Group Health Insurance - A Comprehensive Guide

What is Group Health Insurance?

Group health insurance is typically an employer sponsored plan provided by an employer to eligible employees and often extends to provide coverage for their dependents. The employer purchases the group policy and the employees are enrolled under the master policy with their own individual certificate, or identification numbers. This means the employer owns the plan and ultimately makes decisions regarding the coverage.

Why Is Group Health Insurance Important?

Group health insurance plans provide actual health insurance coverage and are highly valued by employees. Provincial health insurance does not cover the majority of an average Canadian’s healthcare and prescription drugs costs. A group health insurance plan can provide non-cash compensation in a tax-efficient manner by helping protect employees from expenses arising from ongoing and unforeseen medical expenses. Employers can attract, retain and take care of their greatest asset, their employees, by implementing a well-designed group health insurance plan. Employee morale can be greatly improved when staff are taken care of. Premiums are tax deductible and benefits are received tax free in the hands of the employees.

Who Pays for The Group Health Insurance Plan?

As the contract is in the company name, the employer pays the insurer. Premiums can be shared with employees through payroll deduction, but typically the employer must pay at least fifty (50) percent of the premiums. Businesses can pay anywhere from 50% to 100% of the premium, but most commonly, employers pay 80% or 100% of the premium and the staff pay any difference. Other benefits such as long-term disability may be 100% employee paid due to the tax treatment upon claim.

If you would like to learn more about the tax treatments of group insurance premiums, please check out our article are group benefits taxable in Canada?

Group Health Insurance Is Not One Size Fits All

Group health insurance can be customized to meet your company’s unique needs and budget. When setting up a new plan from scratch, it can be a daunting task to go through the options and determine why the cost varies from one insurer to the next and what makes each insurer or plan type different. Not all plans are the same and insurers will discount prices up-front to get your business, only to raise them at renewal if the usage is moderate. It is a good idea to work with an employee benefits broker who specializes in employee benefits who can help you determine the best plan for your needs and budget. The broker will work with you to design the plan and explain the potential long-term impact on the cost of your initial plan choices. Additionally, the broker will work with you to change and adapt the plan over time as your needs change and help with anything that comes up along the way.

Why Are You Setting Up A Group Health Insurance Plan?

Before you consider working with a broker to start designing your plan, have you asked yourself why you want to implement a group health insurance plan? Do you want to provide your employees with the best coverage possible? Do you have the funding to sustain this over the long-term?

The reality is, most small businesses simply cannot afford to have the best group health insurance plan possible. There is a fine line between providing employees with exactly what they want and staying within your budget, now and in the future.

It is not a bad thing to start with a more basic program and as your budget matures, improve the coverage over time. One thing is for sure, people hate having things taken away, but most will never complain that you have increased their coverage or provided them with something better down the road.

The above being said, it is best to discuss your intentions with an employee benefits broker and work with them to find the best option for your needs and budget. A good, honest and ethical broker will be (1) independent; (2) have multiple options on hand; (3) work for you; and (4) should only have your best interest in mind.

How Does Group Health Insurance Tie into Public Healthcare?

Group health insurance is designed to supplement the coverage that is offered through Provincial health care plans, such as OHIP in Ontario. Extended health care benefits are comprised of hospital, prescription drug, vision and supplementary health care benefits.

Generally, group health insurance plans act as a second payer to Provincial health insurance plans. OHIP+ is shifting to make private insurers first payer and the Ontario drug formulary is limited in terms of the number of drugs it covers as is. Payments made by a group health insurance plan are limited to medically necessary expenses, typically not paid by government programs and within the provisions of the insurance contract.

Each insurer has their own standard benefit options in some areas that may not be identical to another. It is important to work with a broker and find the plan which closely matches what you are looking for.

Group Health Insurance Plan Provisions

True group health insurance plans will offer the option of electing coinsurance levels, deductibles, dispensing fee caps and will have internal maximums as well as overall maximums. If your group is smaller, you may be limited to certain structures; while larger groups are typically offered more flexibility.

