an analysis of the insurance company's entire block of business (the pool), and the average claim incurred for each grouping based on the demographic and geographic profile of the group including age, sex, occupational class and geography. The manual rate is also based on the group's own demographics particularly for the group life insurance and long term disability benefits. A plan underwritten on a fully pooled basis does not share in the financial gains or losses attributed to the plan. There is no financial accounting of premium and claims, and as such the insurance company retains the risk for surpluses and deficits under the plan. The individual group's liability is limited to the cost of the premium. Once the premium is paid, regardless of the financial performance of the program, the insurance company must pay all eligible claims. This type of plan is also referred to as non-refund accounting.

Related Posts:

Group Health Insurance – Medical Supplies and Services

Benefits Consultant — Fri, 09 Dec 2011 20:49:20 +0000

Almost all group insurance health plans provide coverage for medical supplies and services to assist employees recovering/living with a disability due to illness or injury. These benefits provide coverage for the purchase, rental and repair for devices such as wheelchairs, crutches, elastic stockings and orthopedic shoes. These benefits are included under the provisions of a health care plan and are typically subject to any applicable deductible or coinsurance provisions. Coverage is limited to a maximum amount payable per covered person and for a limited amount of time (typically 12 months).

Group health plans offer converge for a wide range of supplies and services, however coverage is limited only to those items/amounts that are not covered under the provincial health insurance plan. Additionally, items covered are often subject to a doctor’s approval/recommendation.

Typical services covered are listed below:

Orthopedic equipment (shoes, splints, braces)
Mobility aids (canes, walkers, crutches, trusses and wheelchairs – includes repairs)
Repertory equipment (oxygen, equipment)
Kidney dialysis equipment
Prosthetic equipment (artificial eyes, artificial limbs, external breast prosthesis – include repair)
Other medical supplies (hospital beds, catheters, hypodermic needles, eye glasses/contact lenses following eye surgery, wigs)
Oxygen, blood, blood products and transfusion

It is also important to mention that the type of device eligible for coverage is limited as well. The limitation extends to equipment that is necessary given the illness/disability of the covered employee (coverage of standard equipment). Equipment for personal comfort, convenience, exercise, safety, self-help, or environmental control items or items used for reasons other than medical are excluded.

Related Posts:

Group Health Insurance – Hospital

Benefits Consultant — Fri, 09 Dec 2011 20:43:53 +0000

Group health insurance plans cover most of the basic hospital and surgical expenses in Canada that any resident incurs during a period of hospital confinement, including accommodation at the ward level, the services of a doctor/surgeon, diagnostic procedures and drugs.

Employer-sponsored hospital benefits plans cover only the additional cost of preferred accommodation such as semi-private or private, during hospital treatment in Canada. Hospital expenses covered under a health care plan may be subject to the same deductible as well as coinsurance feature. The norm in employee benefits plans is that hospital expenses are exempted from deductibles or coinsurance.

Definitions of hospital vary from insurance carrier to insurance carrier however hospitals are typically defined as:

A licensed hospital
Operates with a staff of physicians at all times
Is always open
Offers in-patient accommodation
Provides continuous 24 hour nursing services

The term hospital does not include facilities such as convalescent nursing homes or institutions that provide for personal rather than medical care. Most benefit plans cover the cost of a semi-private room in a hospital with some (declining) covering the full cost of a private room. Some plans do not differentiate between private or semi-private coverage, however they limit the maximum dollar amount covered per day (.i.e $200/max/day). Charges for telephone or private television are not typically covered under the benefits plan. Most plans offer unlimited coverage for any illness or disability.

Related Posts:

Group Health Insurance – Out of Country

Benefits Consultant — Fri, 09 Dec 2011 20:39:18 +0000

Most healthcare benefit plans include the out of country/travel assistance benefit coverage for covered employees. This type of coverage provides insurance to employees while traveling for either personal or business reasons. Out of country benefits are paid for an employee if it is required due to a medical emergency that occurred while a covered person was traveling outside of the country for a maximum time (typically 60 to 120 days) per trip. There are variations in group contracts on what the definition of medical emergency is, however in general, it is one that results from an accidental injury or illness. Coverage for out of country expenses vary by insurer and can include:

Treatment provided by a physician
Diagnostic x-rays and laboratory services
Hospital accommodation
Medical and paramedical supplies and services provided during hospitalization
hospital and nursing services and medical supplies provided on an out-patient basis

Most plans include a lifetime maximum of $1,000,000 for out of country expenses. In addition to medical services provided, other items that are covered include ambulance services and referral medical care.

