The Current Plight of Small Business Owners and Their Benefits Plans
Robert J. Crowder
We all know
the Covid pandemic has been brutal for small business. But it’s been particularly brutal for small businesses with employee health and benefits plans. And that means the majority of them. Why? They have been paying full premium for services that haven’t been used. What’s more, as the economy reopens they can expect to be paying full tilt into the future as well.
About 75% of small businesses in Canada have employee benefits plans. In the past three months – March, April and May – they paid out approximately $1.6 billion in premiums for benefits coverage. However, for the most part, no service at all has been provided. People didn’t go to the dentist. They didn’t see their physiotherapist or their chiropractor. Still, the premiums had to be paid. And this at a time when small business has been suffering, and that’s putting it mildly, through a pandemic.
Robert J. Crowder
Over this period the number of claims for health and dental services was down 50% and some components, such as dental visits, were down 95%. This should come as no surprise. The offices of dentists, chiropractors and other healthcare providers have been closed except for emergencies. But small businesses continued to pay full benefits premiums.
Restrictions are now being eased for such services and things are starting to open up, but it’s not going to be like before. For example, dental offices will be restricted to how many patients they can see in a day and must be equipped with PPE which means added cost. The result? People will go to the dentist less frequently but each trip, and each service, will be more expensive.
In June some small businesses started to receive a credit from large insurers but they should be prepared for rates to return to pre-Covid levels. And this while usage of such services remains low.
Big businesses, on the other hand, generally use an ASO (Administrative Services Only) model for their health and benefits plans. These are self-funded so the organization has more control over the plan. And if the organization does use a large insurer for benefits, it has enough size and scale to negotiate changes with the provider.
But small businesses with health and benefits plans provided by major insurers have no such flexibility. And most of them do not even remotely understand the math used by the industry to determine annualized premiums, and premium increases. I know. I’ve been in this business a long time.
A new industry term now making its appearance is the ‘Covid Adjustment Factor.’ What does it mean? That depends on whom you talk to. From my perspective the ‘Covid Adjustment Factor’ is a way to effectively ignore how this pandemic has impacted the number of claims over the past three months; fewer claims should have meant lower premiums. But that is not happening.
What will happen is that premiums will revert to the same ‘full’ level as before, even though the number of visits to the dental office will not be like before.
The bottom line here is that small businesses have little or no control over traditional benefits plans provided by big insurers. Their only option is to change the funding model so it accurately reflects reality.
Here are some tips for small business owner-managers:
Make sure you clearly understand what your funding model is and if there is something you don’t understand, don’t be afraid to ask your insurance provider.
Consider a budgeted ASO plan which works on estimates for the number of health and dental claims, and gives you a fixed monthly contribution towards expected claims. This means your contributions are directly related to your claim levels and any surplus premiums you may have paid out will be returned to you at the end of the year.
Ask your insurer what will happen in the event of a second wave of Covid.
Back in the 1980s when he was negotiating a nuclear disarmament deal with the Soviet Union, former U.S. President Ronald Reagan once said, “Trust but verify.”
Small business owners would do well to apply that sound advice to how they deal with the providers of their health and benefits plans.
Robert J. Crowder is Founder and President of The Benefits Trust.