In an employee benefits league of their own? Not so fast
BY Patrick Burkart, TRG Group Benefits | April 13, 2017
Play ball! Yep, that’s right, baseball is back and the players are starting to report. It’s been a long winter and everyone’s glad to see spring training get under way for the boys of summer.
All these words and sounds signal the start of a new season and fans love hearing them. The crack of the bat, the anticipation…it’s intoxicating. Mostly, it’s another chance at redemption, a time to put the pants on again and start smacking that ball all the way to Opening Day … when the new season really begins.
All this chitchat about a new baseball season led to a question the other day in our corner of the employee benefits world: exactly when does new mean new? Pick up any dictionary and you’ll see it’s defined as something not existing before. Sounds simple enough. Scratch a little deeper though and it also means recently changed or renewed. Which is it then?
Well, the marketing chatter as of late would have us believe the high-tech solutions disrupting the benefits business did not exist before. The hype is there are new solutions to the arguably high cost of providing employee benefits. One, in particular, gives the impression their offering is both new and cost effective. But are these and other new solutions really new? Dust off your glasses and look closely: are they game changers? Or is it that they have cool new bats but they’re still playing in the same league as everyone else?
The solutions on offer go by many names and acronyms: Health Care Spending Accounts (HCSA), Wellness Accounts, Private Health Spending Plans (PHSP), Health and Welfare Trusts (H&W Trusts) just to name a few. Sometimes, they’re collectively referred to as Defined Contribution Benefit Plans. While there are some minor differences, the common denominator for you as an employer is their per employee spending cap. In so far as these accounts limit costs and spending, they do offer some answers to the ever-rising costs of a traditional benefits plan.
They can also spell a win for employees who gain flexibility in spending the dollars on any service that is an eligible expense under the CRA income tax guidelines. This applies to all HCSAs, PHSPs and H&W Trusts, although expenses allowable under Wellness Accounts are determined by you as the employer so they don’t receive any preferential tax treatment. In other words, employee benefits under this kind of plan are taxable.
Is this really a solution then for most employers? That depends.
If you are an employer implementing a benefits plan for the first time, or you’re thinking about adding a Defined Contribution program to an existing traditional plan, then yes! If, however, a Defined Contribution plan is being touted as an alternative to a traditional plan then, depending on the philosophy of your company, possibly no. Let’s put those glasses on again.
Consider this: a per employee cap means the entire group loses the advantage of risk sharing. If a single employee or someone in their family runs into a high claims year for themselves, or their family, they can easily use up their claims allowance early on leaving nothing for the balance of the year. Talk about being off base. The simple fact is that many employers would not be comfortable telling an employee in need that they have reached their maximum, are on their own and responsible for all costs going forward. Now that’s playing hardball.
Consider further: in moving from a traditional plan to a Defined Contribution plan there’s a clear favour for the low user over the high user. These high use employees may also be highly productive employees who consider the defined benefit plan a key component to their employment status. As a result, the perception for many employees is that they would be losing rather than gaining benefits. Changing the plan could end up changing your workforce.
Finally, there is a cost to providing your employees with this kind of flexibility. By using the tax act to define plan expenses, employees can use their allowance for any eligible service, regardless of price. This disregards the considerable time, energy and skill insurers use to determine reasonable and customary fees in applying applicable maximums. For example, some dental providers regularly exceed their association’s suggested fees. Does the employer want to pay for services that are higher than what the Provincial Dental Association itself deems a reasonable charge?
As for the newness of these plans, the claim is highly debatable. In their pure form, these programs have been available in Canada for at least 30 years. Do they offer solutions? As always, some do some don’t, depending on your situation. There are many Defined Contribution providers from whom you can choose, each with varying degrees of high-tech offerings, including mobile apps, electronic claims submissions, among other features. Besides, the traditional insurers themselves offer many of these same features. So yes, it is a new baseball season and they’ve got some great new equipment. But really, they’re just playing the same game in the same old league.
Patrick Burkart is a principal with TRG Group Benefits in Vancouver.