The Anatomy of a Group Insurance Plan — What Every Canadian Employer Needs 

Executive Summary

Group insurance plans are foundational to total rewards in Canada, yet many employers—especially those in the mid-market—lack a detailed understanding of how these plans are structured, priced, and optimized. With rising plan costs, growing employee expectations, and increased scrutiny from finance and HR leadership, employers need a clear, strategic view of what constitutes a modern, well-constructed group insurance plan.

This article dissects the core components of Canadian group insurance plans, explaining coverage categories, typical cost structures, risk-sharing mechanisms, and design levers that allow employers to control spend while maximizing employee value. By understanding the “anatomy” of a plan, sponsors can move from passive buyers to active stewards of their benefits strategy.

Why group insurance design matters

A group insurance plan is more than just a financial benefit. It signals how employers value their workforce, shapes retention and recruitment, and directly impacts productivity and well-being. Yet despite spending hundreds of thousands or even millions annually, many employers default to off-the-shelf plan designs that do not reflect:

• Their workforce demographics

• Industry-specific risks

• Budget discipline or total rewards strategy

• Emerging wellness and mental health priorities

Well-designed plans strike the right balance between protection, flexibility, and cost predictability. Poorly structured ones lead to benefit leakage, underutilization, or hidden liabilities.

The five pillars of a group insurance plan

While each plan is unique, Canadian group benefits typically include five core coverage categories:

1. Extended Health Care (EHC)

The largest component of most plans—covers services not included under provincial health insurance.

Key elements:

• Prescription drug coverage (with or without mandatory generics or formulary limits)

• Vision care (glasses, eye exams)

• Paramedical services (e.g., chiropractors, psychologists, massage therapy)

• Hospital accommodation upgrades

• Out-of-country emergency medical coverage

Cost driver: Drug claims represent ~60–70% of EHC costs.

Strategic levers:

• Introduce drug maximums, preferred pharmacy networks, or formularies

• Set per-visit or annual paramedical caps

• Add virtual care or telehealth services as cost-effective alternatives

2. Dental Insurance

Highly valued by employees—especially in family-dominant groups.

Coverage tiers:

• Basic services: Cleanings, exams, fillings

• Major services: Crowns, bridges

• Orthodontics: Typically for dependents, often with lifetime maximums

Strategic levers:

• Set reimbursement limits (% per category)

• Introduce scaling/fee guide restrictions

• Offer dental as a standalone optional benefit

3. Disability Insurance

Provides income replacement in the event of illness or injury.

Two main types:

Strategic levers:

• Define non-evidence maximums to control pricing

• Choose between taxable/non-taxable LTD models

• Implement waiting periods or employee-paid premiums

4. Life and Accidental Death & Dismemberment (AD&D)

Low-cost, high-impact coverages that provide financial protection to employees and families.

Options:

• Basic group life: Often 1–2x salary

• Optional or voluntary life: Employee-paid, often medically underwritten

• Dependent life: Spouse/child coverage

• AD&D: Lump sum for accidental injury/death

Strategic note: Often bundled in pricing with LTD, enabling cost efficiencies.

5. Health Spending Accounts (HSAs) & Wellness Accounts

HSAs are tax-effective tools that allow employees to use employer credits for eligible medical expenses.

HSAs:

• Tax-free to employees

• CRA-eligible expenses only

• Typically $500–$2,000 annually

Wellness/Flexible Spending Accounts (FSAs):

• Often taxable to employees

• Broader usage (e.g., fitness, home office, child care)

Strategic levers:

• Use HSAs as cost-containment buffers

• Layer FSAs to support wellness or DEI initiatives

• Offer in lieu of traditional coverage to non-traditional employees

Funding the plan: Insured vs. ASO vs. Hybrid

Funding decisions impact cash flow, volatility, and long-term cost control.

Cost allocation: Who pays what?

Employers can structure contributions in several ways:

Caution: Tax treatment varies by province (e.g., Québec has unique rules on taxable benefits).

Structuring eligibility and classes

Plan design must address:

• Waiting periods (e.g., 3 months for new hires)

• Full-time vs. part-time thresholds

• Class-based designs (e.g., executives, salaried, hourly)

• Spouse and dependent definitions

• Coordination of benefits with spousal plans

A tiered or class-based approach allows greater alignment between benefits and workforce segmentation.

Trends reshaping plan anatomy

1. Mental health parity

   • Psychologist and social worker maximums increasing from $500 to $1,000+

2. Digital health integration

   • Telemedicine, digital EFAPs, and mental wellness apps becoming standard

3. Cost containment pressure

   • More employers exploring preferred provider networks and drug formularies

4. Modular & cafeteria-style plans

   • Employees select between core and optional benefits

5. Sustainability lens

   • Focus on preventive care, chronic condition management, and financial well-being

Implications for plan sponsors

Plan sponsors must recognize that group benefits are no longer one-size-fits-all. A modern plan should:

• Reflect workforce demographics and risk tolerance

• Support organizational culture and ESG objectives

• Be regularly benchmarked against peers

• Provide flexibility through HSAs or modular design

• Evolve alongside changes in the health and employment landscape

Final word

Understanding the anatomy of your group insurance plan is a critical step toward strategic benefits management. By breaking the plan into its core components, assessing funding and eligibility structures, and leveraging emerging tools like HSAs and digital health platforms, Canadian employers can design benefit plans that are cost-effective, competitive, and valued by employees.