A benefits “pool” exercises the true principles of insurance: all businesses pay fairly into the pool, and all claims come fairly out of the pool. Rates for everyone are then adjusted annually based on the performance of the whole pool.
How Does This Differ From Traditional Funding?
The traditional method of funding your employee health and dental benefits is usually through an insurance company and involves the annual review of your company’s claims and usage. This can lead to an adjustment (some larger than others) to your rates each year.
As mentioned above, a benefits pool works slightly differently where the claims and usage is looked at across all participants within the pool and higher claimants can be levelled out by others with lower claims.
What Are The Advantages Of A Benefits Pool?
This funding method is a rare but effective way to mitigate, or maybe even eliminate, the unpredictable and sometimes out of control rate adjustments you didn’t see coming.
Essentially the claims experience is spread amongst the whole pool versus just your organization which leads to increase rate stability.
Other Facts About A Benefits Pool
It is important to understand that not all pools are created equal. The law of large numbers really applies when considering a pooled approach. For sure, the larger pool, the more stable your rates will be year-over-year. If a pool is not substantial in size, then one business with high claims could significantly impact the rates for the whole pool. Many association plans (if not well designed) can suffer from this.
A great example of a large benefits pool is the Chambers of Commerce Group Insurance Plan. It’s the largest not for profit benefits pool in Canada with over 35,000 businesses participating from coast-to-coast. Now that’s a big pool! And yes, you read correctly; they carry a not-for-profit status and reinvest the surplus back into the plan to ensure stability for years to come.