- Fully Insured – under this funding format, the insurance company assumes all adjudication functions and all of the risk of submitted claims. This is the standard format used in the industry today.
- Administration Services Only (ASO) – An ASO arrangement is a long term way to save money on your employee benefit plan without reducing coverage. This type of funding arrangement has traditionally only been made available to larger corporations however smaller organizations are now being able to participate in the benefits of this arrangement by building in insured stop-loss protection.
ASO means that the insurance company does not insure the plan – they only provide the administrative services associated with the plan (ie. Enrollments, changes, terminations, claims adjudication, cheque issuing). The employer is responsible for the insurance company’s services and the claim costs. This arrangement removes the inflationary trend factors and reserve requirements that insurance companies build into their rates under the fully insured arrangement.
- Refund/Retention Accounting – This funding method is similar to fully insured method except that a complete financial statement is provided each year. If the sum of paid claims, reserves and expenses is greater than the paid premiums, a deficit would result. This deficit would be carried forward and recovered over a period of three to five years through an additional premium targeted specifically for deficit recovery or, from future surpluses.
If the sum of paid claims, reserves and expenses is less than the paid premiums, a surplus would be declared. Generally part of the surplus would be refunded to the policyholder and the balance would be deposited into a rate stabilization reserve (a contingency fund) to offset any future deficits in subsequent years.
Should the policy terminate for any reason, any monies remaining in the rate stabilization fund following a final accounting would be returned to the policyholder.
- Health Spending Accounts (HSA) – An HSA works like a savings account. At the beginning of each year, employees are allocated a certain amount - usually a percentage of gross earnings. This amount can be used to pay for Health or Dental expenses that are not covered under the group insurance plan or to top-up existing benefit levels.
Two conditions apply - the health related expenses must be allowed under the Canada Revenue Agency (CRA) and they must not be covered by any other health insurance plan, public or private.
Examples of expenses recognized by the CRA under the Income Tax Act are:
- prescribed drugs such as fertility or obesity drugs
- prescribed over-the-counter drugs
- deductibles or coinsurance
- orthodontics
- cosmetic or laser eye surgery
Throughout the year, as claims are submitted, they are validated by the insurance company to ensure that they qualify under CRA guidelines. Each time a claim is paid, the balance of the HSA is reduced accordingly.
Normally an HSA is part of a flexible benefits program, but it can also be established under a standard group insurance plan.