First, we will go through some of the options available in terms of coinsurance, deductibles, internal maximums, overall maximums and then get into what is covered.

Deductibles

A deductible is an amount that a covered individual must pay before any reimbursement is payable on the expenses in excess of that deductible. A deductible can be an annual deductible (commonly calendar year) or per prescription.

Calendar year deductibles are satisfied on a calendar year basis, from January 01 to December 31.

Group health insurance annual deductibles can be $25.00, $50.00, $100.00 and so on. Alternatively, there are plans with no deductible. Some plans use a single/family deducible structure, for instance, $50.00 for a single person and $100.00 for a family, couple or single parent.

A per prescription deductible is applied to drug benefits each time a prescription is filled. If you have a drug card, the deductible is applied at the point of purchase. If your drugs are processed on a reimbursement basis, the per prescription deductible is deducted from the reimbursement amount.

Per prescription deductibles typically range from $0.00 up to $10.00.

Example of A Deductible In Action:

An employee’s calendar year deductible is $50.00. Their eligible expense is $64.00. $64.00-$50.00 = $14.00 remaining. The employee has now satisfied their calendar year deductible. Following the deductible, the applicable coinsurance rate would reduce the remaining balance accordingly and the employee would pay remaining balance, which we will explain next.

Coinsurance

Coinsurance is the percentage of eligible expenses (after any deductibles are applied) that is eligible for reimbursement under a group health insurance plan. In other words, the amount of eligible expenses that the insurer will pay after you have paid your deductible.

Coinsurance levels can vary from 50% up to 100%.

Example of Coinsurance in Action:

Continuing the example used in the deductible section, the employee first paid their deductible and has a remaining balance of $14.00. If their coinsurance is 80% the calculation would be 80% of $14.00, which is $11.20. The insurer would pay $11.20 of the $14.00, so $14.00-$11.20= $2.80. This leaves the employee to pay the remaining balance of $2.80 out of their pocket.

Dispensing Fee Caps

In Ontario, dispensing fees vary greatly from around $4.00 to over $13.00 per prescription on average. This can add up quite quickly and increase costs if numerous drug claims are being submitted. Plan sponsors (employers) sometimes have the option of capping the maximum dispensing fee that will be paid out per prescription. This not only lowers claims and costs for the plan, but it also encourages employees to be smart consumers and shop around for a pharmacy offering a lower dispensing fee.

Internal Maximums

Group health insurance plans will include internal maximums for each area of coverage. The maximums can be applied annually, every two years (other schedules also exist) or over an individual’s lifetime, depending on the type of expense.

Some common examples are as follows:

  • Prescription drugs: a plan can have no drug coverage, a limit of $1,000.00 per year, $2,500.00 per year, $3,000.00 per year, $5,000.00 per year, $10,000.00 per year, $50,000.00 per year and even unlimited coverage. Some insurers only offer specific limits and the limits can be per family as a whole or per individual. For example, one plan may offer a family $2,500.00 per year for the entire family and another plan may offer $2,500.00 per each family member.
  • Paramedical: paramedical service covers practitioners such as chiropractor, physiotherapist, massage therapist and so on. Some plans will cover a set amount per practitioner, per person (or family unit), per year. For example, this could be $300.00 per person, per year. Some plans combine all services to a similar amount and you choose where to spend it, however this means you will have less coverage overall. For example, $500.00 for all paramedical services combined. Additionally, a plan could tier the paramedical services. For example, tier one could cover certain practitioners at $300.00 per practitioner, per person, per year; tier two could cover other practitioners at $500.00 per practitioner, per person, per year; and tier three could cover additional practitioners at $600.00 per practitioner, per person, per year.
  • Vision Care: visions care typically has a maximum that is subject to a two year maximum. For example, $200.00 every 24 months for adults.

Overall Maximums

A common overall maximum is a lifetime maximum applicable to out of country emergency medical claims. For example, the maximum could be $1,000,000.00 per an individual’s lifetime.