Ambulance services – Includes transportation by a licensed ambulance company to the nearest center where treatment is available

Referral medical care – Some plans provide care outside of the country for medical services not available in the country provided that the covered individual is referred by an attending physician. This coverage is typically subject to prior approval from the insurance company.

Travel Assistance

Employers are exposed to significant financial risk for employees' out of country medical expenses, as the cost of medical care can be significantly more expensive than the same services in Canada. This type of risk is controlled by managed care networks specialized in travel assistance benefits (discounted fees for increased volume). These organizations enable employers to provide cost effective out of country health coverage to their employees.

Under a travel assistance benefit, a covered person will be provided with a travel assistance card to carry with them when they travel abroad. In the case of illness or injury, the covered person contacts the service provider who, in turn, arranges appropriate treatment to be provided through its preferred provider network. Typically, services covered under a travel assistance benefit include the following:

24 hour telephonic access to a representative using the provider's card
assistance in locating the most appropriate medical facility given the illness or injury
guaranteed payment for emergency medical treatment
arrangement for admission to a hospital
contact with the covered person's doctor for advice and with the insured's family and employer
assistance coordinating an emergency evacuation
arrangement of a return trip home for the insured and any covered dependents
arrangements for a family member to visit a covered person traveling alone and hospitalized for a minimum number of days (typically 7 days)
meals and accommodation for the visiting family member limited to a maximum dollar amount
repatriation of the remains of a covered person who dies while out of country

Related Posts:

Group Health Insurance – Vision

Benefits Consultant — Fri, 09 Dec 2011 20:30:14 +0000

Vision benefits, have recently become less common in employer-sponsored benefit plans. Some provincial health insurance programs include coverage for eye exams, while others include coverage to seniors or residents with physical disabilities. Vision coverage typically cover expenses related to eyeglasses (including lenses and frames) as well as contact lenses. Safety glasses and prescription sunglasses are typically excluded.

In recent years there has been a large increase in demand for laser eye surgery as the procedure has become more effective and lower in cost. Laser eye surgery provides an alternative for individuals who wear glasses or contact lenses for sight correction. Most insurers have revised their group contracts to include reimbursement for laser eye surgery under the vision benefit up to the maximum coverage available under the vision benefit.

Generally coverage is limited to a maximum amount payable as well as a limit on the frequency of benefits payable. The amount payable is typically in the range of $50 to $300. The frequency is generally limited to 12 or 24 months. Since these limits effectively control claims costs, vision benefits are not normally subject to the deductible or coinsurance feature of a health plan and the full cost of the maximum will be reimbursable.

There has been a recent trend of provincial governments shifting the cost of eye exams to employers with the delisting of coverage under the provincial health plan. In most cases, employers will offer some form of vision coverage either by explicit vision coverage, or through an allotment in a Health Spending Account which allows employees to purchase vision care products as eligible expenses.

No Related Posts.

Canadian Provincial Drug Reform Overview

Benefits Consultant — Wed, 07 Dec 2011 20:53:59 +0000

Drug reform has swept across Canada with 5 provinces making changes in 2010 and 2011 to the way generic drugs are regulated in Ontario, Alberta, British Columbia, Quebec and Nova Scotia. The following highlights the key changes to provincial drug regulation:

Ontario

Effective Date:

July, 2010

Generic Pricing:

Public: 25% as of July 1, 2010

Private: 50% as of July 1, 2010, 35% as of July 1, 2011, 25% as of July 1, 2012

Rebating

Eliminated

Agreement

Negotiated with pharmacy

Drugs Included

ODB Formulary

Not Regulated For Private Sector

Pharmacy mark-up, dispensing fees, generic drugs not on ODB formulary

Alberta

Effective Date:

April 1, 2010

Generic Pricing:

Public and Private:

