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  • Expenditures toward group benefits are tax-deductible as a business expense
  • Benefits attract and retain qualified employees, to purchase various types of insurance
  • Benefits foster a healthy workforce and, consequently, improve employee morale, productivity and efficiency
  • Benefits can be provided in lieu of monetary compensation
  • Benefits received under the group plan may not be considered a taxable benefit
  • No need to use after-tax money
  • Does not usually require an individual to provide medical evidence of insurability
  • Insurance is less expensive to obtain under a group plan than for an individual policy

The policy governs the group and is signed and sponsored by the policyholder and not the individual employees covered under the plan. The policyholder (employer) is responsible for the contract, makes decisions regarding changes, administers the plan and collects and remits the premiums.


The policy focuses on the members in a group, not on the individuals. The contract defines precisely who can be covered under the plan and when an employee becomes covered. There is usually a minimum 30-day waiting period after joining the employer before the employee is eligible to join the group plan, but this waiting period can be longer.
The eligibility requirements are the same for everyone in a class. A “class” might cover (for example) “all hourly paid workers who work at least 35 hours per week after three months of employment


These are not as stringent as for individual contracts. Because of the reduction of anti-selection and the spreading of the risk elements in the group contract, most of the basic benefits can be issued without evidence of insurability.


The premiums for each benefit are calculated separately, taking into consideration the makeup of the group, the benefits and the claims experience. The rates are almost always recalculated each year to take into consideration the continuously changing makeup of the group.


The record keeping and clerical functions are most often handled by the policyholder (employer). These include:

  • Adding on and terminating employees
  • Paying monthly premiums
  • Collecting premiums from the employees (if applicable)
  • Filling out claim forms and submitting them to the insurance company
  • Notifying the insurance company of changes in employee status

There are 5 fundamental principles that influence the formation of a typical group insurance policy:

  1. The employees must be actively at work at the time they become eligible for group insurance. It is assumed that if the employee is actively at work, he or she must be relatively healthy and will represent a relatively low risk to the plan.

    Example: Tom and Sue work for the same employer. Tom works 37.5 hours per week and is a member of the group plan. Sue only works four mornings a week, for four hours per morning (16 hours per week — considerably less than the 24 hours per week required for inclusion as a full-time employee, as defined under the plan), and (as a part-time employee) does not qualify to join the group plan.
  2. The choices and amounts of coverage must be restricted.

    Example: The XYZ Manufacturing Company’s employee group plan provides life insurance coverage equal to twice each employee’s annual salary, with no options to buy additional coverage. All group members of the XYZ plan must have group life insurance coverage.

    Left to an individual’s discretion, benefits selected would be those most beneficial to the individual, and most likely to be utilized. This is known as “anti-selection” or “adverse selection” and is ultimately detrimental to the plan as a whole, as the claims experience for the plan would be much higher than for the population at large. More claims translate into higher group premiums. The insurance company protects itself from adverse selection by pre-determining the benefits available to the group plan members.
  3. If a plan is contributory (meaning that the employees pay a portion of the premiums), employee contributions must be deducted from the employee’s pay. The employer or plan sponsor is responsible for submitting the total premium for the whole group plan in one single payment on or before the premium due date. This simplifies the administration process and keeps plan expenses to a minimum. The policyholder (employer) is contractually responsible for the premiums, regardless of whether the premiums are to be paid wholly by the employer or jointly by the employer and the employee.
  4. The employer must pay a portion of the group insurance premium (many insurance companies insist upon at least 50%). This indicates the employer’s commitment to operate the plan along sound principles and to continue the plan for a number of years. Also, the more that employees have to pay for the group benefits, the more likely they are to file claims in order to “get their money’s worth” out of the program. Thus, keeping the employee contributions low (by keeping the employer-contributions high), will ultimately reduce plan costs.
  5. There must be a sufficient number of employees participating in the plan to spread the risk to even out the fluctuations as claims are incurred. To this end, the insurer will require a minimum number of participants (often 10) and a minimum percentage of employee participation (as low as 75%, and commonly 100%), minimizing the opportunity for anti-selection.

The cost of group insurance (premiums) can be paid for either on a noncontributory (the employer pays all) or a contributory (both the employer and the group plan member pay part) basis.


The employer pays the entire cost of the group insurance plan. The members do not pay any premium towards the plan.

Advocates of non-contributory plans offer the following advantages:

  • Employees show greater appreciation for the benefits when all costs are paid by the employer.
  • All employees are automatically included in the plan, there are no participation problems or conflicts over eligibility.
  • Premiums are deductible as a business expense for the policyholder and are not generally considered taxable income to the employee.

The disadvantages of non-contributory plans are as follows:

  • The employer bears the total cost of the plan.
  • If the plan includes short- or long-term disability coverage, the benefits paid to the disabled employee are usually considered taxable income to the employee.
  • Since the employee bears no financial responsibility, claims may be more open to abuse.

The employee pays a portion of the premiums for the plan, most often 50%; the employer pays the balance. Exponents of the contributory plan offer the following advantages:

  • The larger total premium from both the employer and the employees is possible and makes more money available to provide a better benefit plan
  • Healthy employer/employee relations are promoted through the co-operative effort to manage the benefit plan
  • Employees have a greater interest in the operations of the plan when costs are shared
  • Sharing costs acts as a deterrent to excessive demands for benefits

One disadvantage of contributory plans is the tendency for plan members who pay premiums to want to “get their money’s worth” by making claims at least equal to the total premiums that they have paid. In the case of semi-elective claims (like eye care and dental care) there may be an incentive for a form of “anti-selection” in the amount and frequency of claims made by premium-paying plan members.

Premiums are split between employees and the employer differently, depending on the benefit. This is often dictated by tax legislation. These points will be covered more completely in future sections of this module dedicated to the different benefits available under these plans.


The amount of eligible health care expenses a covered person must pay before any reimbursement is payable in excess of that deductible. There are 2 types of deductibles:


    The member pays, within the calendar year, a dollar amount against eligible expenses before being reimbursed, (e.g., a deductible of $25 is paid by the member before the balance of the claims are reimbursed). If the claims were for $175, then the member would receive $150.

    The family deductible is usually twice the single deductible, (e.g., a single deductible of $25 and a family deductible of $50). The deductible for the whole family is $50, but no more than $25 for any one individual.

    Example: Father, Mother and Daughter all wear eyeglasses, and all bought new glasses in 2004. Father’s group benefit plan has a $50 annual individual deductible and $100 family deductible for vision care claims. When Father bought his new glasses, he had to pay for the first $50 of the cost himself. When Mother next bought her new glasses, Father had to pay the first $50 of the cost of them, as well. When Daughter bought her new glasses, no deductible portion had to be paid, since the $100 annual family maximum deductible had already been reached for 2004.

    It is possible for the family deductible limit to have been met (and therefore the individual deductibles as well), even though the individual deductibles had not been satisfied for each claimant.

    Example: If father and mother, above had each made a $40 claim, only $20 of the family deductible would apply to daughter’s claim, and no deductibles would apply to any future claims in 2004.

If the deductible has not been reached in any calendar year, then any claims incurred during the final three months of the year can be carried over to the following year to help fulfill the deductible for that year.


Applies to pay-direct drug plans. A deductible applies to each prescription purchased, e.g., a prescription costing $47 with a per-prescription deductible of $5 will reimburse the member $42. Another kind of per-prescription deductible is for the employee to pay the pharmacist’s fee while the plan covers the balance.


Most group insurance plans do not provide for the plan to reimburse all of a member’s eligible health and dental expenses, over and above the deductible portion (if any). Rather, the plan usually covers only a percentage (e.g., 75%, 90%, etc.) of the balance of the eligible expenses, with the plan member being responsible for the difference. The percentage of the expense covered by the plan is called the “co-insurance factor.” Thus, if the plan will cover 80% of the expenses (and the member the other 20%), the plan is said to have an 80% co-insurance factor.


Example: Joan is covered for the cost of certain prescription drugs through her employer’s group health insurance plan. The plan has an annual deductible of $25 and a co-insurance factor of 80%. Joan’s first claim for the current calendar year totals $265. Responsibility for the drug expenses would be as follows:


Total elegible expenses incurred $265
Joan’s deductible $25
Net claim $240
Group plan’s co-insurance factor (80%) $192
Portion of net claim paid by Joan (20%) $48
Out of the total claim of $265, the plan pays the co-insurance factor of $192 (80%)
and Joan pays the other $73 Herself ($25 + $48 = $73).

Note that the co-insurance factor only applies to the net claim; net of the deductible payable by the plan member

The more the employee pays towards a claim, the less that must be reimbursed out of the group plan, therefore:

  • Higher deductibles translate into lower requirements by the group plan and, therefore, lower group plan premiums
  • Lower co-insurance factors translate into lower requirements by the group plan and, therefore, lower group plan premiums

Additionally, deductible and co-insurance factors tend to keep claims costs (and premiums) down by discouraging unnecessary claims. The plan member is more likely to consider the need for a claim if he or she is going to be responsible for a portion of its cost. Fewer claims result in fewer payouts for the plan and reduced administration costs. Of course, the deductibles and coinsurance factors cannot be so high as to be punitive for the plan member; this would defeat the purpose of the plan in the first place.


The coordination of benefits (COB) provision was developed by the Canadian Life and Health Insurance Association (CLHIA). The provision comes into play in circumstances where an individual is provided with group health or dental benefits under more than one plan. Typically, this would occur where an individual is covered under his or her own group plan and is also covered by a spouse’s group plan. The COB guidelines ensure that the insurance companies involved in the group plans have a consistent and fair method of administering these claims and to ensure that the insured cannot collect benefits greater than 100% of the eligible claim.

The coordination of benefits guidelines provide that the primary carrier (determined to be the insurance company that will pay benefits under the claim first) shall be responsible for paying that portion of the claim provided for under its ordinary claims rules (allowing for deductible and co-insurance factors). The secondary carrier (the carrier that is not determined to be the primary carrier) is required to pay the lesser of:

  • The difference between the total claim and that portion of the claim covered by the primary carrier; and
  • The amount of the total claim that the secondary carrier would have paid had it been the primary carrier

A simple example might help clarify these rules: John and Marsha are a married couple. John is a member of a group insurance plan (through his employer) that provides group dental coverage with a $100 deductible and an 80% co-insurance factor. Marsha is a member of an association group dental plan that has a $50 deductible and a 100% co-insurance factor. Marsha’s plan also provides spousal coverage.

The couple’s first dental claim for the year is a $250 x-ray and cleaning bill for John.

John first submits his claim to his employer’s plan, as primary carrier (see below). The plan reimburses John $120 of his dental expenses after allowing for the $100 deductible (80% of $150 = $120). This leaves $130 of the claim unpaid.

John then claims against Marsha’s group plan (the secondary carrier). Before making a payment, Marsha’s plan computes its liability using the formula above, the lesser of:

  • The unpaid balance of $130; and
  • The amount the plan would have paid had it been the primary carrier. It would have paid $200 of the claim (the $250 claim, less the $50 deductible, with a 100% co-insurance factor

Marsha’s plan, then, would pay the lesser of the two amounts, $130, and John would be reimbursed for 100% of the $250 dental expense ($120 from his own plan and $130 from Marsha’s).

In circumstances where the first claim of the year does not exceed the deductible of one or both insurance plans the whole claim may not be reimbursed and the deductibles for each plan are reduced accordingly.

Example: If John, above, had a first claim of only $75 his plan would not have reimbursed any of the claim, but his remaining deductible would have been reduced from $100 to $25. The whole $75 expense would have been carried over to Marsha’s plan (as secondary carrier) and her plan would have reimbursed the couple in the amount of $25 (after allowing for her plan’s $50 deductible). Her plan’s remaining deductible would have been reduced to NIL.

If there had been a second claim later in the year for John of $200 he would submit it to his carrier first. His carrier would pay $140 of the claim (allowing for the $25 remaining deductible and the 80% co-insurance factor on the net claim of $175). The entire $200 claim would then be submitted to Marsha’s plan, which would pay the balance of the expenses of $60 (the lesser of the $200 that it would have paid had it been the primary carrier and the $60 unpaid portion of the expense after allowing for John’s claim).

In cases where an eligible health or dental expense is covered under two or more plans, priority of payment (determining the primary and the secondary carriers) is based on the following rules:

  • Employee/claimant: the plan where the employee/claimant is an active member pays first;
  • Spouse: the plan where the claimant is covered as a dependent spouse pays second;
  • Dependent children: for claims made by or on behalf of a covered dependent child:
  • The plan of the parent with the earliest birth date in the calendar
    year (month/day) – regardless of age – is the first payor
  • If both parent’s birthdays fall on the same month and day, the plan of the parent whose first name begins with the earliest letter of the alphabet pays first (e.g., John’s plan would pay before Martha’s)
  • If the parents are separated or divorced, then the plans pay in the order that they appear below:
    • the plan of the parent with custody of the child,
    • the plan of the spouse of the parent with custody of the child,
    • the plan of the parent not having custody of the child,
    • the plan of the spouse of the parent not having custody of the child.

Group policies describe who is eligible for coverage. They define eligibility as those employees in a specified class. These classes must be defined by requirements that are related to conditions of employment (e.g., salary, occupation or length of employment).

For example, a class could cover department managers who work full time.

The following provisions contain requirements that group members must meet in order to be eligible for coverage.


In order to be eligible for coverage, an employee must be actively at work, not off work because of illness or on leave on the day that coverage is to take effect. Coverage will begin on the day the employee returns to work. It is assumed that if the employee is actively at work, he or she must be relatively healthy and represent a lower risk to the plan.


The length of time a new group member must wait before becoming eligible to enroll in the group plan. Thirty-one days is usually the minimum period considered but can be longer. The higher the turnover of new employees the longer the probationary period should be in order to minimize the administration work of constantly adding and terminating new members.

  • Premiums paid by the employer are a tax deductible expense for the employer
  • Premiums paid by the employer on behalf of an employee are considered a taxable benefit for the employee
  • Employee premiums for group life insurance are paid with personal after-tax income, premiums are not tax deductible
  • Death benefits are tax-free to the named beneficiary

Group creditor insurance is contained in a contract between an insurance company and a financial institution that is in the business of making personal loans. The insured individual is the borrower who has elected to pay for the coverage. This is considered a group contract because the financial institution is the policyholder and the borrower who chooses to buy the insurance is the member.

The benefit, at any time during the coverage period, is the insured borrower’s outstanding debt to the financial institution. The plan beneficiary is always the financial institution.

Benefits are payable due to the borrower’s death or disability and, in the case of some credit cards and personal loans, unemployment.
Coverage can be for any personal loan including mortgages, personal loans, line of credit or credit cards.

The individual chooses whether to be covered for life, disability or unemployment.

The premiums are included in the regular loan repayments.

For disability, benefits are payable during the period of disability only. Outstanding indebtedness remaining after recovery again becomes the responsibility of the borrower. Similarly, benefits for unemployment are only payable during periods of unemployment up to a specified duration.

Application for creditor group insurance is fairly simple and is marketed by the financial institution at the time the loan is procured.

The premium rates for creditors group insurance are not comparable to group insurance under employer/employee plans as the amount of creditor insurance decreases the longer the borrower remains insured.

For disability claims, the duration of the coverage may be limited to the period of time for which the loan’s interest rate is guaranteed, not the entire term of the loan. This is a critical point for borrowers who renew their mortgages every few years.


The provisions allowing an insured member to designate the beneficiary are a fundamental part of a group contract that pays out benefits provided by group life insurance plans. The contract must provide an employee with the right to name the beneficiary who will receive the death benefit when a claim is made (e.g., upon the death of the life insured — plan member or insured member of his or her family).

Certain types of life insurance, however, place restrictions on who can be designated as a beneficiary, (e.g. only the employee can be named the beneficiary under dependant life insurance).

The employee is allowed to change the beneficiary at any time, except in the rare situations where the beneficiary designation is made irrevocable. In Quebec, designation of a spouse as beneficiary is automatically considered irrevocable, unless otherwise stated.


An insured person has 31 days after termination of employment or after ceasing to be a member of the group to apply for conversion of the benefit under the group contract to an individual policy regularly issued by the insurance company at that time. The conversion can be exercised without submitting any evidence of insurability. This may be in the form of term to age 65 or a one-year convertible term policy, but not any other type of term insurance (YRT). For this policy, the individual pays a standard applicable rate charged by the insurance company for individual policies based on age and level of protection.

The level of coverage provided by an individual policy cannot be greater than the amount of life insurance the employee was covered for under the group plan at the time of termination, or $200,000, whichever is less.

The conversion option is rarely exercised. It may simply stem from the fact that many terminated employees receive new group coverage when they find new employment. Others balk at the higher premium cost of the individual insurance policy relative to that of group life. The insurers have not encouraged the conversion privilege, since employees who exercise this privilege do not submit evidence of insurability and are potentially poorer risks.

