Lesson 4

Question 1

4.1.1 List 6 things that plan design usually focuses on determining in relation to the benefits philosophy /objectives for a benefits plan in terms of a strategic decision

Answer 1

1) Benefits plan philosophy/objectives
2) Eligibility for benefits coverage
3) Type and level of benefits provided and under what terms and conditions
4) Level of choice in benefits selection
5) Who pays premium costs
6) How plan costs will be controlled

Question 2

4.1.1.b List two things that a benefits philosophy/objectives statement does

Answer 2

1) Serves as a guide for evaluating benefit changes and specific cost saving initiatives moving forward
2) Provides the basic framework to implement plan changes consistently and effectively within the overall context of the plan.

Question 3

4.2.1 Outline 6 factors that influence plan decisions regarding which combinations of benefits to provide different employee categories

Answer 3

1) Form of compensation
2) Geographic region in which employees are located
3) Number of years of service
4) Individual’s position within the company
5) Presence of collective bargaining agreements
6) Constraints/opportunities presented by tax rules and regulations regarding plan design

Question 4

4.3.1 Describe how risk aversion impacts decisions in terms of the type of benefits a sponsor offers and if they self insure

Answer 4

Few plan sponsors can directly absorb all costs such as those resulting from sickness or injury

In a fully insured plan the costs are transferred entirely to an insurer in exchange for a premium.

A less risk averse plan sponsor may choose to self insure some benefits

Question 5

4.3.2 Justify the cost of disability insurance coverage compared with routine dental care coverage

Answer 5

The cost of insurance is related to the predictability of the event and the cost of the event.

Disability is harder to predict and more costly than dental services and so has a higher premium than dental, which is predictable and lower cost

Question 6

4.3.3 Identify sources of information that can provide insight into plan member needs regarding type and level of benefits to include in a benefits plan

Answer 6

1) Plan sponsor’s perception of needs
2) Benefits strategies and programs of competitors
3) Collectively bargained benefits
4) Plan members’ perception of needs

Question 7

4.3.4 Outline the benefits and risks of soliciting plan member input in the benefits plan design process

Answer 7

An objective of the plan design process is to have plan members perceive the value of their plan. Each benefit feature should relate to specific needs of the group so that individuals can easily identify aspects of the benefits plan are valuable to them.

Benefits that can’t be explicitly linked to plan member needs should be flagged for review. Plan member input can be used to determine where to allocate funds and where reductions may be made.

The risk of soliciting this type of input is if the plan sponsor doesn’t put member input in context and clearly communicate their considerations in decision making to manage member expectations.

Question 8

4.3.5 Compare the role of weekly indemnity/STD benefits with LTD benefits commonly provided in group benefits plans

Answer 8

STD, sick leave, and salary continuance is generally available to all full time employees. They generally cover disabilities for a maximum period of time of around 17-26 weeks

A LTD plan provides extended coverage after STD ends. The other important differences are in how disability is defined, how benefits are coordinated with the disabled member’s other sources of income and the emphasis on disability management, including rehabilitation.

Question 9

4.3.6 Justify why dental coverage isn’t insurance in the classic sense

Answer 9

Because it’d to cover regular as well as incidental expenses. Insurance usually just covers events that are random and unforeseen.

Accidental dental benefits are usually covered under the health care provisions of the group insurance contract and are subject to maximums.

Question 10

4.3.7.a What is the role of core benefits in an overall benefits plan

Answer 10

Core benefits include mandatory benefits and may be 100% covered by the plan sponsor or may have a cost sharing element.

Core benefits address primary needs and include basic life insurance, dependent life insurance, basic AD&D, disability, Extended health and dental

Question 11

4.3.7.b What are two examples of optional benefits in an overall benefits plan and who pays for them

Answer 11

Optional benefits, or voluntary benefits typically include additional life and AD&D and are paid for by the member

Question 12

4.3.7.c What is the role of Ancillary benefits in an overall benefits plan

Answer 12

Ancillary benefits reflect needs that influence an individual’s well being and work productivity. The scope can be quite wide and can include employee assistance programs, health care spending accounts, wellness programs and critical illness insurance plans

Question 13

4.3.8 Identify the primary difference between traditional group benefits plan for salaried employees and hourly employees

Answer 13

The main difference is the STD. Salaried employees are more likely to receive sick leave or salary continuance while hourly employees are more likely to receive WI/STD benefits

Question 14

4.4.1 Explain why integration in Workers Comp and CPP/QPP death benefits is not a consideration in the design of group life insurance plans

Answer 14

Group benefits are designed to top up gov’t benefits and typically avoid duplication.

Integration isn’t considered for life insurance plans. The WC death benefit only applies to occupational death and the CPP/QPP death benefit is low.

For these reasons death benefits under group insurance plans are needed to provide financial security

Question 15

4.4.2 Explain best practices to integrate LTD with CPP/QPP and WC disability.

Answer 15

Income from WC/CPP/QPP disability are considered offsets to the LTD paid under most group insurance plans.

There are also indirect offsets which may be considered

Question 16

4.4.2.b Give three examples of indirect offsets.

