GROUP PLANS SPECIFICS (Chapter 8)

Question 1

A&S Terminology

Turnover rate

Answer 1

• The percentage in which employees leave a workplace in a particular period.
• The higher the percentage, the bigger the number of employees who have left their jobs.

Question 2

A&S Terminology

Group health plans

Answer 2

employer or group-sponsored plans that provide healthcare to members and their families.

Question 3

A&S Terminology

Contributory Vs non-contributory (Group plans)

Answer 3

Contributory group plan is one under which some, or all, of the premiums are paid for by the group members themselves

Non-contributory group plan is one under which all premiums are paid for by the plan sponsor

Question 4

A&S Terminology

Administrative Services Only (ASO)

Answer 4

An agreement that companies use when they fund their employee benefit plan but hire an outside vendor to administer it.

Question 5

A&S Terminology

Employment and Social Development Canada
(ESDC)

Answer 5

Candian Government program with EI that provide disability benefits.

Question 6

A&S Terminology

Refund accounting

Answer 6

An arrangement for group insurance also known as retention accounting.

If the claims experience of the group is better than the group premiums were priced for, the employer benefits through a partial refund of its premiums paid.

If the actual experience is worse than anticipated, the insurance company has the opportunity to recoup its losses at time of contract renewal.

Question 7

A&S Terminology

Non-refund accounting

Answer 7

• An arrangement where Premiums are paid to the Insurer, who is then liable for all eligible Claims.
• No accounting is prepared to determine whether the plan operated in a surplus or a deficit, and the Insurer absorbs any such deficit or retains any surplus.

Question 8

A&S Terminology

Group premium tax

Answer 8

Premiums paid for all forms of group accident and sickness and extended health coverage, both personal and business

• Subject to the provincial premium tax, generally between 2 and 3% of the net premium payable.

Question 9

A&S Terminology

Claims adjudication

Answer 9

The process of settling or denying a claim received by an insurance company

Question 10

A&S Terminology

Elements of an Employee Assistance Plan (EAP)

Answer 10

Comprehensive package benefit provided to group members to assist employees with coping and overcoming personal challenges. (such as stress and personal life issues).

Question 11

A&S Terminology

Manual Rating

Answer 11

• A premium standard manual rating for prospective group plans.
• Designed to apply on a generic basis to similar risks within the same class based on past claims experience.

Question 12

A&S Terminology

Experienced Rating

Answer 12

Group insurance rating where the premiums are based on an estimate of past and future claims.

Question 13

A&S Terminology

Employee Data sheet

Answer 13

Also known as a employee census report which the employer provides to the insurance company to determine claims projections and costing for the plan.

Census report includes:

• DOB
• Gender
• Occupation
• List of dependants
• SIN
• Salary / earnings

Question 14

A&S Terminology

Blended rating

Answer 14

Group premium rates that are seldom based on either a manual or experience rating (blend of rates derived from both rating methods) to determine the appropriate organization insurance premium rates for intermediate-size groups.

Question 15

A&S Terminology

Co-ordination of benefits

Answer 15

When two insurance plans work together to pay claims for the same person

Question 16

CHAPTER 8 - Group plan specifics

TRUE OR FALSE?

Similar to individual insurance, the group member has to go through an application process delivery and acceptance with the employer.

Answer 16

FALSE

Unlike the situation with individual insurance, the group member is automatically covered upon joining the plan provided he is actively at work for the employer.

[Ref. 8.1]

Question 17

TRUE OR FALSE?

The pricing actuaries at the insurance company must rely on general actuarial statistics, and previous claims experience for the group, in order to provide group insurance coverage.

Answer 17

TRUE

Question 18

In regards to group DI underwriting what are common factors that influences risk and premium?

Answer 18

• Number of members
• Average age
• Gender
• Turnover rates (stability of the group)

Question 19

TRUE OR FALSE?

In regards to group DI underwriting, smaller groups may face lower premium rates.

Answer 19

FALSE

Smaller groups may face higher premium rates

[Ref. 8.1.1.1]

Question 20

TRUE OR FALSE?

In regards to group DI underwriting, the experience of smaller groups is “pooled” with the experience of similar small groups for pricing purposes.

Answer 20

TRUE

Question 21

TRUE OR FALSE?

In regards to group DI underwriting, large groups, with thousands of members, have risks that are spread over a much wider range and claims experience in areas like disability claims is much more likely to replicate both past experience and actuarial assumptions.

Answer 21

TRUE

Question 22

TRUE OR FALSE?

In regards to group DI underwriting, a primarily male membership is likely to file more health and disability claims than a primarily female group

Answer 22

FALSE

In regards to group DI underwriting, a primarily female membership is likely to file more health and disability claims than a primarily male group

[Ref. 8.1.1.2]

Question 23

Simplify Turnover Rate

Answer 23

The percentage of group members who are likely to leave the group and be replaced by others on a year by year basis.

