More than six years ago, the HR team at Cogsdale Corp. noticed that its employees’ health and benefits claims were less than the premiums being paid. “Money was just being thrown away,” says Cogsdale’s HR manager, Denise Bulger, in Charlottetown. The company turned to its benefits consultant to come up with a change and ended up saving money—even as the company grew.
Cosgdale provides software programs that control day-to-day business functions (such as financial management, customer service and HR) for utility companies and local governments. In 2004, the company had roughly 30 employees, many of whom were under 30 years old. This meant that little was being spent on drugs, dental and other healthcare claims, says Bulger. So, after reviewing the situation, Cogsdale decided to become self-insured.
Instead of contracting with an insurance company to cover the risk and costs of claims, Cogsdale pools the premiums its employees pay so it can pay for any claims itself. The result is cheaper premiums for employees and lower costs for the company.
In the years since the switch, Cogsdale has grown to more than 120 employees, but this hasn’t created a (benefits cost control) problem for the firm. “What we’ve seen over that time is that despite the growth, claims have stayed about the same,” says Bulger. The more employees there are, the larger the pool of premiums becomes to cover costs. “Health funding levels have dropped [per employee] from $162 in 2004 to $136 in 2010, and dental has dropped from $100 to about $50,” she says. The result is that the company has saved approximately $130,000 over six years. What’s more, Cogsdale has used that money to provide employees with extra perks to enhance its overall total compensation package. “That money has been used for other benefits, namely an RRSP program and a fitness subsidy,” says Bulger.
But one big question looms: what about a catastrophic situation? What happens when an employee is faced with an expensive chronic condition, for example? A few of those situations in a year could severely reduce the pooled money covering all of the employees—or worse. “To prevent that from happening, we do have stop-loss insurance that kicks in when major claims are made,” says Bulger. When a catastrophic claim is made, an insurer covers the costs and Cogsdale pays a premium for that service. However, it’s been used only a few times over the past three years.
Now that Cogsdale’s demographics are changing, Bulger is looking at making a few more revisions to the plan. Since the employees are now older, she would like to have more offerings available. For example, the company doesn’t provide short-term disability benefits. “The challenge becomes creating a mix of benefits that is appealing to younger employees out of university but also has a selection of competitive items for older employees,” she says. “You’re never going to please everyone, but you can make it more appropriate.” One thing she is considering are healthcare spending accounts to provide flexibility and choice for her changing employee group.
For companies considering the self-insurance route, Bulger says the stop-loss insurance is a must-have for this type of set-up. She also recommends creating an account to put the savings into, so your company can spend that money in other places much like Cogsdale did. While self-insurance isn’t for every company, Bulger is convinced it’s a great idea for many mid-size ones. “When I look at the amount of money we’ve saved, it’s hard to say it’s a bad idea.”
Leigh Doyle is a freelance writer in Toronto.