Answer 16

1) Benefits payable under an association or other group disability program
2) Any income as a result of a job or business for remuneration or profit
3) Any retirement benefits related to any employment such as RPPs and group - but not individual RRSPs

Question 17

4.5.1 Outline five categories of provisions in the master contract that detail the benefits provided and their associated terms and conditions

Answer 17

1) Insuring provisions - definitions, eligibility requirements, incontestability,
2) Benefit provisions - waiver of premiums, definition of disability, qualifying periods, benefit period, eligible expenses, exclusions and limitations
3) Claims provisions
4) Premium provisions - grace period
5) General provisions - conformity to legislation and disclosure provisions

Question 18

4.5.2 Explain the rationale behind an insurer’s “be permanent and actively at work” eligibility requirement

Answer 18

Insurers require that an individual be actively engaged in permanent employment as a condition since that requires that members have a minimum level of health and physical well being.

Question 19

4.5.3 Explain the rationale behind imposing an eligibility waiting period for new employees in single employer plans

Answer 19

A waiting period is often applied to new employees because it minimizes unnecessary recordkeeping and administrative expenses for those employed for shorter periods.

It is generally 1-3 months and for hourly employees it is usually tied to the employment probationary period. For salaried employees it is generally short or nonexistant

Question 20

4.5.4 Describe the eligibility requirements for members of MEPs

Answer 20

Because of seasonality of work and frequent employer change MEP coverage doesn’t usually have the full time actively working provision.

Instead it is based on the hours worked or dollars contributed to the trust fund by the employer on behalf of the plan member.

Question 21

4.5.5 Explain how the hour or dollar bank system is used in MEPs to maintain eligibility

Answer 21

Hours or dollars are contributed to the member’s bank as they work. Each month for benefit coverage that bank is drawn down (110 hours or $450 for example)

Question 22

4.5.6 In the context of dependent coverage, outline the three people/relationships included in the common definition of group insurance contacts

Answer 22

1) Married or common law spouse
2) Unmarried children under a certain age, or those who are full time students
3) Unmarried children past the limiting age who became physically or mentally incapacitated before the limiting age and are solely dependent

Question 23

4.5.7 Identify circumstances under which a plan member is required to provide satisfactory evidence of insurability (7)

Answer 23

1) Elects optional life insurance
2) Is a late applicant more than 31 days past eligibility
3) Withdraws from group benefits while employed and then wishes to be reinstated
4) Applies for coverage that was previously approved
5) Applies for reinstatement of overall lifetime maximum amount under a group benefits plan
6) enrolls in a group benefits plan comprised of a small number of eligible group members
7) Applies for life insurance and LTD benefits that exceed some pre defined maximums

Question 24

4.5.8 Compare the benefits schedule for group life insurance with healthcare coverage

Answer 24

With group life members are assigned to various classes under the group insurance contract (executives, salaried members) and the class determines the amount of life insurance. (flat amount or based on earnings)

The schedule of health benefits has many items with differing maximums, limits and deductibles. Claims are adjudicated in accordance with the features of the benefit schedule and eligible claims expenses are limited to reasonable and customary charges.

Question 25

4.5.9 List 5 events that can trigger a plan member’s termination.

Answer 25

1) Plan member retires and there is no retiree continuation
2) Plan member’s service with the plan sponsor is terminated
3) Plan member ceases active work (and isn’t on leave)
4) Plan member is no longer a member of an eligible class
5) Premium payments stop

Question 26

4.5.10 Outline some common group dental plan policy provisions

Answer 26

Coverage categories typically include:

• preventative services
• basic services
• major restorative services
• orthodontic services

there is usually an annual max for basic services and lifetime max for orthodontic.

Premiums can be paid by member or sponsor or shared

Question 27

4.6.1 Explain how tax incentives under the ITA for specific types of insured benefit plans can impact the tax consequences for the plan members

Answer 27

Basic life, dependent life, basic A&D, EHC and dental aren’t taxable to the plan member if the plan sponsor pays the premium.

WI/STD & LTD are taxable to the plan member if the plan sponsor pays the premium.

No insured benefits are taxable to the plan member if the plan member pays the premium.

Question 28

4.7.1.a What is the modular flex approach

Answer 28

Under the modular flex approach members are given at least two pre defined modules, or packages of benefits to choose from.

They are usually easy to communicate and understand. Members electing a higher level of coverage are usually required to contribute

Question 29

4.7.1.b What is the full flex (Core plus options) approach

Answer 29

Members are offered a wide range of options in various lines of benefits. There is typically a core plan that can be added to. Usually the core has a minimum life and LTD.

There may be a system of flex credits that each member can apply to benefits and if the credits are insufficient, they can pay out of pocket.

Question 30

4.7.1.c What is a total rewards approach to introducing plan member choice

Answer 30

It is similar to full flex but contains a total compensation component where members may have additional choices relating to pay, pension/retirement and vacation.

Question 31

4.8.1 Explain why plan sponsors may prefer coinsurance over deductibles in plan design.

Answer 31

Deductibles tend to stay stagnant and not increase with inflation.

If the plan simply pays 80% of a cost through coinsurance it will adjust for inflation without having to amend the plan

Question 32

4.8.2 Explain how therapeutic substitution used in the US has been adapted in Canada to control plan costs.

Answer 32

Drugs with different active ingredients but the same therapeutic classification as those prescribed are included on the therapeutic substitution list is the US.

In Canada these are rare since they require changing the prescription. A plan in Canada may cap the cost of all drugs in a therapy class at the cost of a lower cost drug in the same class (reference based pricing or maximum allowable cost)