It is important to be aware of what you are buying and that your employees understand their coverage and what to expect. Saying something is simply covered may lead to dissatisfaction among plan members. Ideally your employee benefits broker should sit down with your and your staff to go through the plan and ensure that everyone understands what is being offered to them in addition to answering any questions that may arise.

What’s Covered Under A Group Health Insurance Plan?

Again, coverage can vary greatly from one plan to the next. In general, covered expenses included under most group health insurance plans may include any or all of the following:

  • Hospital coverage
    • Typically, semi-private.
  • Paramedical services
    • Clinical psychologist, chiropractor, physiotherapist, speech therapist, clinical psychologist, osteopath, chiropodist, physiotherapist, naturopath, acupuncturist, podiatrist, massage therapist, audiologist, social worker and dietician.
    • Practitioners must typically be licensed and regulated by an applicable body in the Province where they work.
    • Benefit maximums typically range from $300.00 to $500.00 per practitioner, but if you have a large budget it is possible to obtain higher coverage, such as $1,000.00 per practitioner.
  • Prescription drug coverage
    • Coverage can be generic substitution, mandatory generic, brand name or may use a formulary and the options may vary by carrier and/or group size.
    • Every insurer worth considering has changed over to have a drug card under their programs.
  • Vision care
    • Eyeglasses or contact lenses. Coverage is typically limited to $200.00 every 24 months per adult and every 12 months for dependent children. High limits can be purchased if your budget permits.
  • Eye examinations
    • The dollar amount covered varies by insurer. One eye exam per adult is typically covered every 24 months and every 12 months for dependent children.
  • Emergency travel coverage
    • The number of days covered varies by plan and insurer, typically from 30 up to 180 days per trip.
    • Lifetime and annual maximums vary by insurer as well.
  • Travel assistance
    • Travel assistance offers 24-hour access to managed care networks specialized in travel assistance benefits. A covered individual is provided with a travel assistance card. Should illness or injury occur, the covered individual must contact the service provider who in turn, arranges appropriate treatment to be provided through its preferred network or negotiates a discounted fee.
  • Air and group ambulance
    • Professional licensed ambulance coverage may be included as a supplement to government programs.
  • Accidental dental benefits
    • Extended health care plans typically provide coverage od dental treatment when a covered individual’s healthy, natural teeth have been damaged in an accident.
  • Charges for licensed convalescent care
  • Private duty nursing
    • Coverage is generally provided only for nursing care that is recommended by a physician and performed by a registered nurse (RN), who is not related to the covered individual and does not live in that person’s home.
    • This benefit will typically have a calendar year maximum, such as $10,000.00 or a variation that is similar.
  • Diabetic, colostomy and ileostomy supplies
  • Hearing aids
    • Dollar amounts, and timeframes can vary. For example, a plan could cover hearing aids up to $500.00 every five years.
  • Miscellaneous medical services and supplies
    • Custom made orthotics and orthopaedic shoes.
    • Mobility aids, such as splints, canes, braces, crutches, trusses and wheelchairs, including repairs.
    • Respiratory equipment such as oxygen and the equipment need for its administration.
    • Prosthetic equipment, such as artificial eyes, standard artificial limbs, external breast prosthesis, including repairs.
    • Additional medical supplies, such as hospital beds, catheters, hypodermic needles, wigs due to permanent hair loss as a result of an y injury or disease or for temporary hair loss as a result of medical treatment for any disease.
  • Though new, some plans are introducing coverage for medical marijuana
    • Where available, a plan sponsor chooses to make a medical marijuana program available to their members. Requests for coverage will go through a prior authorization process and will likely be subject to an annual dollar maximum for medical marijuana drug claims.

Drug Coverage Options

It should be noted that some insurers have already adopted a specific drug plan type in order for all plan members to have access to a more efficient and economical system. Furthermore, not all options may available with every insurer.

