Traditional Group Benefits

ATraditional Group Benefits plan is comprised of two types of benefits: pooled benefits and experience-rated benefits. Although benefits plans are evolving to include other plan features and funding methods, most plans are built on the foundation of the benefits below.

Pooled Benefits

Group Life, Dependant Life, Accidental Death and Dismemberment (AD&D), and Long-Term Disability (LTD) benefits are considered pooled benefits. Claims of this nature can occur unexpectedly and can be very large. Since your group’s experience is pooled with the experience of all other groups of similar industry and size, a common rate can be established.  As a result, your group’s premium rates can remain low, even if there may be a significant claim in a single year. Factors that affect pooled rates are:

• The average age and age distribution of employees
• Male to female ratio
• Occupational and industry characteristics
• Size of the group

An annual review of these factors is required to ensure the pooled benefit rates offered by the insurance company are fair and reasonable.

Experience-Rated Benefits

Unlike pooled benefits, experienced-rated benefits are based on the actual experience of your group.  Short-term Disability, Extended Health Care and Dental Care benefits are categorized as experience rated benefits.  For larger-sized groups, rates will almost always be based entirely on the group’s claims experience. For smaller-sized groups, only partial credibility is usually given to the claims experience and the insurer’s manual rates are also factored into the rate calculation. To determine the levels of expected claims for the next policy year the insurer uses your group’s past claims experience.

There are several factors that affect the rates of experience-rated benefits:

• Increased utilization of medical and dental services
• Increasing costs of new prescription drugs entering the market place
• Medical trends and inflation

Depending on the size and risk tolerance of your organization, it may be worth exploring the different funding methods available to your organization for your traditional benefit plans.

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