I’ve been out to a number of clients who don’t have a benefit plan. There are some business owners that I’ve met that are attempting to self-manage their own benefit plan. They see that it’s a necessary step to help attract and retain employees. Introducing a benefit plan helps to legitimize the company in the eyes of employees, suppliers and customers. Inevitably, I’m asked the question, “why can’t we sponsor our own benefit plan?” It’s a fair question but there are a number of reasons why you shouldn’t do it. In this case, the cons definitely outweigh the pros. Here are the five reasons why businesses shouldn’t sponsor their own benefits plan:
Adjudication and Administration of the Plan
Benefit plans are adjudicated by insurance companies or claims payors who are familiar with the benefit rules put in place by CRA. You would need to have a designated employee who would be responsible for adjudicating (knowing which claims meet the CRA rules), monitor, record and reimburse all claims for each employee within the company. This could be a full-time job in itself. Third party claims adjudicators typically charge 10% administration fee to adjudicate, administer and pay for benefit claims within a Health Spending Account format.
Protecting the Privacy of the Employees
By utilizing a third party claims payor, it insulates the company from knowing what claims are being made by employees. They don’t have the ethical dilemma about knowing what sensitive drugs or treatments an employee may be on or the potential cost associated with a particular service.
As an example, if the company became aware of a certain drug an employee may be using, would that influence the way they treat someone? We would all like to say no, but having access to this information could compromise the decision making involving the employee.
Potential Liability to the Sponsoring Company
This is a possible consequence to protecting the privacy of employees. Hypothetically, let’s say an employee is prescribed an opiod. Coincidently, the employer notices a dip in production, greater absenteeism and change in performance. The employer decides to terminate the employee for performance issues. The employee retains a employment lawyer and claims the employer has breached his/her privacy.
By utilizing a third party claims payor, it insulates the employer of breach of the PIPEDA Act (Personal Information Protection and Electronics Documents) PIPEDA applies to the protection of personal information of employees.
Loss of a Non-Taxable Benefit
One of the benefits of using a third party claims payor, it becomes a 100% business expense to the company and a 100% non-taxable benefit to the employee. If a company self-administers its own benefit reimbursement program, the benefit becomes a taxable benefit to the employee which loses a lot of its appeal.
Underwriting Catastrophic Coverage
Many elements of a benefit plan are not considered catastrophic. Benefits like dental, paramedical, eye glasses can easily be managed using a Health Spending Account format. There are certain benefits that do require insurance against catastrophic coverage such as certain specialty drugs and private nursing. If a company self manages a benefit plan, they in most cases wouldn’t be able to underwrite such potentially large claims. These catastrophic claims, in some cases cost tens of thousands of dollars or more. A company wouldn’t be able to protect its employees when they need it most.
There are very few upsides to internally managing your own company benefit plan. The risk, workload, administration, limited coverage and lack of taxable benefit advantages should be evident that there are third party companies that are much better equipped with processes and expertise to manage outside your company and can do it at a fraction of the cost. That being said, there is a right way and a wrong way to set up a first time benefit plan that will make it sustainable for the long haul.
Through the bankruptcy of his first business, a strong balance sheet means nothing unless you can get the money out of your business and into your hands personally, tax efficiently, and creditor protected. Chris helps and coaches business owners to avoid a similar fate as he suffered in his first business.
Through several clever strategies, he illustrates how these little-known vehicles can get money out of your business efficiently, build your corporate brand and create a legacy through charitable means to help make a meaningful difference in the lives of others.
Also, he has seen the impact that mental health can have upon success within your business and your life and how the two are on a constant collision course. When Chris became aware that Entrepreneurs struggled with their mental health at more than twice the rate of average adults, he realized he wasn’t alone and made it his ambition to understand why and do something to help. His business, The Finish Line Group, aims to help support the entrepreneur’s financial, philanthropic, and emotional needs.
Chris’ Why Statement remains, “To openly communicate the lessons learned from my past so that others will thrive in their lives, minimize their setbacks and leave a positive and lasting legacy.”
Sponsor your own benefit plan