New generics: 45%

Existing generics: 56%

Transitional allowances to mitigate impact for the first 3 years

Rebating

No restrictions

Agreement

Negotiated with pharmacy

Drugs Included

AB Formulary

Not Regulated For Private Sector

Pharmacy mark-up, dispensing fees, generic drugs not on AB formulary

British Columbia

Effective Date:

July 28, 2010

Generic Pricing:

Public and Private:

New generics: 42% as of July 28, 2010, 40% as of July 2011, 35% as of April 2012

Existing generics: 50% as of October 1, 2010, 40% as of July 4, 2011, 36% as of April 2, 2012

Rebating

No restrictions

Agreement

Negotiated with pharmacy

Drugs Included

BC Formulary

Not Regulated For Private Sector

Pharmacy mark-up, dispensing fees, generic drugs not on BC formulary

Quebec

Effective Date:

November 8, 2010

Generic Pricing:

Legislation states: "Best Available Price"

November 2010: Greater of 37.5% of the brand or the best price in Canada

April 2011: Greater of 30% of brand or the best price in Canada

April 2012: Best price in Canada

Rebating

TBD

Agreement

Pharmacy practice

Drugs Included

TBD

Not Regulated For Private Sector

AQPP determines mark-up on behalf of Quebec pharmacies

Nova Scotia

Effective Date:

Summer 2011

Generic Pricing:

TBD

Rebating

TBD

Agreement

TBD

Drugs Included

TBD

Not Regulated For Private Sector

TBD

No Related Posts.

What is Mandatory Generic Substitution?

Benefits Consultant — Wed, 07 Dec 2011 20:13:26 +0000

Mandatory Generic Substitution is a drug plan feature that limits the ingredient cost of a drug charge to that of the lowest cost alternative. Where there is a generic interchangeable drug (a generic equivalent) then the generic drug will be dispensed or the plan member will be reimbursed up to the cost of the generic equivalent. This plan feature helps to limit cost within a group insurance drug program, paying a lower cost for a chemically equivalent drug.

No Related Posts.

How A Claim is Defined

Benefits Consultant — Wed, 07 Dec 2011 19:18:04 +0000

Insurance policies are sold in the marketplace to provide coverage for random unknown events. What triggers a claim under an insurance policy is when a person with insurance experiences an insured event. Under a group insurance contract an employer provides tax effective insurance protection to an employee and his/her family. A group insurance policy also provides the employer with a way to help subsidize the costs associated with medical and dental expenses and loss of earnings from short term absences from work due to illness or injury.

Basic Life Insurance

Basic Life Insurance – Death

Triggering event: Death of an employee

Who it happens to: Employee

What is payable: Death benefit outlined in the group insurance policy

Comments: Typical coverage is a flat amount or a multiple of salary subject to a non-evidence maximum (maximum amount of coverage without the need to provide evidence of good health) and overall maximum (total available maximum including proof of good health)

Basic Life Insurance – Disability

Triggering event: Total disability as outlined in the group insurance contract

Who is happens to: Employee

What is payable: Waiver of premium

Comments: Upon approval of the disabled claim, the insurer waives payment of premium for life insurance coverage for both the employer and employee for the entire period of disability

Basic Life Insurance – Conversion

Triggering event: Loss of group life insurance coverage

Who it happens to: Employee

What is payable: Individual insurance policy is issued

Comments: On loss of group life insurance coverage, the employee is eligible to convert his basic life insurance amount to an individual life insurance policy without providing evidence of insurability up to a maximum of $300,000. Conversion must be requested within 30 days of loss of group life insurance coverage.

Optional Life Insurance

Optional Life Insurance – Death

Triggering event: Death of an employee or spouse

Who it happens to: Employee or spouse

What is payable: Death benefit outlined in the group insurance policy

Comments: Typical amount is provided in flat units ($10,000 or $25,000) or a multiple of salary

Optional Life Insurance – Disability

Triggering event: Total disability as outlined in the group insurance contract

Who is happens to: Employee

What is payable: Waiver of premium

Comments: Upon approval of the disabled claim, the insurer waives payment of employee and spousal optional life insurance premium for the entire period of disability

Optional Life Insurance – Conversion

Triggering event: Loss of group life insurance coverage

Who it happens to: Employee or spouse

What is payable: Individual insurance policy is issued

Comments: On loss of optional group life insurance coverage, the employee and spouse are eligible to convert their optional life insurance amounts to an individual life insurance policy without providing evidence of insurability up to a maximum of $300,000. Conversion must be requested within 30 days of loss of group life insurance coverage.

