There is a lot of confusion in the industry about the different types of group health benefits, what they cost and what is really the best option for a small business owner. The biggest confusion lies in the difference between Health Spending Accounts and traditional health insurance. To understand the difference, we first need to discuss what health insurance really means.
Insurance is simply a transfer of risk from the person (or persons) paying the premium, to the insurance company. The insured agrees to pay a premium in exchange for the promise of reimbursement in the event of loss by a specified contingency or event. Health insurance protects you from the cost of doctor visits, hospitalization, surgery, and follow up medical treatments. In Canada, catastrophic health events are covered by the provincial government in your respective province. In BC we currently pay into the Medical Services Plan (premiums to be discontinued in 2019) to protect against such events.
Health and dental benefits are not what traditional health insurance is designed to cover. Dentists visits, eye exams, chiropractor visits and massage therapy are not catastrophic health events. These can be considered simple health maintenance events and are not what traditional health insurance is designed for. Your car insurance protects you against a catastrophic accident, but simple maintenance events like an oil change are not paid for by the insurance company.
So why do insurance company’s sell “health insurance” to business owners as “benefits” to cover employees for massage therapy, dental check-ups, etc? The truth is these plans are high-margin for the insurance company, and low-value for the business owner. Consider that up to 40 cents of every dollar you spend on one of these plans goes to marketing and administration costs, 60 cents are paid to your employee as a “benefit.”
Health Spending Accounts and traditional health insurance are different methods of offering health benefits to your employees. As soon as you recognize there is no need to “insure” regular health maintenance events, your will understand the benefit of a Health Spending Account.
A Health Spending Account provides tax-free funds to employees to pay for health maintenance events, as they occur. There are no premiums to pay, plans can be customized and capped per employee and the benefit is a tax-deduction for the business owner. With traditional health insurance, you pay a premium regardless of plan usage, coverage is restricted, and costs can easily increase beyond your budget. Imagine you could pay the cable company only for the channels you watch, rather than paying for dozens that you don’t need. That is the advantage of a Health Spending Account.
If you want to learn more about Health Spending Accounts and traditional health insurance, contact the employee benefit experts at DENT Benefits to learn how you can offer more value for less cost!