  • Generic Substitution
    • Where brand name drugs are purchased, and a generic equivalent is available, this plan allows insurers to reimburse only up to the cost of the generic drug.
  • Lowest Cost Equivalent
    • This provision pays for the lowest cost drug whether it is a name brand or generic.
  • Therapeutic Substitution
    • This plan type will cover drugs within the same therapy class as that prescribed but are less expensive. Drugs with different active ingredients but the same therapeutic classification as those prescribed are included in therapeutic substitution lists. For example, an anti-depressant drug has a lower-cost therapeutic alternative that is about a quarter of the cost. Both drugs belong to the same class of anti-depressants but have different active ingredients. The lower cost drug would be covered at a higher coinsurance than the more expensive drug of the same class.
  • Managed drug formulary
    • This type of plan covers drugs that satisfy specific criteria. For instance, a plan might cover 80% if managed formulary drugs are purchased, versus 50% when non-formulary drugs are purchased. In an effort to promote plan affordability, an increasing number of insurers are developing proprietary managed formularies that assess the pharma-co-economic value of a drug prior to listing it. It may be that managed formularies will be the standard drug plan of the future, striking a balance with cost and therapeutic value.

Prior Authorization

Prior authorization is common with many insurers due to the high cost of new therapies in the market place. This provision requires a plan member to obtain prior approval from the insurer before the drug is covered and involves completing a prior authorization form as well as providing any additional supporting medical information. The goal is to ensure that plan member has tried less expensive therapies before progressing to more expensive therapies and can also be used to ensure that drugs are not being used off-label. Prior authorization is commonly used for drugs such as biologics.

Reasonable and Customary Charges

Group health insurance plans pay for eligible health care expenses on the basis that the treatment or procedure is provided at a reasonable and customary charge as determined by each insurance company. Generally, a reasonable and customary charge will fall within the range of fees normally charged in a geographic location for a given service, treatment or procedure that is performed by eligible health care professionals who have similar education and experience.

Insurers generally define a reasonable and customary charge to be the lowest of:

  • The price that is common in the area where the treatment was provided;
  • The price published in a fee guide for a given professional association; or
  • The maximum price established by law.

This means that insurers will pay charges up to a maximum, often determined by what is commonly charged for a specific treatment by local providers.

Again, each insurer can have a different reasonable customary maximum that they use for their own health insurance plans.

With regard to dispensing fees, an insurer may apply a reasonable and customary maximum to the dispensing fee for which they will pay. In Ontario, dispensing fees vary from around $4.00 to over $13.00 per prescription. Insurers, for example may only pay the dispensing fee up to a maximum dollar amount.

What Is Not Covered or Excluded?

Over the counter products such as vitamins, supplements, gluten free food, drugs not yet approved for sale, cosmetic procedures, herbs and low-dose aspirin will not generally be covered by a group insurance plan.

Drugs for smoking cessation, fertility, erectile dysfunction and vaccines may not be included with every plan, however, but some insurers will allow the addition of all or some of these options.

Other typical exclusions and limitations in which benefits will not be paid under a group health insurance plan include the following:

  • If payment is prohibited by law;
  • Any services or supplies that may be obtained as a benefit under any Provincial or Territorial health insurance plan;
  • Any services or supplies associated with a covered item but not specifically listed as eligible for coverage in the group insurance contract;
  • Any services or supplies for which no charge would have been levied in the absence of coverage;
  • Services or supplies received outside of Canada, except for those covered and provided under the emergency out of country provision included in the group insurance contract;
  • Expenses resulting from intentional self-inflicted injury, the commission of a criminal act by the covered individual, or resulting from an act of war, voluntary participation in an insurrection or riot or injuries suffered while serving in the armed forces; and
  • Charges for experimental drugs, medical procedures or treatments.

How Are Claims Processed and Paid?

As previously noted, practically all insurers now provide a drug card for claims to be paid at the point of sale. Dentists have access to electronic systems allowing them to bill insurers directly, with the majority of dentists are using these systems. Health Insurance claims such as massage and vision can be billed at the point of sale as well with most insurers.

Nowadays, if you have to pay for a claim up-front most insurers have online claim systems where plan members can submit their claims online, through a computer or their smart phone.

There are still certain claims that must be dealt with the old fashion way, which typically consist of out of country, death and disability claims, for example.