NOTE: Some group plans also offer the conversion privilege for group long term disability coverage.


If, for any reason, there is a misstatement of the age of an employee, the benefit amount to which the employee is entitled is then changed to correspond to the benefit amount stipulated in the schedule of insurance for the actual age. The premium will also be adjusted accordingly.

Whether the plan is contributory or not, the contract holder (e.g., the employer), not the individual employee whose age was misstated, is responsible for making up the shortfall in premium where the age is understated. If the age is overstated, the employer has the right to a refund.


Group contracts generally stipulate that the death benefit is payable in a lump sum, unless an alternative method is chosen. If an employee did not elect a benefit settlement method prior to his or her death, the beneficiary then has a choice among any number of options made available through the insurer.

Apart from the lump sum method, other options in settling a life insurance claim are provided by insurance companies to beneficiaries, such as:

  • The death benefit amount can be left on deposit with the insurance company and will earn interest, based on rates available at the time. It must be made clear that the funds, however, may be withdrawn in full at any time by the beneficiary without penalty
  • The death benefit amount can be paid in installments over a specified period
  • Periodic installments can be calculated and paid as part of a life income option, where the benefits are paid over the lifetime of the beneficiary. A guarantee provides for continued payment of benefits to a secondary beneficiary or an estate, should the beneficiary die before collecting the full death benefit sum

The fundamental purpose of group insurance is to provide groups of individuals with insurance protection against various types of losses. There are four main types of insurable groups within the marketplace:


Also known as employer/employee groups. This is the most prevalent type of group. Such a group covers the employees of one employer. The employer is the policyholder and the covered employees are the certificate holders.



Consisting of individuals who share a common factor, but who are not all employees of the same employer. There are two types of association groups:

Associations of Employers or Franchisees


The group plan covers the employees of several employers who are members of the association (e.g., The Canadian Automobile Dealers Association).

The association-sponsored plan operates like a series of employer/employee groups. This type of plan offers the individual groups more generous benefits and more competitive rates than they could obtain individually, because of the greater volume of members compared to single-employer groups.

Associations of Individuals


Individuals can enroll and receive similar benefits to those available from a standard group plan. Enrollment is voluntary and, as there is no employer, the members pay the entire premium. Rates and underwriting are more similar to those of individual plans, rather than more traditional group plans. The most common plans are associations of individuals from the same profession (e.g., engineers, accountants, and physicians).


Normally a multi-employer group plan (“MEP”) is set up as a result of a collective bargaining process between a union (or a local of the union) and the employers of the union members. This type of plan works especially well in situations where the members move frequently among different employers (e.g., a plumber may work for several builders during the building season). It is common for an MEP to be established under a trusteed arrangement (meaning that the administration of the plan is handled by an independent third party under a trust agreement).


A group contract is entered into between the insurance company and a financial institution in the business of making personal loans. The group plan insures the loans, either through life or disability insurance. The borrower chooses to take the coverage and pays the premium as a portion of the regular loan payment. The financial institution is the policyholder and the individual borrower is the certificate holder. The proceeds of the insurance policy are normally made payable to the lender (the financial institution) to ensure that the borrower’s obligation to the lender is discharged, in the event of disability or death. Coverage can be for any type of loan, including mortgages, personal loans, lines of credit or credit cards.


The employer, as the policyholder, makes the final decisions in designing the group health and dental plan. In doing so, the employer works with two partners; the broker (who advises the employer) and the insurer (who provides the benefits and outlines the parameters of the benefits that it will underwrite). There are a number of areas to consider in designing such a plan and decisions to be made in each area as to what best suits the employee group and what can be afforded.

Below are the main areas to be considered and common choices many employers would select.


Areas of Choice Typical Group Plan Choices
Drug Plan • Pay-direct drug card

  • $5 deductible per prescription
  • Generic drug option
    • Semi private
  • No deductible
  • Maximum $150 per day, 90 days hospitalization
    Extended Benefits
    • Deductible: Single $25, Family $50
  • Coinsurance: 90%
    Paramedical Benefits
    • $300/ year maximum per practitioner
      Vision Care
    • Maximum $250/two years

Areas of Choice Typical Group Plan Choices
Dental Care Plan • Deductible: Single $25, Family $50
Basic Services • Coinsurance: 100%

  • Maximum: Unlimited
  • Includes periodontal and endodontic services
    Major Restorative
    • Coinsurance: 60%
  • Maximum: $1,500/year
    • Coinsurance: 50%
  • Maximum: $2,000 lifetime




A comparison of the basic principles of group and individual insurance contracts follows:


Group Insurance Individual Insurance


Life Insurance



  • Contract in the name of the policyholder who is responsible for the policy
  • Members are covered by class, not named in the contract
  • Contract does not terminate when member terminates
  • Contract in the individual name of the insured
  • Contract terminates when individual terminates coverage


  • By the policyholder or designee
  • Includes additions, terminations, premium payment, claims administration
  • Individual responsible for premium payments, other changes such as address change, etc.


  • Because of spread of risk and anti-selection rules, much, if not all, of coverage is sold without medical evidence
  • Plan design allows streamlined underwriting, e.g., all benefits terminate at age 65
  • Each contract is medically underwritten
  • More stringent underwriting if policy is non-cancelable


  • Policyholder designs the plan, makes changes and can terminate the plan
  • Members who are covered do not have these choices
  • Individual can make any choices available from the insurance company

Amount of Coverage

  • By class, e.g. Senior Managers covered for 2X annual earnings
  • Chosen by the individual, dependent on need and affordability


  • By group, e.g. all life insurance at $0.09/$1,000
  • Rates per $1,000 of coverage depend on the individual’s age

Termination of Coverage

  • On termination of contract, termination of employment, death
  • When individual terminates contract, death

Conversion Privilege

  • Has to be part of coverage, minimum conversion offered Term to 65
  • Optional at an additional premium

Beneficiary Designation

  • Same as individual
  • As per legislative requirements

Type of Plan

  • Yearly renewable term
  • Complete choice by individual dependent on personal or business need





Amount of Coverage

  • Many salary continuance plans link the benefit payable to the employee’s tenure with the organization such as an increasing percentage of earnings depending on length of service
  • Amount of coverage determined based on underwriting assessment of individual’s needs

Elimination Period

  • Benefits may start from three to seven days or from day one if the disability is caused by function of the accident
  • The elimination period is determined during underwriting and is an occupation class and premium


  • Standard rate for each employee class based on rating of group
  • Determined based on the age of the insured, the amount of benefit, the benefit period and the elimination period

Termination of Coverage

  • When employment ceases or group plan terminates
  • May be age 65 unless premium payments cease earlier

Definition of Disability

  • The definition of an eligible disability under an STD benefits plan is usually tied to the employee’s inability to perform any or all aspects of his/her normal occupation
  • Depends on occupation class and other aspects of coverage applied for





Amount of Coverage

  • The monthly benefit is usually a percentage of the employee’s pre- disability earnings
  • Amount of coverage determined based on underwriting assessment of individual’s needs

Elimination Period

  • The qualifying period for LTD benefits typically dovetails with the benefit period under the salary continuance or STD plan. Qualifying periods for LTD benefits generally range from four months, equivalent to the duration of the EI benefit, to 52 weeks
  • The elimination period is determined during underwriting and is a function of the occupation class and premium


  • Standard rate for each employee class based on age of rating of group
  • Determined based on the insured, the amount of benefit, the benefit period and the elimination period Termination of coverage
  • When employment ceases or group plan terminates
  • May be age 65 unless premium payments cease earlier

Definition of Disability

  • May stipulate that the claimant is unable to perform the regular duties of his/her occupation and after the disability continues for a specified period of time, is unable to perform the duties of an occupation to which he or she is suited by reason of education, training or experience
  • Depends on occupation class and other aspects of coverage applied for

Extended Health and Dental Premium

  • Standard rate for each employee class based on rating of group and the benefits provided
  • Rates for the individual based on coverage and benefits requested.
    Amount of Coverage
  • Based on benefits provided, deductibles and coinsurance and reimbursement for claims submitted
  • Based on benefits provided, deductibles and coinsurance and reimbursement for claims submitted
    Termination of Coverage
  • When employment ceases or group plan terminates
  • May be age 65 unless premium payments cease earlier


The increasing professional and personal demands of modern-day living have given rise to non-traditional employee benefits, such as “employee assistance” and “wellness” programs, that are designed to address employee health and well-being. The concept behind both programs is that a happier and healthier employee is a more productive employee and one who is less likely to use disability and health care benefits.

At any given moment, about one in five employees in an organization suffers from too much stress in dealing with personal problems, and this can affect job performance — unless some sort of intervention takes place. One such means of intervention is the employee assistance program (EAP).

There are many employers who still restrict their benefits plans to traditional group benefits. However, this attitude is changing. In a recent survey on employee benefits costs in Canada, it was found that approximately 34% of employees and their family members were provided with access to EAPs.

Troubled employees are prone to increased absenteeism and reduced productivity and they also have more serious on-the-job accidents. This, in turn, drives up the costs of health and disability benefits, lowers employee morale since co-workers are forced to pick up the slack and increases staff turnover, which has a negative impact on the employer’s bottom line.

Alternatively, an employee who uses an EAP may be able to bring job performance back into line. In addition, use of an EAP prevents a covered person’s physical and mental condition from deteriorating to the point where they have to claim for health care benefits and (for employees only) short-term disability and long-term disability benefits. An EAP is no longer viewed as a fringe benefit, but has become a major component within a comprehensive program to control benefit expenditures and to improve employee health. Confidence in the efficacy of EAPs is so strong that some insurance companies offer discounted long-term disability rates to those employers who offer their employees EAPs.




An EAP is a program of systematic interventions in the workplace that is designed to:

  • Promote health in the workplace, using a wide range of health promotion strategies aimed at employees who have little risk of personal problems affecting their job performance;
  • provide covered persons who are just beginning to experience personal difficulties with some means to voluntarily access needed care or assistance; and
  • provide employers with an alternate option to the organization’s normal disciplinary procedures for dealing with employees whose job performance is at an unacceptable level due to a serious problem and who may be unwilling, or unable, to take advantage of preventive resources.

EAPs assist the employer, the employee and the employee’s dependants. They can be accessed voluntarily by the employees dealing with problems that have not yet affected job performance. As well, an EAP provides employers with an alternative to solving job performance problems and, in many cases, saves otherwise productive and talented employees.

Traditionally, the responsibility for dealing with an employee’s problems fell on the individual employee, the employee’s immediate family or on community resources. Today, government cost-shifting has left many gaps in this support. Employers, recognizing the potential negative impact on productivity and, ultimately, the bottom line, are increasingly willing to help employees deal with their problems.

As the following statistics illustrate, it makes good business sense to provide EAPs:

  • An estimated 10% to 20% of Canadian workers abuse alcohol and drugs, which creates problems that cost businesses between one billion and three billion dollars each year; and
  • emotional problems account for 20% to 30% of employee absenteeism and up to 50% of industrial accidents

An EAP can be provided in one of two ways. Large employers prefer to develop their own EAP, providing an on-site program that operates through an employer’s human resources department or occupational health and safety department. Alternately, many employers consider it more cost-effective to implement an off-site EAP. With the emergence of specialty providers and health care networks that specialize in developing EAPs, off-site programs can adequately service employers by offering covered persons access to a wide range of services without the employer having to absorb the necessary start-up and overhead costs of developing an in-house program.




An increasingly popular addition to EAPs are wellness programs that aim to educate workers about controllable lifestyle health risks and to promote health and fitness through programs focusing on fitness and exercise, nutrition and weight management, smoking cessation and stress management.




There are four basic types of services that should be included in an EAP:

  • Crisis intervention, which includes 24-hour toll-free hotlines 365 days a year and telephone counseling services, drop-in centres and self-help groups, such as Alcoholics Anonymous;
  • outpatient services, which include assessment, diagnosis, information, education and ongoing treatment for a variety of problems most likely to arise in a particular workplace. Services include counseling on marital and mental health problems and alcohol and drug dependencies;
  • inpatient services, which provide intensive treatment for employees with severe problems. Treatment is provided to stabilize the problem until long-term help can be put into place; and
  • self-help groups, which each focus on a specific problem and which are set up and operated by individuals who have overcome a similar problem, in order to provide ongoing support in coping with problems such as alcoholism and divorce. Self-help groups should not replace needed professional treatment.

There are a broad number of categories of problems that are open to treatment under an EAP, such as:

  • marital problems
  • mental health problems
  • alcohol and drug dependency
  • personal and emotional concerns
  • single-parent issues
  • elder-care issues
  • stress and anxiety
  • poor personal or work relationships
  • financial issues
  • legal issues
  • trauma response services

Formalizing and publishing policies and procedures is essential for the success of an EAP as it clarifies both the responsibilities of the employees and the employer. A comprehensive document should include:



At the very inception of an EAP, it should be well communicated that the program is designed to assist employees with problems affecting their job performance, but that the employee is still responsible to perform at an acceptable level. Employees must understand that the use of an EAP will not shield them from disciplinary action, where required, nor will use of an EAP hurt their job security or chances for promotion.


This is essential at every stage in the use of an EAP. No one other than those involved with assisting the employee should be made aware of the employee’s problem


Most EAPs are based on either voluntary referrals, where the employee contacts the EAP on their own, or on “assisted referrals,” where a colleague, supervisor or other concerned individual encourages the employee to use the EAP.


This is required in order to clarify what the employees may expect in terms of services available under the program.

When an insurer underwrites an EAP, the program’s services are paid for by monthly premium payments that are usually experience-rated, in which the premium rate is based on the utilization of the plan. The premium rate is adjusted on a yearly basis, depending on whether the program’s use is above or below expected levels. This type of EAP can be administered by the insurer itself, the employer, but is most often supplied by a specialty provider.


Perhaps, the most important feature of an EAP is confidentiality. Not even the most comprehensive EAP will attract employees if there is any indication that an employee’s problems and the services they will use will not be kept confidential. Few employees, if any, will use an EAP if there is fear of reprisals or an invasion of privacy. Without confidentiality, the EAP will lose credibility and will not be viable.

The names of employees are not released to the employer. Every aspect of the referral process is conducted by professionals who are bound by confidentiality rules. Any information about the employee’s progress under treatment is governed by legislation protecting an individual’s right to privacy and that allows release of information only with the employee’ consent. Information that is released to an employer is strictly statistical program utilization data, such as the age of plan users, the services used, the frequency of usage, the number of cases resolved and the types of personal problems for which assistance is sought. In addition, effective programs formalize their policies and publish them, communicate them to employees, while demanding that the EAP staff strictly follow confidentiality procedures.

The delivery of the key components of EAPs is instrumental in the success of any program. In summary, these key components are:

  • confidentiality;
  • availability (24-7-365); and
  • accessibility (toll-free-service).


The way in which a group’s claims and expenses are paid for is known as “funding” the group plan.
There are a number of funding mechanisms available.




A fully insured group plan is a plan for which the insurance company bears the total risk of paying claims. A fully insured plan is the traditional funding arrangement for group.

For example, even if the dollar amount of the claims submitted exceeds the dollar amount of the premiums collected, the insurer must pay the full claim. The client is not required to pay the difference to the insurer. On the other hand, if the group experiences fewer claim expenses than anticipated, the insurer retains the surplus. No refund is paid to the client; therefore, “non-refund” accounting.




A refund (retention) accounting group may be said to be a prospectively rated group that chooses to share in its financial results. In terms of the renewal rating process, there is essentially no difference between a prospectively rated group and a refund (retention) accounting group. Premium rates for both plans are based in varying degrees (depending on plan credibility) on their own experience. The main difference between the two methods lies in the financial accounting process. A prospectively rated group, although rated on its own experience, is still pooled in that it does not share in the plan results, whereas a refund (retention) accounting group is rated on its own experience and shares in its experience results. The terminology tends to get a bit confusing at this point, because some insurers refer to a retention accounting group as an experience-rated group, since the plan’s experience is used to determine any refunds. Others refer to this arrangement as a refund accounting group.

Refund accounting provides employers with a means of participating in the financial results of a group benefits plan. When a plan is performing well, an employer can benefit from the plan’s good performance through refunds (also called dividends). Conversely, when a group benefits plan’s experience is unfavourable, the insurance company is presented with an opportunity of recouping the shortfall through the renewal rating process.

Insurance companies normally have minimum requirements with respect to the size of the group and the premium generated by the group benefits plan. These requirements vary by line of benefit and are related to the volatility of the benefit – the more volatile or unpredictable the benefit, the higher the size and/or premium requirement for refund accounting arrangements.

