Let’s give credit where credit is due. Insurers who provide employee benefits plans are not required to provide discounts on premiums (premium relief) for any reason, other than during the annual rate renewal process, but they did! The COVID-19 premium relief, now announced by all insurers, is welcomed news during a time when many employers are struggling to pay bills while maintaining benefits for employees and their families.
“Unprecedented” is a term we have heard a lot during these past few months and it certainly applies here. Of course, any financial relief is welcomed news, but as employee benefits advisors, we want to better understand what happened, why and what the long-term implications will be to your benefit plan pricing. Arguably, have insurers done enough?
We first need to understand why premium relief was offered. Due to COVID-19, the services of dentists, optical centres/providers, and most paramedical service providers (such as physiotherapists, chiropractors and massage therapists) were all required to close by government health authorities as of mid-March. Only emergency dental services and some limited virtual care options were available, as these industries were all but completely closed for business. Therefore, it is safe to say that as of mid-March, there have been little to no claims made for these services.
Based on the significant reduction of these services, premium relief certainly made sense as insurers received almost no claims in these categories but continued to receive premiums from plan sponsors. As we compare the relief offered, there was not much of a difference between insurers, as most offered premium discounts for insured dental plans, ranging from 50% to 60% (one offering 75%), and between 8% and 10% for Extended Health Care premiums (a few insurers offering no Extended Health discount at all …shame on you). By the time we publish this article, some insurers may have extended these or altered discounts into June and July; however, this will depend on the government health authority orders in each province as to when services are fully up and running.
As these service providers slowly re-open their doors, there may be an expectation from the insurers that patients will rush out to re-engage with these treatments and services immediately, and therefore catch up on all the lost appointments since mid-March. However, initial surveys and early anecdotal evidence suggests a slow return to these services. It appears the pre-COVID-19 normal will not be the post-COVID-19 normal. Many patients are nervous, and the service providers also have lower capacity given stricter protocols around cleaning between appointments. As well, providers must ensure safety protocols are met which includes fewer patients within facilities at a given time and they must schedule more time between appointments.
With the pre-COVID-19 usage of these service categories typically in the 40%-50% range of Extended Health Care claims and 80%-90% of Dental claims, clearly these premium discounts do not represent the full amount of savings that insurers are experiencing. The proof will be in the claim’s reports in the coming months, but our best estimate is that claims in these categories have dropped far more than the insurers are reducing premiums. If we are right, as renewals are calculated in the coming year, most employers will see claims far lower than what had been previously projected (comparing year over year), resulting in far better loss ratios and bigger surpluses/profits for the insurer. We expect this should result in positive renewal outcomes, but insurers will undoubtedly state that these past few months are not ‘normal’ claiming patterns and therefore will again not go deep enough with premium adjustments.
Better renewal outcomes with possibly lower rates sounds great but what really happened is that the insurers received far more premiums than claims and will likely continue to do so based on the post-COVID-19 normal. That overcharge stays with the insurers.
As the COVID-19 rollercoaster ride continues, we expect that renewal discussions and negotiations in the coming year will be interesting. We will be taking a much closer look at the impact to premiums as a result of these credits versus 1. the actual claims made in these service categories and 2. the anticipated claims (trend) insurers will try and support. We certainly believe employees and their families have changed their behaviours and therefore we anticipate lower claims usage in the coming months. Employers may want to consider this as an opportunity to review their programs and how to best make changes that will provide the appropriate financial assistance for these expenses to employees while ensuring cost sustainability in the post-COVID-19 times ahead.
Each organization’s needs are unique and warrant a customized solution. We would be pleased to discuss your specific situation with you to identify the best strategy with respect to your employee benefits program. Should you have any questions on the above, please don’t hesitate to contact me or a member of our team.
At ZLC Financial, we are one of the fastest growing team of employee benefits advisors in Western Canada and we are fortunate to have the best people, resources and clients. We provide value to you by leveraging one of the most skilled benefits teams – collectively almost 350 years of experience within our team of 18 employee benefits specialists. We have been working with businesses ranging from 3 to over 70,000 plan members for over 35 years
We would be pleased to discuss your specific situation with you to identify the best strategy with respect to your employee benefits and retirement programs. Should you have any questions on the above, please don’t hesitate to contact me or a member of our team.
This information is designed to educate and inform you of strategies and products currently available. As each individual’s circumstances differ, it is important to review the suitability of these concepts for your particular needs with a qualified advisor.