Risk Management Module 5: Employee Benefits Study Notes

Risk Management Module 5: Employee Benefits

Overview

  • Presented by Amanda Marazia FCIP, CRM, Dipl.
  • Discusses critical elements concerning group insurance.
  • Focus on three major topics:
    1. Differences between group insurance and individual insurance.
    2. Basic group underwriting principles.
    3. Eligibility requirements for group insurance benefits.

Differences Between Group Insurance and Individual Insurance

  • Contractual Structure: The master contract is established between the group policyholder, usually the employer, and the insurer. Employees do not have a direct contract with the insurer.
  • Cost Comparison: Group insurance generally costs less than individual insurance products due to collective risk pooling.
  • Administration: The employer manages the administration of group insurance plans, simplifying the process for employees.
  • Insurability: Individual insurance necessitates proof of insurability, which can involve medical examinations or health questionnaires, while group plans often waive this requirement, relying on the experience of the group for risk assessment.

Basic Group Insurance Underwriting Principles

  • Group insurers operate under several fundamental principles:
    • Incidental Insurance: Insurance is regarded as an incidental benefit to the main purpose of the group (e.g. employee benefits).
    • Flow of Persons: There is a consistent flow of new members into the group, affecting the risk pool.
    • Automatic Benefit Determination: Benefits are determined automatically based on group participation, rather than individual assessments.
    • Participation Requirements: Minimum participation levels must be met in order for the plan to be effective.
    • Efficient Administration: Designed for effective management to reduce costs and increase accessibility.

Eligibility Requirements in Group Insurance

  • Eligible Groups: Specific types of groups are recognized for coverage, typically organizations or associations with defined criteria.
  • Size Considerations: The size of the group can impact eligibility and coverage options.
  • Probationary Period: New employees may face a waiting period before they can join the group insurance plan.
  • Actively-at-Work Requirement: Employees must be actively engaged in their job to be eligible for benefits.

Group Insurance Benefit Options

  • Types of Coverage in a Group Insurance Plan:
    • Group Life Insurance: Usually one-year renewable term life insurance.
      • Supplemental Life Insurance: Additional coverage above the basic plan.
      • Accidental Death & Dismemberment (AD&D): Additional benefits for accidental injuries; can be added to life insurance or accident and sickness plans.
      • Insurance for Spouses and Dependents: Coverage options can extend to family members.
      • Conversion Rights: Allow policyholders to convert term life insurance to a whole life policy upon leaving the group.
      • Credit Life Insurance: Coverage that pays off debts upon the insured's death.

Group Medical Expense Insurance

  • Categories of Benefits:
    • Indemnity Benefits: Compensation for lost income due to medical issues.
    • Reimbursement Benefits: Covering qualified medical expenses not included under provincial insurance plans (e.g., OHIP).
  • Administration Options:
    1. Commercial Insurers: Insured members incur medical expenses, and insurers indemnify after claims.
    2. Self-Insurance: The insured takes responsibility for all or part of the benefits, possibly involving an Administrative Services Only (ASO) contract if external management is required.

Special Provisions of Group Medical Insurance

  • Coordination-of-Benefits Provision: Ensures that claims are paid appropriately when individuals have multiple insurance policies.
  • Preexisting Conditions: Conditions existing before the start of coverage may have specific stipulations affecting benefits.

Group Dental Insurance

  • Helps offset normal dental care costs and accidental dental damages.
  • General Coverage Areas:
    1. Basic Services: Routine care and preventive measures.
    2. Major Restorative Services: Coverage for more significant dental work, such as crowns or bridges.
    3. Orthodontic Services: Coverage for braces and other orthodontic treatments.
  • Key Considerations:
    • Deductibles: Amount that must be paid out of pocket before insurance kicks in.
    • Overall Benefit Maximum: The cap on total benefits within a calendar year, subject to provincial guidelines.
    • Fee Guide: Adheres to predetermined fees established by the Canadian Dental Association for various dental services.
    • Predetermination of Benefits: Process to assess eligibility for coverage before receiving services.

Group Accident and Sickness Coverage

  • Disability Income Benefits Breakdown:
    • Short Term Disability (STD) or Weekly Income Benefits (WIB): Offers temporary income for short-duration disabilities.
    • Long Term Disability (LTD): Provides income replacement for extended periods of disability.
    • Additional benefits include Weekly Income Benefit, Long-Term Disability benefits, and one-time lump sum payments.

Cafeteria Plans (Flexible Benefits Programs)

  • Definition and Structure: Cafeteria plans allow employees to customize their benefits, creating a flexible workplace where they can select from a range of options instead of adhering to a one-size-fits-all package.
  • Credits System: Employers provide credits that employees can allocate towards various options, tailoring their benefits to their specific needs.
  • Also Known As: These programs may be referred to as flexible benefits or smorgasbord plans, promoting advantageous choices for employees.