Since health care, dental care, and short-term disability claim amounts per occurrence are relatively small (in comparison to the life or long-term disability benefits) and the incidence of claims is high, insurance companies are in a better position to predict expected claims levels. For these benefits, refund (retention) accounting is typically offered to groups of 150 lives or more, generating at least $100,000 in annual premium. However, the criteria for refund (retention) accounting for the life and long-term disability benefits are much higher – typically, three times the minimum annual premium required for health and dental care, given the relatively higher claims amounts, lower incidence, and greater liability involved. Insurers will be more flexible in offering refund (retention) accounting for life and long-term disability benefits when the average amount of insurance for the group is low, usually expressed as a flat amount per person.




Premium or renewal rates are determined in the same manner as a prospectively rated group, that is, premium rates are based on the group’s own experience. However, a specific margin for deficit recovery, should the plan be in a deficit position, may be added to the renewal rates in recognition of the employer’s agreement to address plan deficits as part of sharing in the experience results.

One method that insurance companies employ to address potential plan deficits for groups using refund accounting is the establishment of a claims fluctuation reserve. The claims fluctuation reserve or CFR (also referred to as the premium stabilization reserve/fund or rate stabilization reserve/fund) is a fund established by the insurance company from plan surpluses for the primary purpose of offsetting a deficit. A portion of, or the entire surplus, generated by a plan in a favorable year is allocated towards funding the CFR. This provides the insurance company with some form of protection against shortfalls resulting from future unfavorable experience and the possibility of the plan terminating in a deficit.




In the course of sharing in the financial or experience results of the plan, the employer undertakes to address any deficits incurred while the plan is in force. Because the employer has no legal or contractual liability for the deficit, it can terminate the plan and, in effect, walk away from the deficit. A refund (retention) accounting plan is still an insured plan regardless of the experience sharing and the insurer is ultimately at risk for claims incurred (and any terminal deficits) while the plan was in force.

Insurance companies typically establish group insurance premium rates on a case by case basis: the rate for each group is individually established to be sufficient to pay the group’s claims and administration costs, with a mark-up to provide for a profit margin for the insurer. Unlike individual insurance rates, the premium rates for group coverage are recalculated every year.

The rates charged to any given group are computed using one of three approaches: manual rating, experience rating and blended rating (a combination of manual and experience rating).




Manual rates are premium rates established upon examination of an insurance company’s claims experience for its entire block of business (the pool) and the average claim incurred for each grouping of age, sex, occupational class, and area (geographical location) for a particular group insurance product. Manual rates are also established based on the group’s own demographics, especially for life insurance and long-term disability benefit.

The pricing of group insurance products is a complex and highly technical process that is further complicated by the number of variables that can come into play. Pricing methods and techniques vary considerably by insurer, as do tables of base rates and adjustment factors used in the calculation of group manual rates and methods used to analyze the experience of a group. Because there is no single pricing method that is common to all insurers, only basic concepts and general principles of pricing are considered. When pricing group insurance, the insurer must consider:

  • How often a claim will occur
  • the cost of an incurred claim
  • the amount the insurer needs to cover the expenses it incurs servicing the contract holder
  • the amount of anticipated profit from the group benefits plan; and
  • applicable taxes


In the above list, the last three items are known entities. The insurer knows from its own experience the cost of doing business. The insurance company sets its own profit targets for each line of business. The provincial and federal governments dictate the levels of premium tax and whether or not other taxes such as sales tax are applicable to the various group insurance products. But how often a claim will occur and how much it will cost are largely unknown at the time a group benefits plan is being priced. The insurer will have to analyze the group and use a fixed set of assumptions to determine the expected claims experience. For each group insurance product, this fixed set of assumptions forms the basis for measuring the risk present in any group. This measurement of risk is called underwriting, a process through which group insurance is priced. The pricing of group insurance is wholly related to the frequency and amount of claims incurred. The net premium rate is a function of how often claims occur and how much claims cost. The gross premium rate includes the net premium rate plus administration expenses, risk charges, profit margins, and premium taxes. Administration expenses are classified into two categories:

  1. general administration; and
  2. claims administration.

General administration: These expenses typically include:

  • The commission paid to brokers and consultants
  • the cost to produce the group contract
  • the cost to print employee booklets, administration manuals, and claim forms
  • the cost to add the group to the administrative and claims-paying systems
  • the cost to administer premiums on a monthly basis; and
  • the cost to service the group on an ongoing basis.

Claims administration: These expenses are related to the cost of paying claims. A risk charge is levied by the insurer to cover the losses of a group terminating coverage in a deficit position. Group insurance products earn profit in the form of a profit margin built into the expenses charged to the employer. The combination of some benefits and the applicable funding arrangements may allow the insurer to establish conservative claims assumptions that exceed actual claims experience, thereby generating a profit. However, group insurance exists in a very competitive marketplace where all aspects of its cost are subject to scrutiny. Taxation impacts the cost of group insurance differently in every province and territory. Every province and territory charges premium tax applicable to all group insurance products.

Ontario, Quebec, and Newfoundland apply this premium tax to the claims

and retention arising from uninsured administrative arrangements as well. Ontario and Quebec also apply the provincial sales taxes to insured and uninsured plans. There can be tremendous variations in the rates for any group insurance benefits. Variations in plan design and composition of the group are two major factors that affect the pricing.
Example: The Wiley Widget Manufacturing Company (“Wiley”) has been in existence for 11 years now. It has 83 full-time employees. Wiley, for the first time, is considering implementing a group life and health plan for its employees, and has approached the Reliable Insurance Company (“Reliable”) for a premium quote. Reliable is likely to establish premium rates for Wiley by using a manual premium rating method (using Reliable’s own data for similar-sized groups in the manufacturing field), since Wiley has no past claims or expense experience of its own on which to base assumptions regarding future claims.




Premium rate determination or renewal rating is the method of setting the premium rate at a level that will support the emerging claims experience and projected expenses of a specific benefit. Rates can be determined on the basis of the actual claims experience of an individual group or employer, hence the term “experience rating.” Because past claims experience is used to project future rates, this method is sometimes referred to as “prospective rating” Premium rates may also be determined on the basis of the collective experience of a group or pool of employers, in which case the benefit is said to be pooled. In summary, several factors must be considered in the determination of the most suitable underwriting method for each employer. The employer has to decide on the extent of the financial liability it is both willing to assume and capable of assuming and whether or not it wishes to share (assuming the insurer’s criteria for financial participation are met) in the financial results of the group benefits plan. The employer generally does not have a choice as to the method of premium rate determination since insurers establish their own guidelines for the renewal rating of benefits. However, assumption of risk by the employer may allow it the discretion to influence some of the variables that affect the calculation of renewal rates and, hence, the renewal rates themselves. The most common underwriting methods available in the marketplace today are:

  • Fully pooled;
  • prospective rating/experience rating;
  • refund (retention) accounting; and
  • administrative services only.

A fully pooled method of underwriting is the most appropriate arrangement for small groups. The pooled basis is also appropriate for those types of benefits where the incidence of a claim is low but the amount of claim is high, irrespective of the size of the group. Such is the case for life insurance, accidental death and dismemberment, and long-term disability benefits. Because of the low incidence of claims against these types of benefits, it is more meaningful for insurance companies to analyze the experience for their entire block of business to determine the required premium rates. A prospectively rated group is similar to a fully pooled group in all respects except for the renewal rating basis. Unlike pooled groups, premium rates for a prospectively rated group are determined in whole or in part on the group’s own claims experience; hence, a plan that is rated on this basis is sometimes also referred to as an experience-rated plan. The term “prospectively rated” stems from the fact that renewal rates are applied prospectively, that is, to future contract or policy periods.

Example: If Wiley (above) had a group plan in place for the past 8 of its 11 operating years, given the size of the group, Reliable would likely use experience rating to quote group insurance premiums for the company.




The degree to which a group’s experience can be used to determine its rate is called the credibility factor. By combining the claims experience of similar size groups into one pool, insurance companies are able to create a more meaningful basis to set premium rates and to apply credibility to that group’s experience as a whole. One distinguishing factor of the fully pooled rating approach is the fact that the past experience of a benefits plan itself does not affect its premium rates. If a benefits plan’s own experience has been unfavorable in one contract period (usually every 12-month period after the inception of the plan) but the majority of the groups in the pool in which it belongs has had favorable experience in that same period, then it is likely that the benefits plan’s premium rates will be decreased or at least maintained for the following contract period. Conversely, the group might be subject to an increase in premium rates if the pool as a whole has had unfavorable experience albeit an individual group itself did well in the same period. In other words, the rate for the group is based on the insurance company’s manual rates.

Example: A short-term group disability insurance plan requires 250 employee years of experience for the past experience to be considered to be 100% credible. One year of experience for a 250-life group, or 10 years of experience for a 50-life group would each be fully credible. Three years of experience for a 50-life group would be 67% credible, and so on.




Based on the size of group and the availability of historical claims experience, a group’s experience may be used to determine only a portion of the renewal rate. The degree to which a group’s experience can be used to determine a renewal rate is called the credibility factor. Insurers will use their own formulae to determine this f tor. For groups with a credibility factor less than 100%, the renewal rate will be a blended rate comprised of the manual rate and the experience rate.

Example: If Widget’s claims experience data was only 60% credible, Reliable would probably set its rates using 60% experience rates and 40% manual (table) rates.

The decision of which rating system is used with a given group is a function of the characteristics of the group and the preference of the individual insurer.

Example: A short-term group disability insurance plan requires 250 employee years of experience for the past experience to be considered to be 100% credible. One year of experience for a 250-life group, or 10 years of experience for a 50-life group would each be fully credible. Three years of experience for a 50-life group would be 67% credible, and so on.

An administrative services only (ASO) plan is essentially a self-funded plan. The employer is exclusively liable for all financial (claims and related expenses) and legal aspects of the group benefits plan; hence, there is no insurance under an ASO plan. In a true self-funded plan, the employer would also be responsible for the administration of the plan; however, an employer generally does not have trained personnel to handle the claims adjudication and payment process and, therefore, enters into an ASO agreement with an insurer to administer the plan. Nevertheless, there is still no element of insurance in this type of arrangement since the insurer simply acts as the administrator of the plan.

An ASO arrangement is typically offered on health care, dental care, and short-term disability and less frequently on long-term disability benefits. Because of the high degree of risk associated with the life benefit (high claim severity or large coverage amounts) and the taxability to the beneficiary of a death benefit in excess of $10,000, it is rare for employers to provide life insurance on an ASO basis.


An ASO plan can be billed in advance through monthly deposit levels or billing rates common to a traditional insured plan. The advantage to the employer is that funding of the plan is level throughout the year, which is why plans funded in this manner are sometimes called budget ASO plans.

An ASO plan can also be funded through one of several billed-in-arrears arrangements. Because payments are based on actual paid claims and costs, the employer faces potential fluctuations in cash flow from periodic fluctuations in claims. Described briefly below are two billed-in-arrears arrangements:

monthly billed in arrears (non-automatic fund transfers); and
automatic fund transfers (AFT).
Monthly billed in arrears (non-automatic fund transfers): Claims and expenses are reimbursed through a cheque payment in the following month. There may or may not be an advance deposit or operating fund from which the administrator (insurer) can pay claims. Some administrators may insist on having an operating fund to facilitate claims payments.

Automatic fund transfers (AFT): Billing in arrears can be done through automatic fund transfers from the employer’s account on the basis of cheques issued (most common basis) and costs, or cheques cashed (rarely offered by insurers) and costs. Reimbursement is typically done on a daily or monthly basis. For plans that are billed in arrears on a cheques-issued basis, daily reimbursement can be done with or without a claims lag (typically two to five days). One advantage of an AFT cheques-issued arrangement on a daily reimbursement basis is the zero cash flow – hence the term zero-based accounting.


A renewal rating is not necessary for ASO plans that are billed in arrears. For plans that are billed in advance through level monthly deposits or unit rates, renewal rates are determined using the experience-rated approach. Insurers are more flexible in their renewal rate requirements for ASO plans because they are not at risk. However, although the insurer assumes no liability for the plan, potential losses from the employer’s inability to repay any plan deficits can be minimized by setting deposits at a level that will support plan costs.


An ASO plan falls into the category of a refund or retention accounting plan in that an annual financial statement is prepared to reconcile deposits, claim payments, administrative expenses, applicable taxes, and cash flow interest. There is greater leeway in the treatment of plan surpluses or deficits because the insurer has no financial liability – the employer is fully liable for any plan deficits. Plan surpluses are credited with interest and may be refunded in full to the employer or carried forward as a positive balance into the next accounting period at the discretion of the employer. When an ASO plan (usually budget ASO or non-automatic fund transfer plans) is in a deficit position, the insurer faces a potential risk only in the event of bankruptcy of the employer.

This risk is related to the inability to recover funds advanced by the insurer to pay claims and is not related to liability.


There is no element of insurance in an ASO arrangement since this type of plan is essentially self funded or self-insured. The employer bears the full liability for all claims incurred under the group benefits plan and assumes the legal responsibility for claims litigation. Under an insured plan, any lawsuits would be directed against the insurer; under an ASO plan, lawsuits instigated by unsatisfied claimants would be directed at the employer.


The deductible and co-insurance features in the group health care plan are very common as employers attempt to share costs with employees. Deductible and co-insurance features of a plan also aim to inhibit unnecessary utilization of plan benefits and the submission of claims for very small amounts.


A deductible is an amount of eligible health care expenses a covered person must incur before any reimbursement is payable for the eligible expenses in excess of that deductible. The deductible comes in two forms:

A calendar year deductible, and
a per prescription deductible.

Coinsurance is the percentage of eligible expenses above the deductible that is eligible for reimbursement


Health care plans will pay a specified maximum amount of benefits for an eligible employee and each of their dependants. Benefit maximums define the maximum amount of benefits that may be paid on behalf of any one eligible person covered by the plan.

There are two types of benefit maximums:

an overall maximum, and
an internal maximum.
All plans have an overall maximum, even if the stated maximum is “unlimited.” Overall maximums of $5,000,000 are common but some old contracts may still have an overall maximum of 1,000,000.

Internal limits are benefit maximums that may be applicable annually, or every two years, or that may be applicable over the eligible person’s lifetime, depending on the type of expense. Each internal limit is applied separately to a specific benefit. These are designed to protect the health care plan by discouraging abuse of utilization or disregard for the cost of benefits. For example, vision care benefits are normally subject to a two-year maximum, out-of-country coverage is subject to a lifetime maximum and hearing aids are subject to a five-year maximum.

Limitations and Exclusions of an Employer-sponsored Group Accident and Sickness Plan

Group health care plans are integrated with hospitalization and other medical services and supplies covered under provincial health care plans and do not pay for benefits relating to claims covered under Workers’ Compensation.

While the situations in which benefits are not payable vary from one health plan to another, such plans typically incorporate exclusions stipulating that no benefit will be paid:

if any such payment is prohibited by law;
for any services or supplies that a covered person may obtain as a benefit under any provincial health insurance plan;
for any services or supplies for which no charge would have been levied in the absence of coverage;
for any services and supplies associated with a covered item but not specifically listed as eligible for coverage in the contract;
for services and supplies received outside of Canada, except for those that are covered and provided under the out-of-country provision included in the group contract;
for expenses resulting from intentional self-inflicted injury;
for expenses resulting from the commission of a criminal act by the covered individual;
for expenses resulting from voluntary participation in a war, insurrection or riot;
for expenses resulting from injuries suffered while serving in the armed forces; and
for experimental drugs and medical procedures or treatments.

A Pre-existing Condition clause may exclude or limit any amount payable relating to a condition that existed prior to the start of the coverage.

Example: The insured received medical treatment, consultation, care or services including diagnostic measures, or took prescribed drugs or medicine in the 3 months just prior to the effective date of coverage; or had symptoms for which an ordinarily prudent person would have consulted a health care provider in the 3 months just prior to the effective date of coverage; and the disability begins in the first 12 months after the effective date of coverage.

Dental plans will have a list of covered expenses and those that are not covered. As well certain treatments may be covered to a maximum amount only. For example a dental plan might not cover the installation of crowns or it might limit the amount the plan will pay for any procedure in which the dentist installs a crown.


The coordination of benefits (COB) provision was developed by the Canadian Life and Health Insurance Association (CLHIA). The provision comes into play in circumstances where an individual is provided with group health or dental benefits under more than one plan. Typically, this would occur where an individual is covered under his or her own group plan and is also covered by a spouse’s group plan. The COB guidelines ensure that the insurance companies involved in the group plans have a consistent and fair method of administering these claims and to ensure that the insured cannot collect benefits greater than 100% of the eligible claim.

The coordination of benefits guidelines provide that the primary carrier (determined to be the insurance company that will pay benefits under the claim first) shall be responsible for paying that portion of the claim provided for under its ordinary claims rules (allowing for deductible and co-insurance factors).

