Sponsors threaten to pull plug

by Nicolas Heffernan11 Mar 2015
Economic crisis and mounting drug prices have pressured some advisors to slash costs and develop cost-sharing initiatives to keep clients from canceling benefit plans.

“There’s a double whammy occurring,” said Robert McCullagh, a financial advisor at Calgary-based Benefit Planners Inc. “You’ve got considerable and significant pressure on pricing on drugs as they continue to escalate. Then you have the economic pressure on employers when they’re facing uncertainty and (reduced profitability for) their business.”

On the ground in Alberta, things may be even worse than they appear. “There are a substantial number of layoffs going on every day,” he said. “They’re not layoffs that make the paper. They’re layoffs that are occurring at small companies. A lot of people are in transition right now.”

It’s led to some clients contacting McCullagh to work something out. “We’ve received some letters from clients asking us to look at the fact that they’ve had to reduce their pricing and they’d like us to reduce our pricing and we explore that with them,” he said.

McCullagh has taken a proactive approach to get ahead of the problem – contacting all his business owners to talk to them about how the year looks, their staffing plans and what can be done to assist them with the cost of plans.

“A crisis is a terrible thing to waste so it’s a good opportunity for us to revisit some of the plans,” he said. “We’ve met with several businesses and discussed options. Some of those options are plan realignments where we’ve changed some of the benefits. The second consideration to that is looking at cost sharing as a possibility and moving forward, some of the companies that we’re working with have partner relationships.”

One in particular, when you fill your prescription at Costco, so a major brand supplier for pharmacy they actually will give you 100 per cent coverage on a 90 per cent claim base. We can reduce a program from 100 to 90 per cent and they can fill it at Costco and they can get the equivalent of 100 per cent fill. There’s some things like that are creative on behalf of the pharmacy network plans that allow us to do some planning and have some health savings.


  • by Bill Sodomsky 2015-03-11 2:45:36 PM

    Get ready! The entire industry is going to implode. That includes the bogus projected annuities, death benefits, so called cash values which BTW banks "DO NOT" recognize as credit worthy (don't believe me - ask the banks!). This what happens to ALL Ponzi Schemes and that's what the Banks, Investment Houses and LI Companies are. SO... how do you amass reserves and cover contingent liabilities in a ZERO INTEREST RATE environment? YOU DON'T unless you cook books or invest client funds in junk bonds, you know like the Canadian Energy business.

    You all in the financial services business ain't seen nothing yet. Those computer screens with little pixels on them that resemble "wealth" are going to disappear just as quickly as they appeared. You should have advised your clients to do what the Oligarchs did... take the funny money created out of thin air by the private banks and convert it into hard productive assets. That's what the smart guys did! You convinced your clients to exchange hard earned cash into pixels. Well let's just see how those pixels pan out. In the meantime, the banks and their comrades in arms, have a charge on everything. They own the world because you bought the "You'll Earn A Fortune " scheme which projected double digit or at least 8% returns in perpetuity. If the Canadian Government increased rates by a 100 basis points (1%) Canadians couldn't cover the bogus interest expense let alone the principle on the national debt. So... there you have it, you'll never get those returns because the system would collapse long before the plans panned out. Checkmate!
    All that's happening now is the Oligarchs trying to figure out how to reset a new system without taking the blame and without losing there charge on the assets. In the meantime, the interest rates will go to zero or negative and the loonie will depreciate into oblivion. Those are the only options the Bank of Canada mavens have.

    Gird your loins!

  • by Ken MacCoy, CHS 2015-03-11 3:14:26 PM

    Nick, I found this to be a very interesting article ... for a number of reasons. One of my specialties is 'employee benefit plans', having written my first group 25 years ago; in 1990. The easy way to reduce premiums is to alter plan designs by: (1) reducing co-insurance &/or coverage limits, (2) adding/increasing annual deductibles, (3) increasing waiting periods on STD coverage, (4) reducing LTD coverage benefit periods from age 65 to a: 2 or 5 year benefit, (5) lowering frequency of dental recalls or scaling units, etc.

    While cost-cutting measures & cost-sharing initiatives help ... they do not address the problem of ever increasing group premiums!

    Group premiums increase because: (A) changes in group demographics; e.g. average age higher = often increased life/add/dependent rates, (B) new drugs approved & covered by group plan, (C) increases in dental fee guides, and the big one ...(D) claims! The problem is traditional experience plans! - Another and often better option is “pooled benefits”. - I am NOT referring to plans who only pool catastrophic benefits such as life, disability & travel claims. Why? Because these large claims have little bearing on the premium pricing for your employee benefit plans & are pooled by all insurance companies. I am referring to extend health & dental benefits that are NOT-POOLED and dramatically affect group premiums.

    'Pooled benefits' are a group of companies supporting each other during high & low claim years to keep premiums stable and affordable because not everybody has high claims at the same time. Most employers (or brokers) are not aware that pooled plans are available and often settle for the traditional experience plans.

    FYI - What is the purpose & advantage of a pooled plan? By combining all our clients as a single unit we are able to obtain better rates, you are part of a very large buying group, represented by an insurance expert, negotiating pricing and plan design on your behalf.

  • by Toronto Ontario 2015-03-11 3:23:33 PM

    Hey Ken,

    Can you elaborate a little on the pooled plans you mentioned above. I'm a financial advisor and I've been getting into doing much more group the last two years but have never heard of pooled only plans.

    Which insurance carriers can I contact for more information?