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By Yafa Sakkejha

Employee turnover is certainly costly to companies, but it can surface in hidden places. Aside from the time and money it takes to recruit, train and transition employees, it can often hit the group benefits piece of the P&L.

This silent cost can drive up premiums if a company does not have strategies in place to mitigate the impact.

It is first important to recognize the direct link that claims have on employee benefits premiums. Health and dental benefits are priced on an “experience-rated” basis, meaning that premiums are largely driven by the volume of claims submitted by employees.

Here are the most common ways that churn can drive up benefits claims.

Short-term contract employees

An independent day care and primary school in western Ontario often has to hire substitute caregivers to fill in for parental leaves. As these employees were hired, they were offered participation in the benefit plan although they were on a one-year contract. The employees would not know if they were to stay on full-time until 10 months into their contract, so they naturally took full advantage of the benefit plan. The company saw a 20 per cent increase in their health and dental claims, and, as a result, an increase in premiums. They were faced with having to make cuts to the plan coverage in order to minimize the cost impact.

Solution: Short-term contract employees are normally excluded from benefit plans for this reason. However, if an employer wants to offer something, a limited plan in the first year is a good way to put in a “speed bump” against cost escalations. One example of this is an overall maximum of $1,000 for health and dental, and no offer of short- or long-term disability until they become permanent.

Seasonal industries

A workplace in a seasonal industry, such as construction, does an annual layoff in the winter when their work slows down, and an annual re-hiring in the spring. If these seasonal employees are provided benefits either during the work period or during layoff, they are likely to maximize their benefits, since they are unsure of whether or not they will be called back. One Mississauga employer saw 10 per cent of their workforce claim short-term disability (STD) every year, around the time that layoffs were coming – the STD plan was more generous than EI.

This is tricky: an employer may want to continue health and dental benefits in order to maintain a link with employees, so as not to lose the talent. However, it is important to recognize that if workers are not called back, but formally terminated, they should have been given an extension of benefits of at least the ESA minimum durations.

Further, insurance companies usually do not allow seasonal employees to be covered under a benefit plan, and it is important to ask this upon initial underwriting. The reason is because if there is a major claim (death or disability), and the insurer looks into the file, they may reject the claim or refuse to continue coverage of the group on the grounds that this was not disclosed upon policy setup. Needless to say, this could create costs of legal action and potential costs in having to shift insurance carriers at an unfavourable time.

Solution: If a company chooses to extend benefits to seasonal employees, they are better off to consider replacing any short- or long-term disability coverage with a solid critical illness policy. The reason is because it is not contingent upon income loss, and is less likely to be abused in this scenario. Regarding health and dental, they should consider offering a plan with maximums on all benefits, especially the paramedical category, to minimize the impact.

If a company further chooses to extend benefits during a layoff, they should offer disability only during the statutory requirement, and always notify the insurer of their intentions before the layoff begins.

Rapidly growing start-up

A rapidly growing employer lands a major contract and decides to hire many of their temp workers full-time from the staffing agency. These workers would not have had benefits coverage with the agency, and have potentially gone many years with no coverage. As soon as they are hired full-time, they are likely to maximize their plan, especially if they are unsure as to whether or not they have secured permanent employment.

Solution: Companies should consider providing a “ramp-up” plan in between having no coverage and full coverage. This can be a middle ground, and can provide a soft speed bump to prevent sudden cost escalations. For example, if the full plan has 100 per cent coverage on dental, the “first-year hire” plan could have 50 or 70 per cent, with a lower maximum. Once they reach one year of full-time employment, they can join the full plan.

Regardless of the reason for the churn, it is always a best practice to provide a tiered coverage system so that permanent, established employees have more coverage than junior or temporary entrants. Ensuring a smooth transition into full coverage will provide a softer inflationary figure than the spikes of a full benefit plan with a revolving door.

Yafa Sakkejha is the general manager of The Beneplan Co-operative.

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