The secondary carrier (the carrier that is not determined to be the primary carrier) is required to pay the lesser of:

The difference between the total claim and that portion of the claim covered by the primary carrier; and
the amount of the total claim that the secondary carrier would have paid had it been the primary carrier.
A simple example might help clarify these rules.

Example: John and Marsha are a married couple. John is a member of a group insurance plan (through his employer) that provides group dental coverage with a $100 deductible and an 80% co-insurance factor. Marsha is a member of an association group dental plan that has a $50 deductible and a 100% co-insurance factor. Marsha’s plan also provides spousal coverage.

The couple’s first dental claim for the year is a $250 x-ray and cleaning bill for John.

John first submits his claim to his employer’s plan, as primary carrier (see below). The plan reimburses John $120 of his dental expenses after allowing for the $100 deductible (80% of $150 = $120). This leaves $130 of the claim unpaid.

John then claims against Marsha’s group plan (the secondary carrier). Before making a payment, Marsha’s plan computes its liability using the formula above, the lesser of:

The unpaid balance of $130; and
the amount the plan would have paid had it been the primary carrier. It would have paid $200 of the claim (the $250 claim, less the $50 deductible, with a 100% co-insurance factor.
Marsha’s plan, then, would pay the lesser of the two amounts, $130, and John would be reimbursed for 100% of the $250 dental expense ($120 from his own plan and $130 from Marsha’s).

In circumstances where the first claim of the year does not exceed the deductible of one or both insurance plans the whole claim may not be reimbursed and the deductibles for each plan are reduced accordingly.

Example: If John, above, had a first claim of only $75 his plan would not have reimbursed any of the claim, but his remaining deductible would have been reduced from $100 to $25. The whole $75 expense would have been carried over to Marsha’s plan (as secondary carrier) and her plan would have reimbursed the couple in the amount of $25 (after allowing for her plan’s $50 deductible). Her plan’s remaining deductible would have been reduced to NIL.

If there had been a second claim later in the year for John of $200 he would submit it to his carrier first. His carrier would pay $140 of the claim (allowing for the $25 remaining deductible and the 80% co-insurance factor on the net claim of $175). The entire $200 claim would then be submitted to Marsha’s plan, which would pay the balance of the expenses of $60 (the lesser of the $200 that it would have paid had it been the primary carrier and the $60 unpaid portion of the expense after allowing for John’s claim).

In cases where an eligible health or dental expense is covered under two or more plans, priority of payment (determining the primary and the secondary carriers) is based on the following rules:

Employee/claimant: the plan where the employee/claimant is an active member pays first;
Spouse: the plan where the claimant is covered as a dependent spouse pays second;
Dependent children: for claims made by or on behalf of a covered dependent child:
The plan of the parent with the earliest birth date in the calendar
year (month/day) – regardless of age – is the first payor.
If both parent’s birthdays fall on the same month and day, the plan of the parent whose first name begins with the earliest letter of the alphabet pays first (e.g., John’s plan would pay before Martha’s).
If the parents are separated or divorced, then the plans pay in the order that they appear below:
the plan of the parent with custody of the child,
the plan of the spouse of the parent with custody of the child,
the plan of the parent not having custody of the child,
the plan of the spouse of the parent not having custody of the child.

Health care plans with accidental dental coverage pay first for accident-related dental treatment, before dental care plans.
Secondary insurers will require copies of the receipts and an explanation of the benefit from the first payor.


Virtually all group plans contain a mandatory component of group life insurance. Plans also generally contain provisions for optional additional insurance on the life of the plan member and limited coverage on the member’s family. These and other elements of group life insurance are discussed below.


Basic group life insurance is provided by the group contract and, in almost every case it is in the form of yearly renewable term (YRT). This requires that the group contract be automatically renewed on an annual basis.

A group term insurance contract pays out a death benefit only, with no buildup of cash values.

Basic group life insurance plans can be either non-contributory or contributory, in which case the employee pays for all or part of their premiums through payroll deduction.


The amount of group life insurance coverage for which an employee is eligible can vary depending on the method of benefits calculation chosen by the employer.

A schedule of benefits is used to designate eligible employees under various employment classes and to determine the amount of life insurance that will be provided to the members of each class.

A benefit schedule, however, is subject to human rights legislation dealing with anti-discrimination. Class descriptions must be fairly broad and must be relevant to the plan member’s status as employees, using descriptions such as: occupation, length of service, or earnings.


The most common method of determining the amount of an employee’s insurance coverage is to base that amount on earnings, expressed as a multiple of annual earnings.

Example: Fred, a department manager, is covered for two times annual earnings: if Fred earns $44,500 then his group life insurance coverage would be $89,000.

It is important to note that an employee’s earnings include base salary only, excluding other compensation, such as bonuses, dividends or profit sharing.

Flat benefit schedules are commonly used among union – groups covering hourly paid employees. They are also preferred by employers who wish to provide only a minimum amount of life insurance to all employees. Generally the benefit is relatively small, such as $10,000 or $25,000.


There is always a limit to the amount of life insurance coverage issued to a member, in order to limit the risk of the insurer in relation to the size of the group plan. The maximum amount of insurance reflects the number of employees covered by a group contract and the average benefit amount per employee. Limits are placed on the benefit amount that high-earning employees can receive, in order to reduce the possibility for adverse selection.

Most group contracts do not require evidence of insurability from individual plan members.

There are certain situations when an eligible employee must provide such evidence:

The amount of coverage is in excess of the predetermined non-evidence limit;
The insurance is not applied for within 31 days of the member becoming eligible; or
an employee drops coverage and later wishes to rejoin the plan.
The type of medical evidence required is at the discretion of the insurance company and is based on the age of the employee, the amount of insurance applied for and any existing history that would indicate more information may be required.
Example: An employee is eligible for $245,000 and the non-evidence limit is $150,000, under her group plan. The employee submits evidence for the amounts of coverage over $150,000. If she is deemed to be uninsurable, she would receive the $150,000 of coverage, but not the requested amount above $150,000.


To address the higher cost of providing life insurance coverage to older employees, a common specification in schedules of insurance benefits calls for a reduction in the benefit amount. Reduction provisions typically are applied at the earlier of retirement or attainment of a certain age, typically 65.

Benefit reductions of life insurance coverage can be carried out in three different ways:

Coverage can be reduced by a set percentage at a certain age (e.g., life insurance coverage is reduced by 50% at age 65);
The amount of insurance can be limited to a flat amount at a certain age (e.g., the benefit is reduced to $25,000 at age 65); or
Benefits can be reduced gradually (e.g., coverage reduces by 20% per year beginning at age 65, and each year thereafter, terminating at age 70).

The monthly premium rate for basic life insurance is expressed as an average rate per $1,000 of insurance for the entire group of employees, based on the group’s average age.

The employer is responsible for submitting the total amount of premium payments for the entire employee group on a monthly basis. The premium rate is determined at the beginning of each year and is guaranteed for that year only (YRT). At renewal, a rate adjustment may be imposed, to reflect any changes that occurred in the group. Any rate adjustment will not reflect the claims experience of the group, as life insurance is funded on a manual rate, or non-refund, basis.


Group plans often provide life insurance coverage for the dependants of insured employees.

Under dependant life insurance coverage, a dependant is typically defined as:

An employee’s married spouse or common-law partner, and
unmarried children (including stepchildren and adopted children) between specified ages, usually 14 days to 21 years of age, or to 25 years of age if a full-time student who is dependent on the employee for financial support. Dependants can be covered beyond these ages if they continue to be solely supported by the employee as a result of mental or physical disability.

The benefit amount is generally a modest flat dollar amount. The spouse is covered for a flat amount and each dependant is covered for half that amount (e.g., the spouse is covered for $5,000 and each dependent child, $2,500; or the spouse for $10,000 and each dependent child for $5,000).


A single flat rate amount is used, which does not consider the number of dependants covered, nor differentiate between a spouse and dependent children (e.g., a dependant life plan which covers the spouse for $5,000 and each dependent child for $2,500 may cost the employee a flat $3 per month).


Some group life insurance plans offer a survivor income benefit (SIB) in addition to a lump-sum death benefit. This benefit has three attributes:

The employee does not name a beneficiary, since only a spouse or dependent children are eligible to receive the benefit;
it is payable in the form of a monthly benefit to the beneficiaries (i.e., an annuity); and
benefits are paid only if at least one beneficiary survives the employee.

Benefits are defined as a flat amount or a percentage of the earnings of an insured employee at the time of death, typically between 10% and 40% for the spousal benefit and a lesser amount for the dependent children. Both amounts are subject to a maximum limit. Plans may make benefits payable separately to the surviving spouse and dependent children.


An employer may offer optional life insurance coverage in addition to basic life insurance. The group contract of an optional plan provides the same term life insurance provided by that of a basic group plan, except:

The amount of coverage is elected by the individual;
evidence of insurability is required; and
the optional plan is almost always funded by employee contributions.

The coverage is usually offered in units such as $5,000 or $10,000. The employee chooses the number of units that gives him or her the amount of coverage required, e.g., if units are $10,000 and the employee wants $100,000 of optional life insurance then the employee would buy 10 units. There is always a limit on the number of units that an employee may purchase.


Optional life rates are step-rated to reflect the age of the purchaser. Because the benefit is voluntary, the participation, the ages of participants or the amounts are not known in advance. The rates would be expressed per month, per unit of coverage. The age steps would look something like: up to age 35, 36 to 45, 46 to 50, 51 to 55, 56 to 60, and each year thereafter. Optional groups also break down rate by sex and smoker/non-smoker status.


AD&D is offered by many groups to provide benefits in addition to basic life insurance coverage, in the event that an employee were to die in an accident or suffer specified injuries or losses. It is also referred to as “double indemnity coverage.” Below is a sample table of AD&D losses.

For Loss of / Benefit Amount:

Life / The Principal Sum
Both Hands or Both Feet / The Principal Sum
Sight of Both Eyes / The Principal Sum
One Hand and Sight of One Eye /The Principal Sum
One Foot and Sight of One Eye / The Principal Sum
One Foot and One Hand /The Principal Sum
Speech and Hearing /The Principal Sum
One Arm or One Leg / Three-quarters of the Principal Sum
One Hand or One Foot / Two-thirds of the Principal Sum
Speech or Hearing /Two-thirds of the Principal Sum
Sight of One Eye /Two-thirds of the Principal Sum
Thumb and Index Finger of the Same Hand / The Principal Sum
Loss of Four Fingers / One-third of the Principal Sum of the Same Hand
Hearing in One Ear / One-quarter of the Principal Sum
All Toes of One Foot / One-eighth of the Principal Sum
For Loss of Use of Both Arms and Both Legs / The Principal Sum
Both Arms or Both Hands (Quadriplegia) / The Principal Sum
Both Legs (Paraplegia) / The Principal Sum
One Arm and One Leg on the Same Side of the Body (Hemiplegia) / The Principal Sum
One Arm or One Leg / Three-quarters of the Principal Sum
One Hand / Two-thirds of the Principal Sum


The monthly premium rate for AD&D coverage is a single rate per $1,000 of insurance that is applied to all employees, without differentiating for age or sex.


“Voluntary” AD&D insurance coverage is similar in most respects to the basic AD&D coverage. Employees have the option, however, to select this additional benefit, which is commonly offered on a 24-hour basis, and employees usually pay all of the premium for this coverage.

Generally speaking, an employee may select any benefit amount in units of $10,000 or $25,000, up to a maximum. Unlike optional life insurance, because benefits are payable only in the event of an accident, evidence of

insurability is not required. Similarly, minimum participation is usually not

required as there is virtually no concern for adverse selection. A contractual overall limit on total basic and optional benefits payable (referred to as the combined maximum) is commonly imposed when voluntary coverage is available. This is necessitated by the fact that benefit amounts are selected by the employees and catastrophic claims may be incurred in one accident.

Example: Debbie Jones, an executive of SOS Finances Inc., has basic coverage for a principal sum of two times her annual earnings (two times $100,000 or $200,000). She also purchased an additional five times her annual earnings under the voluntary coverage (five times $100,000 or $500,000), for a total coverage of $700,000. Debbie got into a serious car accident, resulting in the paralysis of one side of her body. Because of the total and permanent loss of the use of her arm and leg, she is eligible for twice the principal sum under both the basic and voluntary coverage (hemiplegia is payable at two times the principal sum). However, two times $700,000 exceeds the combined maximum of $1,000,000. The amount payable by the insurance company to Debbie is therefore limited to $1,000,000.

Another provision that is sometimes included in AD&D group contracts is the aggregate limit. This provision limits the amount payable as a result of claims that may arise from more than one employee who were all involved in the same accident. For example, a group of employees of ABC Limited may be travelling to a convention on board the same airplane and that plane crashes. Without an aggregate limit, XYZ Insurance Company would have to pay the full principal sum for each employee who died as a result of the accident. With an aggregate limit that stipulates a maximum of, say, $3,000,000, total claims payable are limited to that amount.

Finally, voluntary plans also offer AD&D coverage for an employee’s dependants, again at the employee’s, expense. Like dependant life insurance coverage, the benefit amount for the dependant is relatively lower than the benefit amount for the insured employee. The amount of spousal coverage varies, usually 40%, 50%, or 60% of the employee’s coverage, and dependent children are covered for typically 10%, 15%, or 20%.

If the plan does not offer coverage to an employee’s dependants or if it provides spousal benefits without child coverage, independent of the employee benefit amount, it may be referred to as an “optional” instead of “voluntary” AD&D benefit.


Under the terms of a typical AD&D contract, a benefit is payable for death or injury that is a direct result of the accident and that ensues within a certain period of time, usually 365 days following the date of the accident.

On the death of an employee, the death benefit amount is payable to the beneficiary. For injuries, the benefit is paid to the employee.

Most group contracts specify that benefits are not payable for any loss caused by or resulting from the following circumstances:

Intentionally self-inflicted injuries, attempted suicide or suicide, whether sane or insane;
declared or undeclared war or any act of war;
full-time active duty in the armed forces of any country or international authority; and
flying as a pilot or crewmember of any aircraft.

Group disability coverage dates back to the 1920s in Canada, but had limited growth until after World War II. Spurred by the influence of trade unions and the introduction of a long-term disability (LTD) plan in the early 1960s for the federal civil service, group disability has grown over the last five decades to the point that there are now more people covered under group disability plans than under individual contracts. Contributing to this growth has been the expansion of government disability benefits included in the Workers’ Compensation, Employment Insurance and Canada/Quebec Pension Plan programs. The growth of group disability plans has made employees, unions and employers more aware of the gaps in the government-sponsored plans.

Short-term disability and long-term disability plans are technically considered “health benefits.” The annualized insured total group health premiums for 2000 were $8,035,500,000, of which the top 20 insurance companies represented 94.8%. This was an increase of 12% over the previous year.

The total insured group premiums for disability for the year 2000 were $2,560,700,000, an increase of 17% over the previous year and an increase of 28.9% over the previous three years. In the year 2000, short-term disability premiums were $490,700,000 and long-term disability premiums were $2,070,000,000.


Every group disability insurance plan has at its core a series of common components:


There are two basic definitions of disability and both relate to the individual’s ability to work.


The first definition refers to the individual’s ability to perform any occupation as a result of his or her disability. The specific wording of the “any occupation” definition typically is as follows:

“An employee is considered to be totally disabled if a medically determined physical or mental impairment due to injury or sickness prevents them from performing the regular duties of any occupation for which they are, or may reasonably become, suited to perform, based on education, training or experience.”


The “own occupation” definition of disability is linked directly to the individual’s ability to perform the major duties of his or her regular occupation and typically contains the following wording:

“An employee is considered to be totally disabled if a medically determinable physical or mental impairment due to injury or sickness prevents him or her from performing the regular duties of his or her occupation.”

Most group long-term disability contracts include a two-year “own occupation” clause for the early years of a disability with the remainder of the disability covered under the “any occupation” clause.

Example: Under the terms of one plan, individuals would receive the benefit if they were unable to perform the regular duties of their own occupation during the first 24 months of disability. In order to continue to receive LTD benefits after 24 months, they would have to be unable to perform the substantial aspects of any occupation for which they may be qualified by reason of training, education or experience.

From the insurance company’s perspective, the “own occupation” definition period is the period during which the insurance company can effectively manage and rehabilitate the individual back to their regular occupation. The “any occupation” definition requires the insurance company to perform an assessment of the individual’s ability to perform an alternative occupation that may be available, either with their current employer or elsewhere.

Example: A fully qualified tool and die maker is in an accident and sustains muscle damage to one of his arms, developing a noticeable and uncontrollable shake. He can no longer work on the equipment, especially the metal lathe; therefore, he can no longer perform the key element of his job. For the first two years, he will be considered totally disabled under the two-year “own occupation” clause. After the two years have elapsed, he may no longer be considered totally disabled under the “any occupation” clause. He could, for example, be rehabilitated to work training other tool and die makers. This is an occupation that he is capable of doing due to his training, education and experience and it would remunerate him at approximately the same level as his previous occupation.

