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The Cost of Employee Benefits – Sustainable Plans vs. Cheap Ones 

By: Benefits by Design | Tuesday May 23, 2023

The steps to providing employee benefits are many, but one of the first questions that employers ask themselves is: what is the cost of employee benefits going to be? So, once you’ve figured out your benefits philosophy and are ready to move forward with research and pricing, where do you start?  

Most insurance companies aren’t able to provide prices online, or even quickly. They require a lot of your information first, and then time to review it in order to provide a legitimate quote.  

We’ll explain why that is and the approximate cost of providing employee benefits.  

The Cost of Employee Benefits  

On average, employers should expect to spend anywhere from 15% to 30% of their annual payroll on employee benefits.  This includes statutory benefits such as Canadian Pension Plan, Employment Insurance, and the provincial healthcare tax. Larger companies generally pay a higher percentage, usually due to the fact that they are able to afford more robust benefits packages. 

Non-statutory benefits include: 

List of Employee Benefits and Group Insurance Options

When it comes to benefits the average cost per month per employee can vary. However, for basic coverage which includes a small lump sum Life Insurance and AD&D coverage, minimal extended health and basic dental coverage with co-insurance, your average cost would be about $70-$130 per single employee, and $200-$300 for an employee with family coverage.  

These are ballpark figures, as there are many factors that go into determining the rates. Including demographics (age and sex) of the employees, location, industry, health and dental trends, interest rates trends, and more!  

Everything Employers Need to Know About Group Insurance Underwriting

Is the Cost of Employee Benefits Worth it? 

Employees value their benefits as a part of their overall compensation. And most would take a position at a company that offers group benefits over a similar higher paying job that does not include benefits. Likewise, employees would not move to a job that did not include health benefits. In other words, they are great for employee attraction and retention. 

Infosheet: Pay Raises Cost More than You Know

Our infographic: Pay Raises Cost More Than You Know, highlights the benefits of employee benefits versus a pay raise. As an employer, you’re likely aware of the tax deductions that come off employee salaries. Some employees only take home $0.60 for every $1.00. And the employer also has to pay the government, so that $1.00 an hour raise actually costs you closer to $1.29. 

Not so with employee benefits – $1.00 paid equals $1.00 in health insurance coverage since the benefits received by employees are most often tax-free.  

Infosheet: Group Benefits Taxation 

Why Sustainability Matters 

When you first implement an employee benefits plan, the costs of employee benefits is usually a factor in determining which provider or carrier you choose to go with. However, it’s important to keep in mind that the cheapest plan may not be the best option.  

Sustainable Plans vs. Cheap Ones 

Most providers have new group rate guarantees. This means that they will not change (increase or decrease) the rates for a pre-set number of months. Oftentimes Life and AD&D, disability and Critical Illness are guaranteed for 24-28 months, and health and dental rates are guaranteed for 12-16 months. 

Once this rate guarantee is up (the first plan renewal date), the insurers underwriters will review the plan’s claims experience, as well as changes in demographics and trends to determine the new rate. If the cost of employee benefits was heavily discounted in order to get your business, you better believe there will likely be a substantial increase when it comes time to renew. This is so that the insurer can a) recoup any losses they experienced during the rate guarantee if they undercut themselves to acquire your business, and b) to cover the expected costs of claims going forward.  

Achieve a Sustainable Benefits Plan Using Your Claims Experience Data

Pros and Cons of Marketing Your Plan 

When a group’s cost of employee benefits is too high, they have the option to “go to market” with their plan. That is, their advisor sends their claims experience, employee, and industry information to a large group of selected insurers and third-party administrators for a quote, and then they help select the best plan from the options presented.  

When done correctly, marketing your plan can provide instant cost savings and sometimes even an upgrade on specific plan design coverages. However, it’s always good to keep in mind the above regarding the rate guarantees and the potential for a large, unsustainable rate increase. 

But aside from the initial savings, if you do decide to switch carriers, you’ll be investing a lot of time in re-training administration staff, re-enrolling employees, and communicating your new benefits plan. Not to mention the loss of built-up claims reserves, the impacts on pre-authorizations for medications, and the possible disruptions in claims reimbursement.  

Lastly, employers that market their benefits plans too often could get a bad reputation for trying to “milk the market” for the cheapest deals but then not paying for it in the long-run.  

10 Hidden Costs and Impacts of Changing Insurance Carriers

The BBD Starter Plan  

Producing a quote for the cost of employee benefits involves a lot of factors, which is why it’s so difficult to find a price list for group benefits.  

It’s not like selling cars, where each add-on or upgrade costs a fixed price, and it doesn’t matter who will be driving the car. With insurance – the plan member (employee demographics and location) becomes part of the equation, along with the plan sponsor (employer industry and claims experience).  

With the BBD Starter Plan, you get a free, no-obligation quote within 2 business days! The plan is built with sustainability in mind, and offers a starting point from which you can customize with add-ons such as vision care, major restorative dental or disability and other ancillary benefits.  

The Starter Plan was designed with Canadian small businesses in mind, which means it includes the most sought after benefits, is easy to implement, and was priced for small employers to be able to afford. 

Ready to find out how much your employee benefits could cost with Benefits by Design?

BBD Starter Plan: Get Started in Employee Benefits