Insurance companies in their quest for business generally deal with any agent that approaches them, but this does not guarantee that your interests as a client are kept in your favour when purchasing an employee benefits plan.
Unfortunately, some agents have questionable ethics and this has led to more than a few deceptive practices in their pursuit of a commission. Knowledge is important when finding the right group plan, but it is critical to have trust in your selection of a qualified benefits consultant, as that individual is your interface with the insurer.
Although there are many ways agents can be deceptive, here are three that many companies fall victim to.
1. Employee Benefits Plan: Reducing The Number of Meds Covered
Sadly, it’s not uncommon to hear about clients switching their employee benefits plan on their agent’s advice, only to find the unpleasant surprise that they have reduced the number of prescriptions covered.
With the increased costs of drugs in particular, premiums are escalating and one strategy to controlling those costs is to look to a “Managed Formulary”.
The traditional model up to now has been to cover everything a doctor prescribes – which is a list of about 12,500 drugs. There are many formularies that provide various levels of cost control- but to avoid a liability in changing plan designs, your agent should carefully explain the pros and cons to you and your employees.
Like anything, the more you want covered, the higher the cost. If it’s obvious that your staff won’t take advantage of extended prescription coverage, then it might make sense to scale back on it – just make sure it’s your decision, not the agent’s.
2. Playing With the Target/Loss Ratio
There is what we call a target/loss ratio in the insurance industry and it’s a profit point for insurance companies. Agents can decrease the amount of money that you can spend in premiums towards claims by increasing their commission.
Let’s say you are a 10-person firm on the group plan in a wholesale pool. (Pool plans provide more leverage against insurance companies). It allows you to spend 82 cents on every dollar towards claims – the markup, or cost of paying claims is then 18% for administration.
If you had the same 10-person firm and bought coverage from Manulife or Great West Life using their retail benefit product, you typically would be limited to spending only 70% of that dollar with 30% going towards administration fees. If the agent wants to increase his commission by 5%, the amount that employer can now spend on claims is reduced to 65%.
The agent makes more money but the employer and their staff has less available to spend on claims in their employee benefits plan. You pay for it!
3. Only The Catastrophic Benefits Are Pooled
Be careful of agents that advertise their plans as being pooled when, in reality, only “catastrophic” benefits are pooled such as life insurance, disability and out of country coverage.
Extended health and dental premiums will still be adjusted based on the claims the company’s employees make on their employee benefits plan.
If you have an actual pooled plan, all coverage will be covered in the pool. For an explanation on pooled plans, read this article.
It all comes down to making sure you understand what you are paying for and getting transparency from your benefits consultant.
The first choice a client needs to make is the selection of the broker or agent they wish to work with. Knowing these three deceptive practices will help you be more aware when deciding on the right employee benefits plan representative for you.
What do you find confusing or misleading when dealing with employee benefits plans? Leave a message in the comments below.