The definition of an eligible disability under a short-term disability (STD) plan is tied to the employee’s inability to perform any or all aspects of their occupation, an “own occupation” definition. Some negotiated STD plans will include the definition of disability as an “any occupation” definition. Because of the shorter benefit period under STD, only one definition of disability will apply.


The plan design for STD or LTD benefits incorporates a qualifying period, or elimination period, during which the eligibility of the disabled employee can be determined and after which the benefits commence.


The elimination period for STD benefits is primarily intended to reduce administration on those claims that are of very short duration, such as a one-day absence from work due to illness, e.g., 24-hour flu. Most STD plans provide for payment after seven days of a sickness, or on the first day if the disability results in hospitalization or is due to an accident.


The elimination period for LTD is usually coordinated with the STD plan so that the LTD elimination period ends when STD benefits end and LTD benefits begin. For example, a very common LTD elimination period is 120 days, as this coincides with the Employment Insurance disability benefit. As the STD benefit ends, the LTD benefits begin.

For both STD and LTD benefits, the length of the elimination period has a direct impact on the costs or premiums charged by the insurance company. The longer the elimination period, the lower the risk to the insurance company, since there is a greater probability that the disabled employee will return to work prior to becoming eligible for disability benefits. Also, the longer the elimination period, the longer until the insurer will have to begin paying benefits. Therefore, the longer the eligibility period, the lower the premium rate.



Many insurance companies provide a partial disability benefit to enable disabled employees to receive benefits provided they are motivated to actively pursue reemployment. The partial disability benefit provides protection for an employee who is able to work in a reduced capacity.

The essential features of the partial benefit include:

an employee who qualifies for total disability benefit and is able to work in a reduced capacity can apply for partial benefits;
benefits are payable if, due to reduced earnings capacity, the employee’s loss of income exceeds a specified percentage (usually 15% or 20%) of the employee’s indexed pre-disability earnings; and
common partial benefit allows the claimant’s total income (disability benefit and partial earnings) to equal 75% of pre-disability earnings, after which the employee can keep 50% of partial earnings and reduce the disability benefit by 50% until total earnings reach 100% of pre-disability earnings.

Pre-disability monthly earnings: $3,000
LTD monthly benefit, 66.67% $2,000
Part-time partial monthly earnings $ 750
75% of pre-disability earnings $2,250
LTD benefits $2,000
— Partial up to 75% of pre-disability earnings $ 250
— 50% of balance of partial earnings $250
— Total earnings under partial benefits $2,500
The partial disability benefit gives an incentive for the disabled employee to get back to work as soon as possible, to get out of the house and return to an active, productive life.

The sooner the employee returns to some form of productive work, the greater the chance of a full recovery


Insurance companies support an individual’s effort to return to the workplace. Therefore, most group disability plans include a provision for tracking a recurrent disability.

If an individual returns to work on a full-time basis following a period of total disability for which benefits were payable and again becomes totally disabled due to the same or a related cause, the individual will be considered to have been continuously disabled for the purposes of the qualifying period. The typical recurrent period for STD is 14 days and for LTD is six months.

Example: Henry works in the shipping department in a large warehouse. His LTD plan has an elimination period of 120 days and a benefit period to age 65. Henry is receiving LTD benefits because of a severe lower back strain. He returns to work, but after two months he reinjures his back and has to go off on disability again. As he is within the recurrent period of six months, Henry can receive benefits again and does not have to go through the qualifying elimination period.

On the other hand, because a subsequent claim is considered to be a continuation of the initial claim under the recurrent disability clause, the total maximum benefits payable under the second claim will be reduced by the benefits paid under the initial claim.


Disability benefit plans are designed to provide disabled employees with a percentage of pre-disability earnings to enable them to sustain a reasonable standard of living. In the event of a disability lasting beyond that timeframe, the impact of inflation can effectively diminish the value of the disability benefit. In order to prevent this from happening,

insurance companies introduced the concept of a cost of living adjustment (COLA) option in LTD plans. COLA is considered unnecessary in STD plans because of the short duration of the claim.

A COLA option typically provides an indexing of the disability benefit based on the lesser of:

•an adjustment based on the consumer price index, not to exceed a stated maximum, e.g., 3% to 5%, or
•a fixed stated adjustment, usually 3% to 5%.
The COLA maximum is kept to a relatively low maximum because of the cost. For every 1% COLA adjustment, the premium cost will increase from 5% to 7%, e.g., a 3% COLA will increase the LTD premiums from 15% to 21%.

The indexing of benefits usually does not start until a claim actually commences, although some plans available in the market index the potential benefit payable starting with the initiation of the coverage.


Other sources of income payable to the disabled employee are stipulated in the group contract as “offsets” and used to reduce the benefit payable under the LTD benefits plan. These offsets are defined under two distinct categories: direct and indirect. While each insurance company adopts its own practice with respect to offsets, they can generally be summarized as:


Direct offsets usually cover benefits payable under government-sponsored benefits programs, including: Canada Pension Plan (CPP)/Quebec Pension Plan (QPP), employee disability pension benefits, and Workers’ Compensation benefits.

In some instances, the insurance company will also include, as a direct offset, benefits payable under automobile insurance (especially in those provinces where there is a government-sponsored automobile insurance plan, such as in Quebec) and CPP/QPP spousal and children’s benefits payable to the employee. When the employee receives payments from these sources, the insurance company takes the position of the second payor. When a claim occurs, insurance companies insist that the disabled employee apply for CPP/QPP benefits and, if the disability is the result of a work-related injury, for Workers’ Compensation as well. Any benefit received by the employee from these two sources is then used to reduce the amount of the benefit payable under the LTD benefits plan. Since the adjudication process under CPP/QPP may delay the actual payment of the benefits, it is common practice for an insurance company to pay the LTD benefit and require the disabled employee to sign a reimbursement agreement that obligates the employee to repay the insurance company when or if a benefit is paid under CPP/QPP.

It is also common for insurance companies to ask claimants to sign an assignment of CPP/QPP benefits form, allowing the insurer to collect directly from CPP/QPP amounts already paid to claimants, by which the LTD benefits would have been reduced had the CPP/QPP decision been known at the time.


LTD benefits plans usually also have indirect offsets, which can include:

•benefits payable under an association or other group disability program;
•any income as a result of any job or business for remuneration or profit excluding severance or vacation pay, except under an approved rehabilitation program;
•CPP/QPP disability pension benefits payable to the employee on behalf of his/her dependants;
•disability benefits payable under a motor vehicle insurance plan; and
•any retirement benefits related to any employment.
These offsets are used to further reduce the LTD benefit. All of these offsets are taken into consideration when the insurance company is establishing the rates for the LTD benefits plan.


Disability benefits are unique in that they are maintained even though the group contract may be altered or terminated by the employer. Once an employee is on STD or LTD, the insurance company is obliged to maintain the payment of benefits provided. Even if the employer cancels the group contract, or changes the plan design after the benefit payments have commenced, disabled employees will be paid until the benefits would have been terminated under the terms of the group contract.


STD and LTD benefits cease on the earliest of the date the employee:

recovers from the disability;
attains age 65;
reaches the end of the benefit period;
fails to submit required proof of ongoing disability;
fails to report for a medical examination required by the insurance company; and
ceases to receive generally accepted professional treatment for the condition being treated.


LTD plans include a waiver of premium feature. The premium for the LTD benefit is waived while the employee is receiving the benefits. STD plans do not have a waiver of premium feature because of the number of short duration claims. The waiver of premium begins with the payment of benefits after the elimination period and not backdated to the beginning of the disability.


A standard provision in LTD plans is the exclusion and/or restriction for preexisting conditions. This provision is designed to protect the plan from the negative cost impact of the high claims that could result when an employee with a pre-existing condition joins the employee benefits program.

Benefits are not payable for a total disability that commences during the first 12 months of an employee’s coverage, if the disability results from any sickness or injury for which the employee was treated or attended by a physician, or for which prescribed drugs were taken within 90 days prior to the effective date of the employee’s insurance.


The purpose of a disability benefit plan is to provide active employees with financial protection if they become unable to work due to disability. Most plans stipulate exclusions under both STD and LTD coverage, which specifies those benefits will not be paid:

for any period during which the employee is not under the care of a physician;
if the employee engages in any occupation for remuneration or profit, except as approved by the insurer under the partial disability or rehabilitation provision;
for the period an employee is entitled to pregnancy or parental leave allowed by law or agreed to with the employer;
if the employee refuses or fails to participate in an approved partial disability or rehabilitation program as required by the insurer; and
for any period during which the employee is confined in a penal institution or house of correction.
There are other standard exclusions in STD and LTD plans that stipulate that no benefits will be paid for disabilities resulting from:

an intentionally self-inflicted injury or attempted suicide while sane or insane;
war, whether declared or undeclared; and
participation in the commission of, or attempt to commit a criminal offence.


An employer can “register” its STD plan with Human Resources Development Canada (HRDC) and obtain a premium reduction for Employment Insurance (EI). Provided the STD benefits plan is equivalent to or better than the EI benefit, the plan will be accepted for registration by HRDC. The employer’s contribution for EI will be reduced from 1.4 times the employee’s contribution to an amount announced each year to reflect the claims experience of the EI disability benefits. The reduced employer EI contribution is usually around 1.28 to 1.3.

The employer must submit an application for premium reduction to HRDC on or before September 30 in the year preceding the year for which the reduction is sought. A plan must be in effect on or before January 15 of the year in which the application is being made in order to be eligible for the maximum premium reduction. The plans effective after January 15 and prior to September 16 can apply for a pro-rated premium reduction for that year. Full reduction will apply in the subsequent year. EI requires that at least 5/12 of the premium reduction be passed on to the employees in some form, such as cash or enhanced benefits.


If the employees and the employer are sharing the cost of the group benefits plan, how best to share the costs? One consideration is whether the employees should pay all the premiums for the group disability plans.

The tax implications are as follows:

any premiums paid by the employer for either the STD or the LTD plan are a tax deductible expense to the employer and generally not a taxable benefit to the employee;
if the employer pays any portion of the disability premiums for either the STD or the LTD plan then the disability benefits received by the employee in excess of the total employee premiums paid (if any) are considered taxable income to the employee;
any premiums paid by the employee are paid for with after-tax dollars; and
if the employee pays all (100%) of the disability premiums then the benefits received by the employee are received tax-free.
The government wants to collect the taxes either on the premium or the benefits received. If the benefits are to be set up on a tax-free basis, then 100% of the premium has to be paid by each employee, including provincial sales tax


All sources maximums are included in a LTD plan design to account for income from sources other than the group LTD plan. The purpose of the all sources maximum is to prevent situations in which an employee’s total income, while disabled, comes too close to their pre-disability earnings, effectively eliminating the financial incentive for the employee to return to work.

Under the all sources maximum definition, income from other sources listed in the group contract are added to the LTD benefit payable and direct offsets, e.g., primary CPP, are deducted to determine what the actual benefit pay-out should be. If the total income received exceeds the all sources maximum, the benefit payable is reduced by the excess amount. If the benefit is taxable when received by the employee, then the all sources maximum is based on a percentage (80% to 85%) of pre-disability gross earnings. If the benefit is received tax-free by the employee, then the all sources maximum is based on a percentage (80% to 85%) of pre-disability net income. The all sources maximum is based on income such as group and individual disability insurance plans, government disability plans and any other earnings. Investment earnings would not be considered, as these earnings would be received whether the employee was disabled or not.


A disabled employee may potentially file a claim against a third party, for causing them to become totally disabled, for compensation for loss of earnings. If the employee is awarded compensation, they must return any benefits received under the LTD benefits plan for the disability, to the insurance company, up to the amount representing the reimbursement for the loss of earnings from the third party. The recovery of these amounts is known as third-party subrogation of claims and this is a common provision in LTD plans.

Under the subrogation provision, the insurance company will most likely oblige the insured who has suffered a loss caused by a third party to inform the insurance company and to participate in any lawsuit against the third party for compensation. The insured will also be obliged to reimburse the insurance company for some or all of the claim amounts it has paid if the insured does receive compensation from the third party.

Example: A disability results from a car accident and, as a result of settlement, a payment is made to the disabled employee from the other driver’s insurance company. If the settlement is based on the disabled employee’s loss of earnings, then the amount of the settlement can be recovered by the insurance company in repayment for LTD benefits previously paid to the disabled employee. Most group contracts, regardless of jurisdiction, incorporate subrogation clauses.


Quantifying the Group Accident and Sickness Insurance Market

Over 13 million individuals (employees and dependants combined) are covered under almost 90,000 health care plans. 97% of Canadian organizations offer some form of health care plan to their employees.

In the year 2000, the total insured group health premiums were $4,619,300,000, an increase of 13% over the previous year and an increase of 27% over the previous four years. This represents 60% of all group insured premiums.

The total insured extended health premiums were $2,649,200,000, an increase of 16%. Of that premium, prescription drugs represented $385,600,000, an increase of 13% over the previous year.

Dental premiums were $1,970,100,000, an increase of 15% over the previous year and an increase of 26% over the previous four years.

Medical Services Available under Employer-sponsored Group Accident and Sickness (A&S) Plans

Group health care plans share a role with government in ensuring that Canadians receive adequate health care, by building on the minimum universal standard care already provided by provincial health insurance plans. Provincial health insurance plans cover basic hospital, physicians care and other medical services, leaving private health care plans to cover those medical products and services not covered by provincial health insurance plans.

As governments reduce and eliminate coverage of services not mandated by the Canada Health Act, they are, in effect, cost shifting — moving a greater portion of the responsibility for funding these gaps in coverage to employer-sponsored plans.



Provincial health insurance plans cover most of the basic hospital and surgical expenses that any Canadian resident incurs during a period of hospital confinement, including accommodation at the ward level, the services of physicians and surgeons, diagnostic procedures and drugs. Therefore, employer-sponsored hospital plans cover only the additional cost of preferred accommodation — semi-private and private.

Coverage is for confinement in an active treatment hospital, which is defined as an institution that:

is a licensed hospital;
operates with a staff of physicians at all times;
is always open;
offers in patient accommodation; and
provides continuous 24-hour nursing services.

Health care plans supplement government benefits by covering charges in excess of the amount payable under the provincial health insurance plan for services provided by professional licensed ambulance companies. Coverage includes ambulance services to transport the covered person:

from the place where the emergency sickness or injury occurred to the nearest institution where essential treatment is available;
from the first institution where treatment is provided to the nearest alternative institution for required specialized treatment not available in the first institution; and
from a basic hospital to a convalescent hospital.

There are two common variations of drug benefits plan design.


They provide coverage only for drugs and medicines that can only be purchased with the written prescription of a physician or dentist. Individuals are responsible for paying for any other drugs that can be purchased over-the-counter, even if the physician prescribes the medication.


They cover all drugs and medicines, including over-the-counter drugs, provided they are prescribed by a physician or dentist. These plans are more expensive, due to the increased scope of the coverage.


There are two methods by which claims for drug expenses are paid:


Drug benefit plans were originally designed on an employee reimbursement basis. Under such a plan, the employee pays the pharmacist for the prescription at the time the prescription is filled. The employee then submits a completed claim form, including the prescription receipt, to the insurance company or third-party administrator (TPA) for reimbursement as set out in the group contract. Approximately 40% of all individuals covered under group drug plans claim through a reimbursement plan.


Part of the evolution of drug plans is the introduction of pay-direct drug cards. With this card the insurance company pays the participating pharmacist directly for the eligible cost of the drug. A covered person (either an eligible employee or dependant) presents a drug identification card to any participating pharmacist and pays for any out-of-pocket expenses at the point of sale as per the plan design, such as a deductible and/or a co-insurance payment. The pharmacist then charges the provider directly for the balance of the cost of the prescription.

With the advancement of technology and electronic claims adjudication, a pay-direct drug plan claim can be adjudicated on line in real time, at the point of sale between the pharmacist and the pay-direct drug plan provider.


The compendium is the list of drugs that require a prescription that are approved for sale in each province. Most plans cover the entire compendium and change when the compendium changes.


No other health care benefit has experienced the kind of ballooning costs that prescription drug benefits have experienced, registering annual increases in costs much greater than the consumer price index (CPI) general inflation rate.

Providers and employers often use drug codes outlined in the drug compendium in designing drug benefit plans. The listing of drugs and medicines covered under a drug plan is referred to as a “formulary.” Providers offer a variety of options to employers, each with different cost implications.


Plans based on a fixed formulary cover only those drugs selected by the employer at the time the formulary is adopted. Often, this formulary will mirror the eligible drugs covered under the provincial health insurance plan. Any new drug that has entered the market after the formulary is in force would not be immediately covered, added only when the cost/benefit of the new drug is established.


