You’ve made the decision to launch a health benefits plan for your growing startup. What do you do next? Before you do anything, read this article. Doing so will help you make an informed decision on how you go about bringing the best employee benefits plan to your team.
- Who to Work With
When selecting a health benefits plan, Canadian employers have two main options; to work directly with an agent from an insurance provider, or use an insurance broker.
In most cases, particularly for startups, it is advantageous to use a broker. That’s because agents who work directly for an insurance provider only sell that carrier’s products. An independent insurance broker, on the other hand, can leverage multiple insurance carriers to obtain the best coverage, rates, service and products. They can assess all potential funding arrangements and tax legislation, to ensure you leverage all possible savings while minimizing risk. This is especially important for new startups conscious about cash flow and legal liability.
An insurance broker is paid commissions by the insurance provider, meaning they can offer objective advice on the right kind of products for your business. The reality is many startups don’t need all the “bells and whistles” an insurance provider might try and push. In addition, the need for certain areas of coverage contained in traditional benefits plans may be very different for startups. For example, there is a greater demand for acupuncture now than there was two years ago. Having a flexible plan that can adapt to these market trends and appeal to young workers is key. This is where a broker can advocate on your behalf to find the best coverage for your business that’s in line with your culture and values.
- Not All Insurance Brokers Are Created Equal
With that said, not all insurance brokers are created equal, especially in the startup space. US-based software company, Zenefits, serves as a cautionary tale. Zenefits is an online insurance brokerage firm for startups and small businesses that collects recurring commissions from health insurance providers when it sells their policies.
In November 2015, it came to light that Zenefits was using unlicensed brokers to sell insurance across the United States.
“I was giving [clients] to people who didn’t have their insurance license. They were selling insurance illegally. Like, it was really illegal.”
– Aaron Semaan, Former Account Coordinator at Zenefits
In 2016, Washington state’s insurance commissioner opened a formal investigation into the company; according to BuzzFeed, 83% of all Zenefits sales in the state were made by unlicensed brokers (Alden, 2015; Suddath & Newcomer, 2016). Since then, the California Department of Insurance has also opened an investigation, as has Massachusetts’ division of insurance. Zenefits confirms that other states have followed suit, but won’t say which ones or how many.
In Canada, numerous companies are emerging under the same business model as Zenefits. While there are no claims of misconduct among any of them, these companies, still in infancy themselves, run the risk of employing brokers with limited experience selling group health benefits, and virtually no experience working with the startup community.
Some brokers don’t know the space well enough. They treat start-ups like any other business, throwing everything in to drive costs up. But this is both unnecessary and unsustainable for startups. They need a different approach.
This is not to say that choosing a technology solution like Zenefits to secure and manage employee benefits is a bad idea. But, evaluating the legitimacy and credibility of these solutions before opting-in is absolutely crucial.
Here are a few questions to ask when choosing an insurance broker:
- How much experience does the founder have in the insurance industry?
- Do they have in-house brokers? If so, what are their qualifications?
- Have they worked with startups before? Can you contact these startups directly and ask for their objective opinion?
- The Generalist vs. The Specialist Insurance Broker
Most people are unaware that a licensed insurance broker in Ontario is able to sell a broad range of products; health benefits, individual life products, group RRSPs, individual RRSPs, disability & critical illness coverage, and more. That means they could be a generalist in a lot of different areas, but not an expert in any one thing. They may be unaware of the legal risks associated with a group health benefits plan, and unable to adequately advise their clients.
At the end of the day, startups don’t want to be messing around with somebody who is learning about benefits as they are. They need someone who knows the startup space, what trends are happening in the industry, and how to protect the company in the event of fraud or employee terminations.
- Best Practices and Pitfalls
When implementing a group benefits plan, one of the biggest mistakes startups make is spending too much upfront. This includes coverage for services that employees don’t really want, as well as starting at 100% coverage.
All startups are conscious of burning through cash. If you start at 100% coverage and realize you can’t afford it and need to scale back, that won’t be perceived well by your staff. My advice is to start with the coverage you want, with certain cost containment measures in place, and then (budget permitting) scale up and add more features when the time is right.
Martyn Bassett, a recruiter in the startup and technology space in Toronto, echoes this advice by saying:
“Even if it’s not the Cadillac of benefits plans, even if it’s the Chevy, it shows that the company is taking care of its employees.”
In line with this, startups also need to monitor their claim reports regularly to better understand their costs. Many general insurance brokers won’t do this. They will only run the reports at the time of renewal to negotiate a new rate. But according to a 2016 Sanofi study, 81% of employers would like to know where costs are coming from based on the health profile of their organization. By monitoring claims more regularly throughout the year, startups can identify what services employees are using, if costs are in line with company’s projections, and whether they need to implement cost restrictions on certain coverage before the time of renewal.
You can’t just look at your claims reports once a year. I actually run claims reports every 3 months for my clients to see how the company is doing. The way an employer thinks people will use their benefits could be entirely different to how employees actually use it.
- Don’t Be Taken for a Ride
Another reason to monitor claims reports more regularly is to identify when employees might be exploiting their benefits coverage. While 43% of employees see their health benefits plan as something to use only to treat or prevent illness or injury, 35% view it as extra compensation to use as much as possible to get their money’s worth, and 23% view it as both a resource for health and extra compensation (Sanofi, 2016).
The mentality of some employees is ‘let’s screw the employers and insurance company as much as possible.’ You see people hopping around from company to company just using as much of their benefits coverage as they can.
The way in which an employee can abuse their health benefits ranges in severity – from maxing out every service offering covered under their plan, to flat out fraud. According to the Canadian Health Care Anti-Fraud Association, fraudulent claims cost the industry anywhere from $1.2 to $6 billion every year (Davis, 2017). Ultimately, employers bear most of the cost of fraud, either by unknowingly reimbursing employees for claims, or through subsequent increased premiums caused by high claims.
In 2017, St. Michael’s Hospital and the York Region Police both detected benefits fraud within their organizations. At St. Michael’s Hospital, 31 employees were terminated after “irregularities in some employee health benefits claims” were discovered during a routine audit. The irregularities are estimated to be worth approximately $200,000 (Tatelman, 2017a). Further north, a police officer from York Region Police was fired for benefits fraud after an ensuing lawsuit that lasted over 12 months. The officer was found to have submitted 15 fraudulent claims for massage therapy, totaling $1,224.97 (Tatelman, 2017b).
These examples demonstrate that employers need to be on the lookout for fraud, and have the right checks and balances in place to ensure their premiums don’t skyrocket, or worse still they become embroiled in a lawsuit. For startups especially, these kind of unexpected costs could make or break the company. That’s why it’s important to work with an experienced insurance broker who understands the intricacies of the industry and can provide expert advice. After all, “health management is as much about the well-being of the organization as it is about the well-being of the employees” (Sanofi, 2015).
We’re happy to answer questions and guide you through the process to design, implement and maintain a benefits package that meets your startup’s budget and needs. Chat with Becca or contact us.