Unbundling group benefits for savings and happier employees


Many organizations are looking at a new group benefit plan design that not only is better at engaging their employees but also saves money, money that can be re-directed into their bottom line. The plan design, called a “hybrid” group benefit plan, is a combination of traditional insured benefits and a healthcare spending account. Employers do not need to switch insurance companies, a hybrid plan is simply a re-design of the one they already have. The savings can be significant and are in the 10-20% range depending on the number of employees and the current plan design.


Most of the cost of a group benefits plan is in the medical, drug and dental side of the plan. However, large portions of these benefits are not being utilized by employees. Simply put, the return on investment (ROI), isn’t there. Dental plans and the coverage for medical practitioners such as chiropractic care, dieticians and podiatrists are underappreciated but paid in full by the company. Unbundling the plan and putting these dollars in an employee’s healthcare spending account allows the employee more flexibility and choice as to where they spend their healthcare spending account dollars.


The savings are found in two ways. First, the administration fee of a healthcare spending account is half the cost of the fee being charged by the insurance company for the traditional plan. Second, is that most employees will not use 100% of their healthcare spending account allocation, in fact many healthcare spending accounts operate at a 75% utilisation rate.


For example, if a company had 25 employees and they gave them each a notional healthcare spending account balance of $1000 the total liability to the business would be $25,000 annually, however history shows us that the actual utilization rate is closer to 75% or $18,750. Unlike an insured plan a healthcare spending account only pays for costs that are actually incurred.


The insurance portion, life, disability and critical illness, called the “pooled” portion of the plan, generally only represents 10-20% of the premium. A hybrid plan leaves the drug plan, major medical and supplies, and the pooled benefits, with the insurance company.


After reviewing the hybrid plan with one business owner he said that when reviewing the plan with their broker and trying to find efficiencies that perhaps they weren’t asking the broker the right questions. I said that perhaps his broker wasn’t showing him all his options.


The insurance carriers are generally willing to let companies unbundle their plans but it will depend on the size of the group, the insurer, and the ability of the broker to negotiate the changes to the plan design. That said, technology has made these changes easier, as a result employee benefit plans are now more efficient and better appreciated by employees.


Nick Godfrey is an Oakville based insurance broker and pretty good field naturalist. His passion is conservation.