Under a generic equivalent drug plan, insurers will reimburse drug expenses only up to the generic equivalent drug cost, if brand name drugs are purchased, and there is a generic substitute available. A generic equivalent drug is a drug with the same active ingredients at the same doses as the brand name original of the drug, but normally available at a lower cost.

Certain restrictions and exceptions may exist. For example, if a generic equivalent is not available or the brand name drug cannot be substituted as prescribed by the physician, then the brand name cost would be eligible for reimbursement.

Pharmacy benefit management has emerged, with the advent of sophisticated technology and electronic claims adjudication, to facilitate better controls for today’s pay-direct plans. “Pharmacy benefit management” is the term used to describe the combination of new technology and process management that has significantly improved the effectiveness of pay-direct drug plans. Other features of a drug plan can be controlled at the point of sale, such as the enforcement of plan requirements and the coordination of benefits coverage under different plans.


Most group health plans offer benefits for private duty nursing care that is provided, on the recommendation of a physician, to a covered employee who is not confined in a hospital.

Coverage is permitted only for nursing care that can be performed by a registered nurse (RN) who is not related to the covered person and who does not live in that person’s home.

The maximum amount for this benefit generally takes two forms, e.g., $10,000 per year, or $25,000 every three years. While the incidence of this type of expense is relatively low, usage for this benefit is increasing as the provincial health care plans are shortening hospital stays and sending recovering patients home earlier. When benefits are incurred the costs can be astronomical. For this reason, the traditional requirement of a RN has been liberalized to include care by a licensed or registered practical nurse or a registered nursing assistant.

For a pre-care assessment, the employee’s attending physician may be required to submit written information that provides:

a description of the covered employee’s medical condition and prognosis;
a list of the nursing services that are required and the frequency at which they must be provided;
a description of the level of skill or qualifications of the nurse that are necessary to perform the required services;
the number of hours of care that will be required on a daily or weekly basis; and
an estimate of the length of time that nursing care will be required.

Health care plans cover the charges for treatments provided by paramedical practitioners.

The types of practitioners covered include:

speech therapists
massage therapists;
acupuncturists; and
Christian science healers.
Coverage of treatment by certain paramedical practitioners is contingent on the treatment being medically necessary and requires the recommendation or approval of a physician. Coverage of some of these practitioners is included in the group health care plans to give an array of benefits to those who seek alternative or supplementary medical care. Benefits are limited to a maximum dollar amount annually per practitioner.

A number of provinces provide coverage for some of these paramedical practitioners. Some provinces allow the insurance plans to top up their coverage, allowing extra billing. Some will not allow extra billing but will allow the private plans to insure the benefits after the provincial health care plan reaches its maximum. The insurance companies provide the option of either insuring the extra billing or insuring after the provincial plan reaches its maximum. The extra billing is the more expensive option.


Charges incurred for medical care and other related expenses while travelling outside one’s province of residence are covered under the out-ofprovince/country benefits in one’s group health care plan.

Out-of-province emergency health care services provided under provincial health insurance plans have been subject to government cutbacks. Many health care plans have absorbed higher costs for out-of-province/country benefits by topping up existing provincial health insurance coverage.

Virtually all health care plans include a provision that pays benefits for outof-province/country emergency medical expenses if:

treatment is required due to a medical emergency that occurred while the covered person was travelling outside of Canada or outside their province of residence, and
the covered person is covered as a resident under the provincial health insurance plan.

Coverage will include:

treatment provided by a physician;
diagnostic x-rays and laboratory tests;
hospital accommodation;
medical and paramedical supplies and services provided during hospitalization; and
hospital and nursing services and medical supplies provided on an outpatient basis.
If, given their medical condition, a covered person can return to Canada and the person does not, benefits will be paid for the amount it would have cost for comparable treatment in Canada.

Coverage for emergency medical services in a province other than the person’s province of residence will be paid for by the province of residence, through one of the reciprocal agreements among the provinces.


Group health care plans commonly pay for eligible health care services on the basis that a treatment or procedure is provided at a reasonable and customary charge. What is considered a “reasonable and customary charge” for a specified treatment is normally left to the insurance company’s discretion. Reasonable and customary charges fall within the range of fees normally charged in a geographic location for a given service, treatment or procedure and performed by eligible health care professionals who have suitable education and experience.

Insurance companies usually define a reasonable and customary charge to be the lowest of:

a price that is common in the area where the treatment was provided;
a price published in a fee guide for a given professional association; and
the maximum price established by law.


Under a travel assist program, a covered person travels with a service provider’s identification card, which lists a contact phone number. In the event of an illness or injury, the person contacts the service provider, whose representative assesses the person’s medical condition and then arranges for the appropriate treatment to be provided.

Many health care plans include a travel assistance program through a provider network that offers the following services:

24-hour emergency telephone line, listed on the provider’s card;
assistance in locating the most appropriate medical facility;
guaranteed deposit/payment for emergency medical treatment; • arrangement for admission to a hospital;
contact with the person’s physician to elicit advice and recommendations;
assistance in coordinating a necessary emergency medical evaluation;
arrangement of a return trip home for the covered person and/or dependent children left unattended in that trip;
arrangement for a family member to visit the covered person who is travelling alone and hospitalized for a minimum period of time;
meals and accommodation for the visiting family member, to a maximum, e.g. $150/day up to 7 days;
repatriation of the remains of a covered person who dies while away from home, to a maximum of $3,000; and
return of a vehicle either back to a rental agency or back to the province of residence, to a maximum cost of $500.

The expenses usually covered by vision care benefits are those for eyeglasses, which includes frames and lenses and contact lenses. Safety glasses and prescription sunglasses are sometimes included.

The benefit amount payable is limited to a specified maximum ranging from $150 to $350 and up. Frequency of use is limited to a stated period of time, typically 24 months. Since these limits effectively control claims costs, vision care benefits are not subject to the deductible or coinsurance feature.


Unlike other benefits under the health care plan, this is one where the benefit maximum is imposed over a longer period of time, usually five years. The dollar maximum (typically $500) covers only one set of hearing aids over that period.


Health care plans also provide coverage of the expenses for dental treatment when an employee’s healthy, natural teeth have been injured in an accident. The plan will provide more generous coverage for accidental dental benefits than is provided under the dental care plan.

Accidental dental coverage will pay expenses for treatment required due to an accident and provided by a dentist in his or her dental office and if:

the accident occurred while the employee is covered under the plan;
barring any medical conditions that postpone treatment, treatment starts within a specified period after the accident, usually 12 months; and
treatment is applied to an injured tooth or teeth that did not require any restoration treatment before the accident.
If dental treatment is required after the accident, but does not meet these requirements, then it would be considered for payment under the provisions of the employee’s dental care plan, if one exists.


Group health care plans provide benefits for medical supplies and services to assist covered persons recovering from and living with an illness or sickness. Similar to vision care, benefits for equipment and devices are often limited to a maximum amount payable per covered person for a limited period. For example, a maximum benefit amount of $200 for orthopedic shoes is payable once in every period of 12 consecutive months.

Items covered are often contingent on the recommendation and approval of an attending physician and may include the purchase or rental of:

orthopedic equipment such as orthopedic shoes that are custom built to correct a physical impairment, splints, braces and cervical collars;
mobility aids such as canes, walkers, crutches, trusses and wheelchairs;
respiratory equipment such as oxygen and the equipment needed for its administration;
kidney dialysis equipment;
prosthetic equipment including artificial eyes, standard artificial limbs, external breast prosthesis, including repairs;
other medical supplies such as hospital beds, catheters, hypodermic needles, a wig required for permanent hair loss as a result of any injury or disease or for temporary hair loss as a result of medical treatment for any disease; and
oxygen, blood, blood products and their transfusion.
It is also important to note that the type of device that is eligible for coverage is normally limited as well. For example, special wheelchairs, versus standard wheelchairs, may be covered by a plan, if the special wheelchair is necessary to enable a covered employee to function independently in daily living. However, special wheelchairs that are required primarily for participation in sports would not be covered. Equipment for personal comfort, convenience, exercise, safety, self-help or environmental control items, or items used for reasons other than medical, are excluded. For this reason, insurance companies recommend that covered persons contact them prior to purchasing or renting any medical equipment or supplies, in order to determine whether or not such items are covered under the plan.


Maintaining the healthy well-being of employees is important to an employer’s bottom line, since employees cannot contribute to the success of a company if they are off work due to sickness or accident. Health care plans provide benefits for a variety of health care services and operate in conjunction with provincial health insurance plans to ensure that employees receive adequate health care.


In 1985, 8.9 million Canadians had dental care coverage. By 1995, 13.3 million had dental coverage, which represented 44% of the Canadian population. Total dental payments tripled over the 15 years from 1985 to 1999, from $800 million to $2.8 billion.

Although dental health has significantly improved, dental care costs continue to escalate. Some of the increase is attributable to inflation, but increased utilization and the introduction of new services are factors that have contributed significantly to the total increase.


The type and scope of dental care service covered under a dental care plan vary somewhat from one plan to the next; however, dental care services are generally grouped into three major categories:

Basic Services: encompasses coverage for diagnostic and preventive treatments, such as cleanings, fillings and tooth extractions.
Major Restorative Services: provides coverage for dentures, crowns and bridgework — removable and/or fixed prosthodontics to replace missing teeth.
Orthodontic Services: provides coverage for procedures and appliances, such as braces required to straighten teeth and correct other defects.

The following is an overview of typical covered expenses, as grouped under the three

general areas of coverage:

Basic Services:

diagnostic procedures:
dental exams to evaluate a patient’s condition as well as to determine any necessary future treatment, such as a complete oral examination or a limited oral examination (commonly known as a “recall exam”);
x-rays; and
laboratory reports.
preventive procedures:
teeth cleaning, including polishing and light scaling of the teeth;
topical application of fluoride and sealants on the teeth; and
oral hygiene instruction and other preventive procedures.
dental surgery required for reasons other than an accidental injury (if covered in the group health care plan) including the surgical removal of impacted teeth;
minor restorative treatment designed to restore the functional use of natural teeth with the use of such artificial appliances as silver and tooth-coloured amalgams (fillings);
repair to natural teeth required due to damage from causes such as wear and decay;
periodontic services to treat the bone and gum around the tooth, including deep scaling of the tooth and periodontal appliances, such as night guards to control the clenching and grinding, of teeth at night;
endodontic services to treat the root and nerve (known as the dental pulp) of the natural tooth, such as root canal therapy; and
in some group contracts, relining, rebasing and repairing of dentures, crown or bridgework.


major restorative procedures to restore the normal functioning of the natural tooth with such artificial appliances as gold or porcelain crowns and inlays and onlays.
prosthodontic services designed to replace missing teeth and structures with:
removable appliances such as full or partial dentures, and
non-removable or fixed appliances such as bridgework, crowns (caps) and veneers.


Orthodontic procedures required for the prevention, diagnosis and correction of dental and oral irregularities and defects of the jaws through the use of corrective devices, such as wires, tooth bonding, braces, space maintainers or other mechanical aids used to reposition teeth, commonly known as straightening of the teeth.


Dental care benefits are subject to limits. Some standard limitations within dental care plans are:


The majority of dental care plans include overall benefit maximums that limit the amount that the plan pays for each covered person. The maximums can range up to:

unlimited, for basic services;
$2,000 per year, for major restorative services; and
$2,000 per lifetime, for orthodontic services.

The standard orthodontic plan covers dependants up to age 19. Adult orthodontic plans are growing in popularity as many adults are taking advantage of orthodontic services that were unavailable to them when they were children. Because of the added exposure to claims by covering adults, adult orthodontic plans are more expensive than strictly dependant coverage. Plans also limit the eligibility for certain services, such as topical application of fluoride and pit and fissure sealants to dependent children under a specified age, usually 19. These limits are based on studies that have shown these dental care procedures to be effective only up to certain ages.


Recall exams and the services associated with routine check-ups, cleaning, scaling and x-rays have historically been eligible for coverage under a dental care plan once every six months. However, the current trend is to extend the required minimum interval between recall exams to nine or 12 months.


Major restorative services are expensive and, as such, employers tend to impose limitations on the replacement frequency of specific prosthodontics in an attempt- to control costs. For example, existing dentures, crowns or bridgework may not be replaced unless they are at least five years old or beyond repair. Furthermore, replacement of temporary dentures with permanent dentures is covered only if done within a specified period of time, such as one year.


Deductibles and coinsurance provisions are traditional cost-containment tools utilizing the concept of cost sharing between the employer and the employees.

Most dental care plans have a deductible in the form of a calendar year deductible, which is a fixed dollar amount of covered expenses that the covered person must pay each year before the plan pays any benefits. The deductible for single coverage often represents a minimal amount, e.g., $25. Similar to group health care plans, family limits apply that limit the amount of deductibles that must be satisfied per person if the family has more than one dependant. In our example of a $25 per person deductible, there is a family limit of two times the deductible, or $50 per family.

It is common for dental care plans to have different levels of coverage, or coinsurance, for the three different levels of benefits, as below:

Basic Services 80% to 100%
Major Restorative 50% to 80%
Orthodontic 50%

The benefit amount a dental care plan pays for a given procedure can be determined based on the fee guide in effect in the jurisdiction in which the covered person resides. The dental care plan will reimburse an expense for a given procedure based on the fee commonly charged for the procedure by eligible dental care practitioners within a given geographical region.

The maximum amount that will be payable for a given procedure is the amount listed in the suggested fee guide for the applicable year. Fees for specialists are generally 10% to 20% higher than fees charged for the same procedure by general practitioners.

The use of provincial fee guides in dental care plans can be categorized into three general bases:

current fee guide;
fixed fee guide; and
year lag basis.
Most plans base any reimbursement on the fee guide of the current year, or the current fee guide. Reimbursement on this basis is automatically updated annually as the new fee guides are released by the provinces. Some plans, however, base reimbursement on a fee guide of a particular year, so that reimbursement remains the same annually, until the employer chooses to amend the plan. This is referred to as the fixed fee basis, e.g., all dental fees will be paid at the 2000 fee guide level until the fee guide is changed by the employer. Still others provide a level of reimbursement for services in a given year that lags behind current fee guides by a year or two — the one/two year lag basis.

Example: A plan may provide benefit amounts based on a one-year lag basis so that reimbursement in 2001 is based on the 2000 fee guide.


Dental care plans in general include a provision that provides for a pre-treatment review by the insurer of any dental care expenses likely to cost more than a pre-determined dollar amount. This provision allows the insurer to review, assess and validate the necessity of the proposed dental treatment prior to the dental care procedures being performed. Use of the provision also ensures that the employee knows prior to undergoing the treatment just how much of the cost will be reimbursed by the plan and how much out-of-pocket expense will be required.

A pre-determination of benefits provision is recommended for costly non-emergency treatment expected to exceed a specified amount, usually amounts in excess of $300 to $500.


The alternative benefit provision allows insurers to substitute the cost of more expensive services with less expensive services, if they feel that the less expensive treatment can produce a professionally adequate result. For example, some dental consultants feel that white fillings do not possess the same abrasion, compressive tensile and shear strengths as amalgam and are more expensive than amalgam fillings. In some plans, if an employee chooses to have white fillings on molars, reimbursement may be cut back to the cost of amalgam fillings, in accordance with the alternative benefit provision.


Many of the exclusions contained in health care plans are also contained in dental care plans. The following are some of the most common exclusions:

services or supplies that are primarily for cosmetic purposes, unless required due to an accident occurring while an employee or dependant was covered;
services or supplies that are not provided by a legally qualified dentist or denturist acting within the scope of their licences, with the exception of x-rays ordered from such individuals by a dentist or services or supplies furnished by a dental hygienist under the supervision of a dentist;
services or supplies that are required as a result of an accidental injury to natural teeth and fully covered under a group health care plan;
experimental dental treatments;
replacement of lost or stolen prosthodontic artificial appliances and devices such as dentures, duplicate appliances are also not normally covered;
certain services relating to treatment that began prior to the date that coverage for an individual became effective. For example, implanting teeth to an existing partial bridgework is not covered if the implant replaces a tooth removed before the employee was covered under the plan;
any service or supplies covered by any government-sponsored benefits program, such as Workers’ Compensation;
services or supplies for implantology, which can include tooth implantation, tooth transplantation and fabricated implants surgically inserted;
dental exams required by a third party; and
miscellaneous items such as travel, counseling, communication costs, broken appointments and the completion of forms.

Canada’s health care system operates on three levels. The universal public (government funded) hospital and medical programs are the cornerstone of the system, comprising the first and largest level. The second level includes supplementary services provided through employer-sponsored benefits plans, while the third level consists of services covered under individual insurance contracts.

The Canada Health Act (1984) stipulates the conditions that an insured health care program of a province or territory must meet in order to receive federal funding. Referred to as the five basic principles of Canada’s public health care system. The conditions are as follows:




The provinces and territories’ medicare system must be administered on a not-for-profit basis and by a public authority appointed by and accountable to the provincial or territorial government.