In terms of the plan member receiving reimbursement on a claim, most insurers will pay within 48 hours or less and the payment will be directly deposited into the plan member’s bank account.

Covered Dependents

This definition can vary by insurer but generally speaking the following definitions apply to eligible dependents:

  • The plan member’s legally married spouse;
  • The plan member’s common law spouse;
  • The plan member’s common law partner in a same sex relationship;
  • The plan member’s unmarried natural, adopted or stepchild up to age 19, or age 25 if a full-time student;
  • The eligible spouse’s or partner’s unmarried natural, adopted or stepchild up to age 19, or age 25 if a full-time student; and
  • A severely physically or mentally handicapped child of any age who is dependent on the plan member.

Do Dependents Have to Be Covered?

Unless a plan provides single coverage for all, dependents must be enrolled on time in order to received coverage. For example, if someone did not add their spouse because they did not want to pay for them and their spouse had no coverage elsewhere, they would be deemed a late entrant. A late entrant is subject to full medical underwriting and can be declined health insurance coverage. It is, of course, best to ensure that any eligible dependents are enrolled on time. For most plans, a common-law spouse is deemed a dependent after 12 months of cohabitation. If a plan member does not enroll their common-law spouse at the time of their eligibility than they would be deemed a late entrant and subject to the rules and implications accordingly.

Survivor Benefit

Most group insurance plans provide a survivor benefit. A survivor benefit continues dependent coverage for one or two years in the event of a plan member’s death.

What Happens at Termination or Retirement?

If an employee is terminated or leaves employment, there are a few personal insurance plans in the market that will offer coverage without proof of good health within 60 days of the loss of group coverage.

Retirement benefits are extremely expensive and rarely extended to employees these days, especially with small businesses. Some plans like the Chambers Plan offer the option of transferring to a personal retirement plan upon retirement. The cost is the responsibility of the individual, not the company. The plan member typically has to have been working at the company for a specific number of years to be eligible.

Taxation

A plan sponsor (employer) can deduct the premium which they pay. This does not include any shared portion the staff are paying themselves. The premiums are not taxable to the plan member (employee), nor are the benefits received. This makes group health insurance an extremely tax-efficient compensation tool.

Health Care Spending Accounts

A health care spending account (HCSA) or health spending account (HSA) is an individual plan member account used to reimburse plan members for health and non-health related expenses (eligible per CRA) not covered by government plans or other plans which would otherwise be out of pocket expenses to the plan member.

We will get into more detail regarding health spending accounts in another article, but an HSA is a great addition to a group health insurance plan as means of introducing more flexibility and enhancing coverage for plan members.

An HSA is limited to the amount an employer is willing to spend which is why it is ideal as a top-up solution versus a standalone program.

Can Small Businesses Get Group Insurance?

Yes, in fact we have options starting at one employee and up. If you are home based business, sole proprietor, a one-person corporation and you are working full-time we can find a solution for you. Even if you have pre-existing health conditions there are options that do not require a medical for approval.

The focus of the above information is aimed at group health insurance plans in Ontario. It is a general overview as each insurer has their own standards and rules. Quebec and other Provinces have different rules in certain areas which we have omitted from this article.

What Other Benefits Can Be Added?

Beyond group health insurance you can add:

  • Group life insurance;
  • Accidental death and dismemberment;
  • Dependent life insurance;
  • Short term disability also known as weekly indemnity;
  • Long term disability;
  • Group dental insurance;
  • An employee assistance program;
  • Group critical illness insurance;
  • A health spending account;
  • An employee wellness account also known as a taxable spending account;
  • Business overhead expense coverage;
  • Group rrsp programs; and
  • And other niche add-ons;

As you can see, group health insurance is an extremely valuable and tax-efficient compensation tool that more and more employers are implementing to protect, retain and attract the best employees. Though it may appear complicated an experienced employee benefits broker can simplify the process for you and help design a plan that is tailored to your needs and budget.

The focus of the above information is aimed at group health insurance plans in Ontario. It is a general overview as each insurer has their own standards and rules. Quebec and other Provinces have different rules in certain areas which we have omitted from this article.

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