Dependent Life Insurance

Dependent Life Insurance – Death

Triggering event: Death of a spouse or child

Who it happens to: Spouse or child

Comments: Typical coverage is $5,000 or $10,000 for spouse and $2,000 to $5,000 for each child

Dependent Life Insurance – Disability

Triggering event: Total disability as outlined in the group insurance contract

Who is happens to: Employee

What is payable: Waiver of premium

Comments: Upon approval of the disabled claim, the insurer waives payment of employee and dependent life insurance premium for the entire period of disability

Dependent Life Insurance – Conversion

Triggering event: Loss of dependent life insurance coverage

Who it happens to: Spouse

What is payable: Individual insurance policy is issued

Comments: On loss of dependent life insurance coverage, the employee is eligible to convert his/her spousal dependent life insurance amounts to an individual life insurance without submitting evidence of insurability

Survivor Income Benefit

Survivor Income Benefit – Death

Triggering event: Death of an employee

Who it happens to: Employee

Comments: A monthly survivor benefit is paid to surviving spouse and children of deceased employee. Typical coverage is 10% to 15% of employee’s gross salary for spouse and 5% to 20% of employee’s gross salary for child

Survivor Income Benefit – Disability

Triggering event: Total disability as outlined in the group insurance contract

Who is happens to: Employee

What is payable: Waiver of premium

Comments: Upon approval of the disabled claim, the insurer waives payment of employee and employer life insurance premium for the entire period of disability

Survivor Income Benefit – Conversion

Triggering event: Loss of survivor income benefit insurance coverage

Who it happens to: Employee

What is payable: Individual insurance policy is issued

Comments: On loss of coverage, the employee is eligible to convert his current insurance amount to an individual life insurance policy without providing evidence of insurability. The maximum amount convertible is the value of benefits payable to the employee’s dependents had the employee died at time of conversion.

Paid Up Life Insurance

Paid Up Life Insurance – Death

Triggering event: Death of an employee

Who it happens to: Employee

What is payable: Flat amount typically between $2,000 and $25,000

Basic Accidental Death and Dismemberment

Basic Accidental Death and Dismemberment – Death

Accidental Death and Dismemberment – Death from an accident

Who it happens to: Employee

What is payable: Typically a multiple of salary up to a specified maximum.

Comments: In many cases the death benefit under the Basic Accidental Death and Dismemberment policy duplicates the coverage under the Basic Life insurance benefit

Basic Accidental Death and Dismemberment – Schedule of Losses Other Than Death

Accidental Death and Dismemberment – Any loss (other than death) due to an accident based on the schedule of losses outlined in the insurance policy

Who it happens to: Employee

What is payable: A percentage of the amount payable under the Accidental Death benefit

Comments: 50%-75% for one limb, 100% for two limbs, 200% to 400% for paralysis

Voluntary Accidental Death and Dismemberment

Voluntary Accidental Death and Dismemberment – Death

Accidental Death and Dismemberment – Death from an accident

Who it happens to: Employee, Spouse or Child

What is payable: Amount chosen by employee typically provided in units of $10,000 or $25,000

Voluntary Accidental Death and Dismemberment – Schedule of Losses Other Than Death

Accidental Death and Dismemberment – Any loss (other than death) due to an accident based on the schedule of losses outlined in the insurance policy

Who it happens to: Employee, Spouse or Child

What is payable: A percentage of the employee amount

Comments: 20% to 60% of employee amount

Short Term Disability

Short term disability due to an sickness, accident or hospitalization for a specified duration (usually outlined as a number days)

Who it happens to: Employee

What is payable: A weekly income replacement benefit

Comments: 50% to 100% of weekly salary up to a maximum, for a specified period of time outlined in weeks. Typical coverage is 17, 26 or 52 weeks.

Long Term Disability

Long term disability for a specified duration (usually outlined as a number months)

Who it happens to: Employee

What is payable: A monthly income replacement benefit and waiver of premium

Comments: 50% to 75% of monthly salary up to a maximum, for a specified period of time fixed in years or to age 65. Under the waiver of premium provision, both the employer and employee are exempt from paying life insurance premium while an employee is disabled.