The provincial and territorial health insurance plans must provide coverage for all necessary hospital and medical services provided in hospitals.




All eligible residents in a province or territory must be entitled to insured health care services.




An individual temporarily outside their home province or territory must have access to services in their host jurisdiction, paid for by their jurisdiction of residence at the host’s rates. An individual becoming a new resident of a province or territory cannot be required to wait more than three months to be eligible for coverage in that province.




All residents must have the same type of access to insured services based on uniform conditions: Mechanisms, such as charges for services, cannot prevent an individual from having reasonable access. For insured services, physicians must be reasonably compensated and hospitals must be paid adequately.

The Act prohibits extra billing and user fees by physicians.




The Canada Health Act ensures that all jurisdictions must provide generally the same basic services. These are defined as those that are medically required and provided by physicians, surgeons or other qualified health care professionals. Some of the basic medical services include:

  • treatment in hospitals;
  • treatment by registered physicians;
  • ambulance services;
  • laboratory tests and x-rays;
  • treatment by health practitioners such as chiropractors, physiotherapists, podiatrists;
  • dental care;
  • drugs;
  • special nursing care services; • home care; and
  • out-of-province/country coverage.

While all jurisdictions must provide the basic services, some provinces and territories have expanded the spectrum of coverage beyond what is required. These additional benefits include:




All jurisdictions currently provide pharmacare programs for seniors. Drugs covered by the program are normally comprised of drugs in a list defined by each jurisdiction, called a formulary. Provinces are requiring recipients to pay a portion of the cost of the drugs in the form of a deductible (e.g., $2 deductible per prescription in Ontario, to a maximum annual deduction of $100).




Certain types of oral and dental surgery medically required and performed in a hospital are covered in all jurisdictions. These include: surgery required as a result of trauma to the face from an accident, oral surgery or orthodontic care of a cleft palate, surgically removing impacted teeth. The range of additional or out-of-hospital dental provided to eligible residents varies among jurisdictions.




The province or territory will cover only what the service would have cost had it been rendered in the province of residence. There is a trend not to cover any service provided outside the jurisdiction of residence unless it is as a result of an emergency. The jurisdiction of residence will pay the amount that the service would have been covered for in the province or territory of residence.




With the exception of Quebec, Newfoundland, Nova Scoria and PEI, all other jurisdictions provide some form of chronic care coverage. Chronic care means continuing care that is provided for individuals who are physically dependent due to chronic illness with little chance of becoming independent. Care is provided in chronic care institutions.




Individuals with long-term physical disabilities can receive help through the assistive devices program for the purchase of needed medical devices, equipment and supplies. For example, the plans may provide for: communication devices, diabetes supplies, internal feeding supplies, hearing aids, home oxygen, incontinence supplies, orthotic devices, ostomy supplies, prosthetic devices, respiratory devices, visual devices and wheelchair, positioning and ambulation aids.

Provinces and territories, under budget pressures, have been delisting optional services previously covered under the plans. There is pressure on private health care plans, group and individual, to pick up these costs. This has great implications on the pricing of group plans as they are being required to “pick up the slack” for delisted services previously provided under the provincial programs.


LLQP-Foran *0306 Copyright 2006 by Foran Financial Institution, A Division of Foran Financial Consultants Ltd


Accidental Death and Dismemberment

AD&D provides coverage for death or dismemberment resulting directly from accidental causes. Provides benefits in the event of loss of life, limbs or eyesight as the result of an accident.

Accidental Death Benefit

A provision added to an insurance policy for payment of an additional benefit in case of death by accidental means. It is often referred to as double indemnity.

Actively at work

Carrying out regular duties at the employer’s place of business or some other location required by the employer’s business. An employee is also considered actively at work when absent only due to a scheduled day off or vacation but otherwise able to perform regular duties.


An acupuncturist inserts very fine needles, sometimes in conjunction with electrical stimulus, into the body’s surface. This is done to influence the body’s physiological functioning.

Adjusted Premium

If there has been a renewal rate adjustment, during the experience period under review, the premium is adjusted to the level it would have been had the current rates been in effect during the entire period. This allows for an accurate assessment of the current rates for the purpose of determining the required renewal rates.

Administrative Services Only (ASO)

ASO is an arrangement whereby an insurance company, or other organization, is contracted for the sole purpose of adjudicating claims. The administrator settles claims but does not guarantee payment because the plan is uninsured. There are no reserves established by the administrator under ASO arrangements and the entire financial risk is borne by the employer.

Administrator (Employee Benefit Plans)

The person designated as such by the instrument under which the plan is operated. If the administrator is not so designated, administrator means the plan sponsor. If the administrator is not designated and the plan sponsor cannot be identified, the administrator may be such person as is prescribed by regulation of the secretary of labor. The administrator’s responsibilities are as follows: 1. Act solely in the interest of plan participants and beneficiaries, and for the exclusive purpose of providing benefits and defraying reasonable administrative expenses. 2. Manage the plan’s assets to minimize the risk of large losses. 3. Act in accordance with the documents governing the plan. The individual or company responsible for administering a group insurance contract including such services as accounting, issuance of certificates and settlement of claims.

Adverse Selection

See Anti-selection.


A change in the terms of an existing plan or the initiation of a new plan. A plan amendment may increase benefits, including those attributed to years of service already rendered. (Insurance) A formal document changing the provisions of an insurance policy signed jointly by the insurance company officer and the policyholder or his or her authorized representative. See also Retroactive Benefits.

Anniversary Date

See Renewal Date.


The tendency of people with poorer than average health expectations to apply for, or continue, insurance coverage to a greater extent than do people with average or better health expectations. Also referred to as Adverse Selection.


An agreement under which one party (the assignor) transfers their rights to another party (the assignee). This is most often used under dental plans where the employee assigns the benefit payment to the dentist. The dentist submits the employee’s claim electronically to the insurance carrier and the carrier sends the payment back directly to the dentist.


(Formerly CompCorp)
A federally incorporated, non-profit company established by the CLHIA to protect Canadian consumers against loss of benefits in the event a life or health insurance company becomes insolvent. All life insurance companies licensed in Canada are required to become members of Assuris and to remain members as long as they have any business in Canada.


A healthcare professional specializing in identifying, diagnosing, treating and monitoring disorders of the auditory and vestibular system portions of the ear. Audiologists are trained to diagnose, manage and/or treat Hearing (Sense) or balance problems They dispense hearing aids and recommend and map cochlear implants.


Any systematic investigation of procedures or operations for the purpose of determining conformity with prescribed criteria.


A person named by the participant in an insurance policy or pension plan to receive any benefits provided by the plan if the participant dies. A person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder.

Beneficiary, Contingent

An alternate beneficiary. One whose rights under a contract are dependent upon the death of the original beneficiary or some other contingency.


The rights of the participant or beneficiary to either cash or services after meeting the eligibility requirements of the pension or other benefit plans. Pension benefits usually refer to monthly payments payable on retirement or disability.

Benefit Package

A listing of specific benefits provided by an employee benefit plan. The total value of noncash compensation.

Benefit Period

The number of days for which benefits are paid to the named insured and his or her dependents. For example, the number of days that benefits are calculated for a calendar year consist of the days beginning on January 1 and ending on December 31 of each year.

Benefit Year

The 12-month period commencing on the effective date of the group policy and each subsequent 12-month period.

Benefits Specialist

An individual in an organization, typically in the human resource management function, whose responsibility it is to administer the employee benefits program.

Best Practices

Superior performance by an organization in both management and operational processes.

Book Rates

See Manual Rates.

Brand-Name Drug

A drug protected by a patent issued to the original innovator or marketer. The patent prohibits the manufacture of the drug by other companies as long as the patent remains in effect. See also Generic Equivalent Drugs.

Break-even Loss Ratio

See Target Loss Ratio.

Bridge Benefit (Canada)

A supplemental pension benefit payable from the date of early retirement until the age of entitlement for government pensions.


An insurance solicitor, licensed by the Province, who places business with a variety of insurance companies and who represents the buyers of insurance rather than the companies even though he or she is paid commissions by the companies. An agent who handles the public’s orders to buy and sell securities, commodities or other property. For this service, a commission is charged that, depending upon the firm dealt with and the amount of the transaction, may or may not be negotiated.

Calendar Year Deductible

A deductible that applies to any eligible medical expenses incurred by the insured during any one calendar year.

Canada Health Act

The Canada Health Act is federal legislation that puts in place conditions by which individual provinces and territories in Canada may receive funding for health care services.

Canadian Council of Insurance Regulators (CCIR)
The collective body formed by the provincial Superintendents of Insurance. They meet regularly to share information, discuss common concerns, and recommend uniform insurance legislation to the provincial legislatures.

Canadian Institute for Health Information (CIHI)
The CIHI was specifically created by the federal/provincial/territorial governments to be a central repository for administrative health data. CIHI is a good source for statistical information about the Canadian health system and the delivery of health care.

Canadian Insurance Services Regulatory Organization (CISRO)

The CISRO is an organization of licensing and regulatory authorities for insurance intermediaries across Canada. Its mandate is to facilitate and promote an effective regulatory system in Canada to serve the public interest and enhance consumer protection.

Canadian Life and Health Insurance Association (CLHIA)
CLHIA was established in 1894. It’s a voluntary, non-profit industry association of life and health insurance companies operating in Canada. The association’s overall mission is to serve its members in areas of common interest, need and concerns. The CLHIA publishes guidelines concerning various aspects of insurance matters known as CLHIA Guidelines. It also represents the industry at various levels of the government.

Canadian Life and Health Insurance Compensation Corporation (CompCorp)

On December 1, 2005 the name was changed from CompCorp to Assuris. See Assuris.


A commercial insurer, a government agency or a Blue Cross or Blue Shield plan that underwrites or administers programs that pay for health, life or other insurance services.

Carryover Deductible

The deductible payable under continuation coverage includes the portion of the deductible satisfied before the qualifying event.

Carryover Provisions

(Compensation) An employer policy that lets employees take unused vacation time in a subsequent calendar or fiscal year. (Health Care) Provision in major medical plans to avoid two deductibles applied to covered medical expenses when expenses are incurred toward the end of one calendar year, and sickness or injury continues into next year.

Certificate of Insurance

This is a document the insurer must provide to each employee covered under a group insurance plan. It includes the plan description and outlines the principal benefits and conditions under the master group insurance contract.

Certified Employee Benefit Specialist®

A designation granted jointly by the International Foundation of Employee Benefit Plans and the Wharton School of the University of Pennsylvania to individuals who complete eight college-level courses and examinations in the areas of compensation and design and operation of employee benefit plans and who pledge to a code of ethical standards and continuing education. In Canada, the program is presented jointly by the International Foundation of Employee Benefit Plans and Dalhousie University of Halifax.


Chiropodist is more commonly known as a foot doctor. Chiropodist is the British English version of podiatrist, which is the American English version of “foot doctor.”


Chiropractors, also known as doctors of chiropractic or chiropractic physicians, diagnose and treat patients with health problems of the musculoskeletal system and treat the effects of those problems on the nervous system and on general health.


An itemized statement of services rendered by a health care provider for a given patient. The claim is submitted to a health benefits plan for payment. A request for payment under an employee benefit plan (pension or health and welfare) or insurer by a plan participant or beneficiary for the payment of certain benefits. The right to any debts, privileges or other things in possession of another; also, the titles to anything which another should concede to, or confer on the claimant.

Claim Administrator

Any entity that reviews and determines whether to pay claims to enrollees or physicians on behalf of the health benefit plan. Claim administrators may be insurance companies or their designated claims review organizations, self-insured employers, management firms, third-party administrators or other private contractors.

Claim Form

The form used to file for benefits under a health plan.

Claims – Incurred Claims

The sum of paid claims plus the change in the Incurred But Not Reported (IBNR) claims reserve.

Claims – Paid Claims

The amount of actual cheques issued during a specific period of time.

Claims Experience

The frequency, cost and types of claims insured employees file to receive benefits. One of the primary factors used in calculating insurance premiums.

Claims Fluctuation Reserve (CFR)

This is a reserve established by the insurer when a group is underwritten on a retention accounting basis. The reserve is funded through emerging surplus until the ultimate level is reached. The ultimate level is dependent upon the size of the group and plan design and usually ranges between 10% and 20% of the annual premium. The purpose of the reserve is to absorb any potential significant increase in paid claims over a period of time. If a deficit is generated in any given year the loss is first recovered through the CFR. Any remaining deficit would be carried-forward and recovered through future year’s surplus. Also referred to as a Rate Stabilization Fund.

Claims Procedure

Each plan is required to provide a claims procedure, which must be explained to plan participants and beneficiaries. The denial of a claim made under the claims procedure must be in writing, with an explanation of the reasons for the denial.

Claims Services Only

A contract designed for fully self-insured employers that need very little administrative assistance. Under a CSO arrangement, the insurer administers only the claims portion of the plan.

CLHIA Guidelines

The CLHIA Guidelines replace the former Guidelines of the Superintendents of Insurance. They maintain the spirit of consumer protection and fair practices inherent in the former Superintendents’ Guidelines. It is a series of guidelines developed by the CLHIA regarding various insurance matters and it provides a minimum standard for group insurance practices. All insurers are expected to abide by these guidelines as a condition of their membership to the association. These guidelines apply to life insurance, accidental death and dismemberment insurance, disability insurance, accident and sickness insurance, health and dental insurance. They do not apply to annuities, blanket insurance, creditor group insurance, family insurance and personal accident and sickness insurance issued to the client base of a credit card issuer.


A policy provision, frequently found in major medical insurance, by which the insured person and the insurer share the hospital and medical expenses resulting from an illness or injury in a specified ratio (e.g., 80%: 20%), after the deductible is met. A form of cost sharing.


See Co-insurance.

Common Law

That body of law deriving from judicial decisions, as opposed to legislatively enacted statutes and administrative regulations.


A person who gives professional or expert advice.

Consumer Price Index (CPI)
CPI is the measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. Changes in the CPI are used to assess price changes associated with the cost of living.

Contingency Charge

A charge set up under each policy to offset any insurance company contingencies or catastrophic losses. Also referred to as a Risk Charge or Contingency Reserve.


A promissory agreement between two or more persons that creates, modifies or destroys a legal relation. In general, it must have the following elements: creates an obligation, competent parties, subject matter, legal consideration, mutuality of agreement, mutuality of obligation, must not be so vague or uncertain that terms are not ascertainable, and generally is in writing signed by both parties.


The transfer of funds or property by either an employer or an employee to an employee benefit plan.

Contribution Basis

The specific percentage of the premium paid by the employee and employer under group insurance plans. Also referred to as Cost-sharing.

Contributory Plan

A group insurance plan in which the employee pays a portion of the premium cost.

Conversion Privilege

In Canada, all group life insurance policies are required to include a conversion privilege. This provision allows an insured, whose coverage terminates for certain reasons, to convert the group insurance coverage to an individual policy without providing evidence of insurability.

Coordination of Benefits

A group health insurance policy provision designed to eliminate duplicate payments and provide the sequence in which coverage will apply (primary and secondary) when a person is insured under two contracts.

Corporate Owned Life Insurance

A policy covering an executive who is essential to an organization. The organization is the beneficiary; if the executive dies while covered, the organization pays an equivalent noninsured amount to designated survivors. Policy loans on the insurance are available to the organization; the interest is partially deductible.

Cost Containment (Medical)

Methods and programs designed to contain costs by ensuring appropriateness, medical necessity and relatedness of treatment and procedures. Examples include utilization review and bill review.

Cost-of-Living Adjustment (COLA)

The provision usually applies to Long Term Disability (LTD) benefits whereby the monthly benefit is increased annually (January 1st) by the lesser of CPI or the maximum percentage increase indicated in the contract.


A special arrangement whereby the policyholder pays to the insurer enough funds to reimburse an employee for certain medical or dental costs plus a margin to cover the insurer’s administrative costs. The cost-plus arrangement is usually used for expenses which are either not covered under the insured plan or are in excess of the amount allowable under the insured plan.


See Contribution Basis.


Describes the number or percentage of employees eligible for participation under an employee benefit plan. Benefits available to eligible individuals under an employee benefit program. With reference to revenue and corporate bonds, it indicates margin of safety for payment of debt service, reflecting the number of times by which earnings for a period of time exceed debt service payable in such period.

Covered Employee

A person covered by a pension or welfare plan is one who has fulfilled the eligibility requirements in the plan; for whom benefits have accrued, or are accruing; or who is receiving benefits under the plan.

Covered Expenses

Hospital, medical and related costs incurred by those covered under the insurance policy that qualify for reimbursement according to the terms of the contract. Most commonly used in regard to major medical plans.


