Transitioning clients from traditional to tailored plans

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When a client who has always been happy with a traditional benefits plan decides a more tailored approach might work better for employees, what ideas can you give them?

Sophia Nizamuddin, a group health specialist with Svab Insurance Inc., says there’s a lot of talk in the market now about flex-care dollars. The idea of a more tailored plan is trendy, and seems to hold considerable appeal for employees who have their own ideas about how to spend their health care benefits.

When clients start thinking it’s time to move to a more customized plan, she often recommends a health spending account.

“They’re flexible, so employees can choose where their money goes,” she says. “Not only is there flexibility in terms of where to spend the money, but the health spending amounts themselves are flexible, which is great for companies.”

A common criticism of health spending accounts is that that they can leave employees exposed when it comes to serious, costly medical issues or emergencies. But health spending accounts can also be structured as an add-on to a traditional plan, says Nizamuddin. This can be a useful way to bridge any gaps in coverage.

Adding catastrophic coverage to a health spending account is a good example: it allows employees to pick and choose how to spend most of their health care benefits, but covers them for unforeseen large expenses, such as those relating to serious accidents, travel or medical emergencies.

Is tailored always better?

The answer may be yes.

Nizamuddin says it’s not easy to find fault with the concept of tailored plans. They are often less expensive for employers than traditional plans, and when paired with catastrophic coverage or a pooled plan, they cover employees for most eventualities.

Sam Pasternak, an insurance specialist with Alliance Income in Vaughan, Ont., says a key benefit of health spending accounts for employers is that there are no bad surprises. “Health spending accounts make it easier for employers to predict and contain their costs,” he says. “If an employer allows a certain amount to be in the bucket, it can’t be exceeded.”

Like Nizamuddin, Pasternak likes the idea of combining health spending accounts with pooled benefits to create “hybrid” plans that, for a small premium, also protect from catastrophic risk.

“By working with providers who combine both elements, you’re protected from things that could ruin the integrity of the plan—like the unlimited drug plan, the out-of-country, the private-duty nursing,” he says.

Also worth considering: ASO plans
Administrative-services only (ASO) plans are set up such that the employer funds the cost of claims while a third party administers the plan. They are tailored to a company’s needs in the sense that they offer the option of paying for only what you use: plan costs are based on actual, not anticipated claims, and if claims are less than expected, the business keeps the surplus.

They’re not for everyone, though. Businesses that would have trouble with unexpected payments might best be pointed in another direction, because they are a distinct possibility.

“The problem with the ASO model is that at the end of the year, if you’ve claimed more than you’ve paid in premiums, you owe that deficit that year, and there’s nothing you can really do about it,” says Pasternak.

Companies that would not welcome news like this might be better off sticking with an insured model, he adds. “If there’s a huge increase based on over-usage and your claims exceed what the insurance company predicted, you can walk away from the renewal. You can stop offering benefits, or shop other carriers for a lower rate.”

The only problem with that approach, of course, is that you can only use it so many times before insurers catch on. “They’ll realize you’re shopping every renewal to save $100, and they may not want the business,” says Pasternak.

Which may bring the conversation back to the pros and cons of traditional plans, health spending accounts and ASOs. In the end, it comes down to the right balance between what’s best for employees and what’s good for the client’s bottom line over the long term.

“If the client foresees having benefits for many years, I think the ASO model is a little more cost-efficient, dollar for dollar,” says Paternak. “Or as I like to put it, ‘the house always wins.’”

Transcontinental Media G.P.