Health

Insured incurs expenses related to health insurance coverage including prescription drugs, paramedical practitioners, medical supplies and services, hospital and vision care

Who it happens to: Employee, Spouse, Child

What is payable: Any eligible health expenses according to the insurance policy subject to deductibles and maximums.

Comments: Typically 70% to 100% reimbursement of eligible expenses subject to deductibles and maximums.

Dental

Insured incurs expenses related to dental insurance coverage including basic restorative, minor restorative, diagnostic/preventative, endodontic, periodontal, major restorative including crowns, bridges and dentures and orthodontic procedures

Who it happens to: Employee, Spouse, Child

What is payable: Any eligible dental expenses according to the insurance policy subject to deductibles and maximums.

Comments: Typically 80% to 100% reimbursement for basic and diagnostic/preventative services, 50% to 80% for major services subject to annual maximums of $1,500 to $2,500 of eligible expenses subject to deductibles and maximums. Orthodontic procedures typically covered at 50% to 60% subject to a lifetime maximum of $1,500 to $2,500.

No Related Posts.

Underwriting: Refund-Accounting

Benefits Consultant — Mon, 05 Dec 2011 21:34:53 +0000

A group that uses the refund accounting underwriting arrangement to fund it's plan is essentially prospectively rated however choosing to share in the financial results of the program. Under both prospectively rated and refund accounting the group is rated based on it's own claims experience (to varying degrees based on calculated credibility), however the key difference between the two methods lies in the financial accounting process. Under the refund accounting arrangement, the employer shares in the financial results of the plan. In years where the plan is performing well, the employer will benefit from plan surpluses and consequently, refunds from the plan. On the other hand, when the plan's claims experience is unfavourable, the employer will be required to pay back deficits either through a lump sum payment or through a deficit recovery margin built into renewal rates. Insurance companies require that groups be of a minimum size, either by headcount or premium, to enter into a refund accounting arrangement. The requirements vary by line of benefit and are based on the volatility of the benefit. The more volatile the benefit, the larger the size requirement. For instance, since STD, Medical and Dental claim amounts per incidence are small and more predictable, insurance companies are willing to underwrite these benefits under a refund accounting underwriting arrangement usually with a minimum of 150 employees and a minimum annual premium of $150,000. This level is a guideline that varies considerably from insurer to insurer. Alternatively, for Life and Long Term Disability, insurance carriers will require that groups be much larger with a much larger annual premium base given the comparatively higher claim amounts, lower incidence, and greater ongoing liability involved. Under a refund accounting underwriting arrangement, premium rates are determined using the group's own claims experience (same as prospectively rated). The only difference is that a deficit recovery margin may be added into rates to recoup a financial deficit should it arise as part of the refund accounting arrangement. An annual financial accounting is completed by the insurer for groups underwritten on a refund accounting arrangement. The financial accounting report outlines the following calculation: – Paid premiums – Claim charges – Insurer expenses and applicable taxes – Interest credits or charges The calculation entails paid premium plus interest credits, less claim charges (paid claims, changes in reserves, pool charges, conversion charges), insurer expenses, taxes and and interest charges. A positive balance results in a plan surplus and is refunded to the employer after funding of the claims fluctuation reserve(CFR)* to the maximum level required. A negative balance results in a deficit and if not recoverable through the CFR is carried forward into the next financial accounting year and is recouped either through a lump sum recovery or through a deficit recovery margin incorporated into premium rates. As part of sharing in the financial results of the plan the employer is required address any deficits arising from the plan's claims experience. However, since the employer has no legal or contractual obligation to pay deficits, it can terminate the plan and leave the deficit to the insurer. Since a refund accounting plan is insured regardless of the financial accounting arrangement, the risk for claims incurred under the plan still lies with the insurer (remember the employers liability is limited to the cost of the premium under an insured arrangement) including any deficits under the program. * The CFR is an employer fund held on account with the insurance company and assists in stabilizing rate fluctuations from adverse claims experience from year to year. The usual funding requirement is 10% to 25% of annual premium.

Related Posts:

Underwriting: Prospectively Rated