Question 24

TRUE OR FALSE?

Groups that have demonstrated low turnover rates, 5 to 10% per annum, offer an element of consistency that makes them much more attractive to insurance companies.

Answer 24

TRUE
- Low turnover rates mean that past claims experience will be more credible

[Ref. 8.1.1.2]

Question 25

TRUE OR FALSE?

High turnover rates will result in lower group premiums and longer waiting periods for such benefits as disability and long-term care.

Answer 25

FALSE

High turnover rates will result in higher group premiums and longer waiting periods for such benefits as disability and long-term care.

[Ref. 8.1.1.3]

Question 26

What are the group insurance products and services that employers provide to plan members?

Answer 26

Disability income replacement insurance
- Short-term disability (STD);
- Long-term disability (LTD);

Extended health benefits
- Prescription drug plans;
- Vision care;
- Dental;
- Accidental death and dismemberment (AD&D);

Critical illness (some group plans only)

Long-term care (less common than other coverages).

Elements of an Employee Assistance Plan (EAP)

[Ref. 8.2]

Question 27

Name the types of counselling, assistance and services that Elements of an Employee Assistance Plan (EAP) provide to employees

Answer 27

• Psychological counselling
• Addiction counselling
• Marriage counselling
• Legal counselling

Question 28

What are the tax implications of benefits and premiums on Elements of an Employee Assistance Plan (EAP)?

Answer 28

• Premiums paid by an employer for EAP benefits are tax-deductible by the employer.
• Benefits are not a taxable benefit to the recipient employee for counselling services.

[Ref. 8.2.2]

Question 29

TRUE OR FALSE?

It is the responsibility of the employer sponsoring an employee group plan to enrol the individual employees in the group plan.

Answer 29

TRUE

Question 30

FILL IN THE BLANK

A prospective member’s enrolment in the group plan will be subject to a qualification (waiting) period between the time he joins the sponsoring company and the time he is allowed to join the group plan. This period is often ___________, to coincide with a new employee’s probationary period with the employer.

Answer 30

A prospective member’s enrolment in the group plan will be subject to a qualification (waiting) period between the time he joins the sponsoring company and the time he is allowed to join the group plan. This period is often three months, to coincide with a new employee’s probationary period with the employer

[Ref.8.2.2.1]

Question 31

TRUE OR FALSE?

If the employee/plan member has the option to add additional coverage, over and above the base coverage, for himself or his family members, there is no need of requirement for medical or other underwriting proof of insurability because he is already enrolled.

Answer 31

FALSE

If the employee/plan member has the option to add additional coverage, over and above the base coverage, for himself or his family members, there may be a requirement for medical, or other, underwriting proof of insurability.
| [Ref.8.2.2.1]

Question 32

There could be many reasons for a group sponsor of an existing plan to want to shop the market at renewal time…

When presented with the opportunity to shop the market for quotes, the group agent or broker will consider some things about the group sponsor’s coverage what are they?

Answer 32

• Existing coverage;
• Proposed new coverage;
• Appropriate funding mechanisms;
• Appropriate premium payment structure.

Question 33

Evaluation of the existing group coverage relies on three separate elements, what are they?

Answer 33

• An in-depth analysis of the benefits offered (plan design);
• An evaluation of the group’s claims experience;
• Overall level of satisfaction with the current group provider.

[Ref. 8.3.1]

Question 34

In regards to a new proposed coverage to plan sponsors, to determine true value, both the existing and the proposed new plans must be examined from a variety of perspectives.

What are some perspectives that need to be examined?

Answer 34

Disability benefits;
- Definition of disability;
- Waiting period;
- Benefit periods for both short-term disability (STD) and long-term disability (LTD);
- Percentage of income covered under STD and LTD;
- Rehabilitation and retraining services offered;
Extended health benefits;
- Services covered;
- Maximum benefits;
Drug benefits;
- Deductibles;
- Co-insurance factors;
- Drugs covered;
- Brand name or generic only;
- Benefits provided on a pay-direct or reimbursement basis;
Vision care;
- Maximum benefits;
- How often may claims be presented;
- Covered products and services;
Dental benefits;
- Deductibles;
- Co-insurance factors;
- Covered procedures;
- Maximum annual/lifetime benefits;
Long-term care;
- Waiting periods;
- Maximum benefits;
- Services covered;
Critical illness;
- Amount of coverage;
- Covered conditions;
- Definitions of covered conditions;
Employee Assistance Plan (EAP);
- Inclusion of an EAP in the insurance plan;
- Benefits provided;
- Maximum benefits

Question 35

What are the 3 funding formulas that group that A&S group insurance use to structure claims and costs?

