WeThere is nothing usual about anything right now. How, where, and if people are even working has dramatically changed. Employee benefit plans have not been immune to the changes brought on by COVID-19. One positive change to benefit programs is that many insurers have fast tracked the employee digital experience, especially when it comes to disability claim submission.
From a cost perspective, what should employers expect as social distancing is relaxed and employees return to the workforce? This is a complex question with a lot of moving parts; in the short-term costs will likely increase. Let’s break it down across each line of benefit to examine how the cost of the benefit will increase.
The “pooled” benefits: Life insurance, disability, and critical illness insurance
The rates for these benefits are set using the demographic mix of the plan and they are renewed with little to no individual claim usage. The premium for these benefits will increase for a few reasons, the first reason is low interest rates.
Interest rates play an important role in both the rate setting and renewing of these benefits because insurers invest these premiums. As interested rates drop, the premium for these benefits will eventually increase. We saw this after the 2008 recession and insurers were already making rate adjustments pre-COVID-19. Since the Bank of Canada reduced the key interest rate to a record low of 0.25 in March 2020, you can expect higher than average increases to all these benefits.
The second reason you can expect rates to increase for disability insurance is an increase in claims combined with more LTD back to work programs. Mental health claims already had the #1 spot for the cause of disability. Isolation, financial worries, increased anxiety, and a general higher level of stress will likely lead to an increase in short and long-term disability claims. A recent article in the Benefits Canada magazine stated that half of Canadians reported a worsening of their mental health with 10 per cent saying it has worsened a lot.
Mental health claims may not be the only claim cause on the rise. Working from home could bring an increase in musculoskeletal claims. Poorly set up workstations can be the cause of several different types of injury. When you combine this with an overall decrease in daily movement and activity, employees are at a greater risk of injury. HealthLink BC explores the topic of workplace ergonomics.
Healthcare: Vision, paramedical practitioners, hospital (semi/private room), medical supplies
Overall, these benefits will have a temporary decrease in claims followed by a temporary spike in claims once practitioners reopen. There is an exception to this: vision care. Vision claims will be minimally affected if at all. Most vision care benefits have a rolling 12-24-month claim period. Couple that with the ease of ordering glasses and contacts online means the claim activity on this benefit should be similar to pre-COVID-19 levels.
Claim activity for most paramedical practitioners will fall to zero since they are not accessible. There are digital options available for physiotherapy and psychology which will see some claim activity. Once these businesses reopen, there will be a large, temporary spike in claims.
With elective surgeries postponed, hospital room claims have also dropped significantly. Like the paramedical benefit once elective surgery resumes, there will be a claim spike.
Medical supplies usually make up a small percentage of the total healthcare claims and don’t have a major impact on the rates an employer pays. This benefit line will also have a temporary lull in claims as most suppliers are closed. Many supplies have a multi-year benefit maximum which may have already been reached or require referrals from specialists or physicians. Supplies like orthotics that are a nice to have for most people will not be a priority.
We covered how COVID-19 is temporarily increasing the costs of your prescriptions in this article. Post-COVID-19 should see drug claims eventually return to pre-COVID-19 levels with an exception. Inactivity, stress, and other lifestyle factors can lead to preventable chronic conditions such as heart disease and type 2 diabetes. It’s possible that there will be an increase in these conditions, which would lead to a long-term increase in claims unless reversed with lifestyle.
Dental Claims came to a screeching halt as dental offices were forced to close. With the exception for emergency dental (which often falls into healthcare anyway) claims are at zero. Just like most of healthcare, pent up demand will cause a huge spike in claims when offices re-open. Dental is a unique benefit. It’s important to consider the dental recall schedule, rolling frequency for items such as scaling and plan maximums that could be calendar year or benefit year. Some plan members may have maxed out their dental coverage before offices closed, while others are overdue for work. Many pre-COVID-19 dental claim analysis will reveal a scenario where claims were already above the budgeted amount.
Other considerations: Premium Relief, employees returning to work and layoffs
All the Insurers have given temporary premium relief in the form of a credit to non-refund plans. Most offered employers a 10% credit on the total healthcare premium and 50% for the dental premium. Credits are being reflected in May and June billing statements and are being assessed regularly by the insurers. The purpose of this credit is to support businesses during this time of crisis and to reflect the fact that many of these services are unavailable.
Employees who were laid off with benefits will have the same impact on claims as those employed and on the benefit program. Post COVID-19 new hires will likely also have pent up demand for claims. The fight for talent is going to change and employers may need to offer incentives like waiving the waiting period to join the plan.
What does all this mean for employers and the cost of employee benefit programs?
Employers should try to budget for a higher than average increase in premiums across all benefits. The lower claims on health and dental that would have means rate decreases are being negated by the premium relief and the inevitable spike in claims.