Answer 35

• Non-refund accounting;
• Refund accounting;
• Administrative services only

Question 36

Group premium rates are affected by a variety of factors, name some.

Answer 36

• Makeup of the group
• Nature of the business
• Group benefits offered
• Inflation
• Past claims experience

Question 37

TRUE OR FALSE?

Groups with existing coverage usually don’t have any forms of rating.

Answer 37

FALSE

• Groups with existing coverage will likely have an experience credibility rating somewhere between high and low
• Groups with no previous group coverage will have a null experience credibility rating and premium rates
  would be based exclusively on a manual rating approach.

[Ref. 8.4.1.4]

Question 38

TRUE OR FALSE?

Employer paid group premiums for disability, extended health and other forms of group A&S insurance are a tax-deductible expense for the employer, regardless of whether or not they are a taxable benefit for the covered employees.

Answer 38

TRUE

Question 39

TRUE OR FALSE?

In regards to taxation of employee payment of long-term disability premium, If the employer pays 100% of the premium, the premium is tax deductible for the employer and any disability benefits paid out under the plan will be tax deductible in the hands of the recipient group member for the year in which they are received.

Answer 39

FALSE

In regards to taxation of employee payment of long-term disability premium, If the employer pays 100% of the premium, the premium is tax deductible for the employer and any disability benefits paid out under the plan will be treated as taxable income in the hands of the recipient group member for the year in which they are received.

[Ref. 8.4.2.1]

Question 40

TRUE OR FALSE?

In regards to taxation of employee payment of long-term disability premium, If the employee/group member pays 100% of the group plan premiums, any benefits paid to him will be tax-free but the employee does not get to tax-deduct the premiums paid.

Answer 40

TRUE

Question 41

TRUE OR FALSE?

In regards to taxation of employee payment of long-term disability premium, If the employer and employee share the group disability premiums, in the event of a claim, the plan member receives a portion of the benefits equal to his aggregate premiums paid, tax-free, and the balance of the benefits is treated as taxable income.

Answer 41

TRUE

Question 42

A&S Terminology

Employment Insurance (EI)

Answer 42

Formally known as Unemployment insurance; a program in Canada that allows individuals who have recently lost a job to receive temporary financial assistance.

Question 43

Explain some key factors between Employment Insurance and Employment Social Development Canada (ESDC)

Answer 43

• ESDC is responsible for, among other duties, administering the federal Employment Insurance (EI) program
• Benefits provided to persons eligible for EI is a sickness benefit paid for a maximum of 15 weeks, following a one-week waiting period.
• If an employer has short-term group disability coverage in place that is equal to or greater than the coverage provided by EI, the employer can apply for a partial reduction in its EI premiums otherwise payable
• In order to qualify for the reduction, the employer must register the group plan with ESDC based on their
  specific schedule.

Question 44

Explain the rules regarding Co-ordination of benefits

Answer 44

The basic rules are fairly straightforward:

• The group plan covering the claimant as a primary insured is the first payer;
• Assuming that the first payer does not fully cover the expense, the spouse’s plan (under which the claimant is also insured via family coverage) becomes the second payer;
• The entire expense (not just the portion paid or reimbursed by the first payer) is filed as a claim with the second payer, which then pays the lesser of:

a) What it would have paid had it been the first payer;
b) The difference between the total expense and what the first payer paid or reimbursed.

Question 45

TRUE OR FALSE?

In regards to Co-ordination of benefits, in the case of a claim on behalf of expenses incurred by children of the insureds, the insurance company covering the parent with a birth date that is earliest in the calendar year, regardless of age, becomes the last payer.

Answer 45

FALSE

In regards to Co-ordination of benefits, in the case of a claim on behalf of expenses incurred by children of the insureds, the insurance company covering the parent with a birth date that is earliest in the calendar year, regardless of age, becomes the first payer.

[Ref. 8.6]

Question 46

If the agent/broker who provided services to a group sponsor is personally actively involved in both sales and service process, he has a two-pronged responsibility which are…

Answer 46

• Remaining up-to-date on the client’s needs and situation;
• Documenting the services provided.

Question 47

In regards to Ongoing awareness of client situation and needs between plan sponsors and group plans, preparing a plan for periodic client contact will serve agents and clients well to strengthen client relationships and foster referrals.

This plan will allow the agent to…

Answer 47

• Be a conduit between the client and the insurance company, to anticipate and help to “head off” any issues of dissatisfaction;
• Be in contact with the client 90 days prior to the plan’s yearly renewal date, to see if any plan modifications are required or if the client wishes to go to market in order to decide whether to renew the current plan or to seek an alternate provider;
• To solicit quotes from other providers and make recommendations to the plan provider, if the client wishes to “shop” the plan