The size of the group and/or the length of time it has been insured with the carrier will determine the degree of weighting which is given to the group’s own claims experience. This is referred to as the degree of credibility. The theory stems from the fact that the more people insured, and the longer they are insured the more predictable, or credible, their claims experience becomes. The higher the degree of credibility, the greater reliance the carrier places on the group’s own claims experience to establish rates. The lower the degree of credibility, the more reliance the carrier will have on their manual rates. The degree of credibility is usually expressed as a percentage.

Critical Illness Insurance

Insurance protection designed to provide a lump-sum payment equal to the full value of the policy or a percentage of the policy depending upon the product design, to the insured/policy owner upon the diagnosis of a covered critical illness. Typical illnesses covered include heart attack, stroke, cancer, paralysis, renal failure and Alzheimer’s disease. Many policies offer a partial payment for certain medical procedures such as coronary bypass surgery or angioplasty. Some policies offer a return of all premiums in the event of death of the insured, others pay the full benefit upon the insured’s death.

Customary Charge

The amount that a physician or other medical provider usually charges the majority of patients for each service. Generally the maximum amount a health insurance plan or Medicare will allow for covered expenses.


A flat amount of covered expenses that an insured must pay out-of-pocket before benefits become payable by the insurer. Most plans have a calendar year deductible but benefit year deductibles are not uncommon.

Deductible – Pro-rated deductible

The procedure utilized by insurers to allow for the appropriate deductible amount to be utilized in claims settlements based on the date of change of a health/dental plan from one carrier to another. For example, if a company has health coverage with insurer “A” with an anniversary date of January 1 and a deductible of $100 and then places their health coverage with insurer “B” as of July 1 – the deductible utilized by insurer “B” on a pro-rated basis would be $50.

Deductible Carryover

A feature whereby covered charges in the last three months of the year may be carried over to be counted toward the next year’s deductible.

Dental Care Benefits

Dental insurance plans usually cover preventive care and treatment of teeth, gums and the mouth. Some plans may also cover orthodontia, X-rays and cosmetic work. Dental care benefits are considered a part of health care benefits, but insurance plans generally separate the two.


A dependant is your spouse or child. Any person who is in the armed forces full-time is not eligible as a dependant.


An expert in “Food” and “Nutrition” Dietitians help promote good health through proper eating. They also supervise the preparation and “Foodservice” service of food, develop modified “Diet (nutrition)” diets, participate in “Research”, and educate individuals and groups on good nutritional habits. Artificial nutritional provision to patients not able for normal oral intake and dietary modification to address medical issues involving dietary intake is a major part of dietetics. The goals of the dietary department are to provide medical nutritional intervention, obtain, prepare, and serve flavorsome, attractive, and nutritious food to patients, family members, and health care providers.

Direct Claims – Payment

A payment method whereby reimbursement of the claim is deposited directly into the employee’s bank account. The explanation of the benefit payment (EOB) is mailed to the employee’s home address.

Direct Claims – Submission

A method whereby the employee submits claims directly to the insurer rather than submitting claims through the policyholder. Insurers also have arrangements with pharmacies, hospitals, dentists and other providers whereby claims may be submitted directly from them to the insurer.

Direct Claims:

A condition that renders an insured person incapable of performing one or more duties of his or her regular occupation. Benefit plan definitions of disability vary. The Social Security Act defines disability as follows: (Total disability is the) inability to engage in any substantial, gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or has lasted or can be expected to last for a continuous period of not less than 12 months (and which precludes the claimant from performing not only his previous work, but considering his age, education and work experience any other kind of substantial gainful work which exists in the national economy regardless of whether such work exists in the immediate area in which he lives, or whether a specific job vacancy exists for him, or whether he would be hired if he applied for the work).

Disability Benefit

Periodic payments, usually monthly, payable to participants under some retirement plans if such participants are eligible for the benefits and become totally and permanently disabled prior to the normal retirement date. Includes short-term and long-term disability benefits.

Disability Income Insurance

A form of health insurance that provides periodic payments to replace a certain percentage of income lost when the insured is unable to work as a result of illness, injury or disease.

Disability Management

The proactive employer-centered process of coordinating the activities of labor, management, insurance carriers, health care providers and vocational rehabilitation professionals in order to minimize the impact of injury, disability or disease on a worker’s capacity to successfully perform his or her job.

Disabled Life Reserve (DLR)

An actuarial reserve, established by the insurer, for totally disabled employees who qualify for benefit payments under the terms of a Long Term Disability contract. The insurer bases the level or amount of this reserve on estimates of the present value of all expected future payments. This reserve is necessary because once a claimant qualifies for benefits the insurer must continue to provide benefits even if the policy subsequently cancels. Also referred to as an Open Claims Reserve.


The requirement of plan administrators to distribute or make available to plan participants and/or other beneficiaries materials such as summary plan descriptions and annual reports.


The loss, or loss of use, of a limb or loss of sight from an injury.

Double Indemnity

A provision under which certain benefits are doubled when accident is due to specified circumstances, such as public conveyance accidents; in a life insurance policy, a provision that the face amount payable on death will be doubled if the death is the result of an accident.

Effective Date

The date on which an insurance policy or retirement plan goes into effect and coverage begins. Also, the date pay increases go into effect.

Electronic Data Interchange (EDI)

This is the electronic transfer of claim documents between computers. Pharmacists, dentists and other providers can submit claims electronically, on behalf of their patients, to a central computer source which automatically re-routes the claim to the appropriate insurance carrier. The entire process is automated and no paper processing is involved.

Electronic Funds Transfer (EFT)

The electronic transfer of funds may be used for direct with-drawl of monthly premiums from the employer’s bank account or direct deposit of claim reimbursement into the employee’s bank account. It should be noted that if EFT is used for claims payment the reimbursement will be deposited into the employee’s bank account, and not the claimant’s (if a dependent), because the employee is the certificate holder.

Eligibility Date

The date an individual and/or dependents become eligible for benefits under an employee benefit plan.

Eligibility Period

A period of time, usually 31 days, when potential members of a group life or health insurance plan can enroll without evidence of insurability.

Eligibility Requirements

Conditions that an employee must satisfy to participate in a plan or obtain a benefit.

Elimination Period

Usually in reference to disability coverage, it refers to the length of time between the date of disability and the date benefit payments commence. Also referred to as the qualifying period.

Emergency Medical Services

Treatment of patients suffering from accidents or sudden and serious illness.


An individual who is compensated for services performed and whose duties are under the control of an employer.

Employee Assistance Program

An employment-based health service program designed to assist in the identification and resolution of a broad range of employee personal concerns that may affect job performance. These programs deal with situations such as substance abuse, marital problems, family troubles, stress and domestic violence, as well as health education and disease prevention. The assistance may be provided within the organization or by referral to outside resources.

Employee Benefit Plan

A plan established or maintained by an employer or employee organization, or both. The purpose is to provide employees with a certain benefit such as pension, profit-sharing, stock bonus, thrift, medical, sickness, accident or disability benefits.

Employee Benefits

A collection of nonwage compensation elements, including but not limited to, income protection, services and income supplements for employees, provided in whole or in part by employer payments.

Employee Contributions

Made by an employee into a plan. May or may not be required for participation. See also Contributory Plan; Voluntary Contribution.

Employee-Pay-All Plan

One in which employees pay all costs for the plan; the employer does not make any contributions.


Any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan. The term also includes a group or association of employers acting for an employer in such capacity.

Enrolled Group

Persons with the same employer, or with membership in an organization in common, who are enrolled in a health plan. Usually, there are stipulations regarding the minimum size of the group and the minimum percentage of the group that must enroll before the coverage is available.


Any process by which an individual and/or dependents become subscribers to health plan coverage, flexible benefit plans, etc. May be done either through an actual “signing up” of the individual, by virtue of a collective bargaining agreement or by conditions of employment.

Errors and Omissions (E&O) Insurance

Insurance that protects an agent, or advisor, against financial liability resulting from his or her negligent acts or mistakes.

Evidence of Insurability

Any statement or proof of a person’s physical condition and/or other factual information affecting his/her acceptability for insurance. Generally submitted for excess Basic Life or Optional Life insurance, excess Long Term Disability insurance, or late enrolment in a plan of insurance.

Expected Claims

The claims forecast for a group or covered person. The expected claims level becomes the breakeven point with respect to expected premium for a period of coverage.


Usually expressed as a ratio or percentage, it is the relationship of premium to claims, coverage or benefits of a plan for a specified period of time.

Experience Adjustment

This represents the premium rate adjustment which is required based purely on the group’s own claims experience. It is calculated by dividing the loss ratio, or if applicable, a weighted loss ratio by the target loss ratio.

Experience Credibility

(See Credibility)
Experience credibility refers to that portion of the group’s own claims experience which will be used in the establishment of the premium rates. It is expressed as a percentage.

Experience Rating

The process of determining the premium rate for a group risk, wholly or partially on the basis of that group’s experience.

Experience Study

An actuarial analysis of the plan’s experience in membership age, sex, salary and service giving effect to the assumed rates of mortality, disability, employment turnover, investment earnings and other cost factors.

Experience-rated – Fully Experience-rated

A method of determining premium rates by giving full credibility to the group’s own claims experience.

Experience-rated – Partially Experience-rated

A method of determining premium rates by giving partial credibility to the group’s own claims experience and partial credibility to the insurer’s manual rates.

Expiration Date

The last day on which a stock option may be exercised. The date the insurance master contract expires or the date an individual or employee ceases to be eligible for coverage.

Explanation of Benefits

A statement from the insurer sent to a group member who files a claim giving specific details about how and why benefit payments were or were not made. It summarizes the charges submitted and processed, the amount allowed, the amount paid, and the subscriber balance, if any.

Extended Benefits

Comprehensive benefits provided in excess of basic health care plans. Extension of benefits for limited periods after termination of plan coverage. Extension of unemployment compensation benefits during periods of high unemployment.

Extended Health Care (EHC)

EHC is a benefit which provides hospital and medical coverage over and above the services provided under the government health plan. Also referred to as a Major Medical Benefit.

Fee Guide

A fee structure published annually by each provincial dental association (with the exception of Alberta*) which suggests dollar limits for various dental procedures. Insurers use this fee guide to establish what they’ll pay for dental services claimed. The annual increase in the Ontario Dental Association (ODA) Fee Guide over the last three years has been between 2% and 4%. Also referred to as a Fee Schedule.

* Effective January 1, 1998 the Alberta Dental Association (ADA) announced to its members that it would no longer produce a suggested fee guide. Instead of a structured fee guide the ADA would survey its members and produce a document outlining a range of fees charged within the province for each procedure. Dentists would be able to set their own fees based on their individual business situations. From January 1, 1998 to December 31, 2000 the insurance industry based their reimbursement on the 1997 ADA fee guide. On January 1, 2001 they agreed to assume a common inflationary increase. Today most insurers have their own method of establishing the fees they’ll allow for Alberta claims.

Fee Schedule

A listing of fees or allowances for specified medical procedures, which usually represents the maximum amounts the program will pay for specified procedures.

Fellow, Life Management Institute (FLMI)

This is an educational program, sponsored by LOMA, which is designed to help students achieve a working knowledge of the life and health insurance business. There are two levels to the program. A certificate is granted upon completion of level 1 and a diploma and designation upon completion of level 2.

Financial Services Commission of Ontario (FSCO)
The Financial Services Commission of Ontario (FSCO) was created on July 1, 1998, as an arm’s length agency of the Ministry of Finance. FSCO integrates the operations of the former Ontario Insurance Commission (formerly the Office of the Superintendent of Insurance), Pension Commission of Ontario, and Deposit Institutions Division of the Ministry of Finance. This is the agency responsible for administering Ontario’s insurance laws and regulations.

Full-Time Employees

Employees of an employer who work for 1,000 or more hours in a 12-month period or employees who usually work 40 hours per week.

Fully Insured Plan

A group insurance plan in which an insurer pays all claims and assumes all risks for an employer in exchange for payment of a regular premium. Separate contracts are issued on the life of every employee.

General Death Benefit

A benefit payable under a group term life insurance plan on the death of an employee, without special conditions.

Generic Equivalent Drugs

Prescription drugs that are equal in therapeutic power to the brand-name originals because they contain identical active ingredients at the same doses.

Goods and Services Tax

This is a federal tax charged on the sale of most goods and performed services in Canada. In group insurance it is charged on the Administration Fee for non-insured plans.

Grace Period

The grace period for group insurance is usually 31 days from the premium due date, and coverage remains in-force during the grace period. If the policyholder doesn’t pay the premium by the end of the grace period the coverage terminates.

Graduated Benefits

Health care or other employee benefits plans in which the amount contributed by the employer is determined by the number of years the worker has been employed by the company, so shorter-term workers pay more for their coverage than those who have been with the company for many years.

Grandfather Clause (Grandfathering)

An exception to a restriction that allows all those already doing something to continue doing it even if they would be stopped by the new restriction.

Group Contract

A contract of insurance made with an employer or other entity that covers a group of persons identified by reference to their relationship to the entity buying the contract: e.g., members of a trade association, employees of a common employer, members of a labor union; or members of some other group or association not formed for the purpose of buying insurance.

Group Insurance

This type of insurance issued on a group of people under a master contract. It is usually issued to an employer for the benefit of his/her employees. The insured employees are given certificates as evidence of their insurance.

Group Universal Life Plan

A form of group life insurance that combines term protection for designated beneficiaries with an investment element for the policyholder, which can be used to create nontaxable permanent insurance or to accumulate tax-deferred capital. Participation is entirely voluntary and all premiums are paid by the employee.

Guaranteed Issue Limit

See Non-Evidence Maximum.

Health Care Cost Trend Rate

An assumption about the annual rate of change in the cost of health care benefits currently provided by the postretirement benefit plan, due to factors other than changes in the composition of the plan population by age and dependency status, for each year from the measurement date until the end of the period in which benefits are expected to be paid. Considers estimated health care inflation, changes in utilization and delivery patterns, advances in technology and changes in health status of plan participants. Different health care services may have different trend rates.

Health Care Flexible Spending Account

Allows employees to set aside pretax funds for eligible health care benefits such as physical exams, vision care and dental care, including deductibles and copayments. See also Flexible Spending Accounts (FSAs).

Health Care Provider

An individual or institution that provides medical services (e.g., a physician, hospital, laboratory, etc.). This term should not be confused with an insurance company which “provides” insurance.

Health Insurance

Protection that provides payment of benefits for covered sickness or injury. Included under this heading are various types of insurance, such as accident insurance, disability income insurance, medical expense insurance, and accidental death and dismemberment insurance.

Hold-Harmless Agreement

An arrangement by means of a formal agreement whereby the policyholder agrees to be responsible for any emerging deficit upon contract termination, usually in exchange for the insurer’s agreement to charge lower premiums than it believes are required.

A hold-harmless agreement may also be used for the Incurred But Not Reported (IBNR) claims reserve. Under this arrangement the policyholder is responsible for the payment of any claims incurred prior to the contract termination date but reported after the contract termination date.


An alternative medical system that treats the symptoms of a disease with minute doses of a drug that produce the same symptoms in a healthy person as are present in the disease. This is thought to stimulate physiological defenses against the symptoms of the disease. Homeopathy as a formal system of medicine is no longer practiced in the United States. However, it may be informally practiced as an alternative therapy.


Health care facility or program providing medical care and support services, such as counseling, to terminally ill persons and their families.


A legally constituted institution having organized facilities for the care and treatment of sick and injured persons on a resident or inpatient basis, including facilities for diagnosis and surgery under the supervision of a staff of one or more licensed physicians and which provides 24-hour nursing services by a registered nurse on duty or call. It does not mean convalescent, nursing, rest or extended care facilities or a facility operated exclusively for the treatment of the aged, drug addict or alcoholic, whether or not such facilities are operated as a separate institution by a hospital.

Hospital Benefit Plan

A plan that makes cash payments or reimburses employees for hospital charges up to a certain amount or assumes the costs for certain specified hospital charges such as room and board, services, drugs and supplies.

Hospital Indemnity Policy

A form of health insurance that provides a stipulated daily, weekly or monthly indemnity during hospital confinement. The indemnity is payable on an unallocated basis without regard to the actual expense of hospital confinement.

Income Averaging

A method of determining how much tax is owed on a lump-sum distribution from a qualified pension plan. An individual who receives such a distribution and includes it in taxable income may be eligible to treat the tax liability as if the distribution had been received over a five- or ten-year period. Certain requirements must be met.

Incurred but Not Reported

Claims that have been incurred but have not been reported to the insurer as of some specific date. Often a disputed figure since carriers must estimate this liability for accounting purposes based on their experience with claims lags.

Incurred Claims

Incurred claims equal the claims paid during the policy year plus the claim reserves as of the end of the policy year, minus the corresponding reserves as of the beginning of the policy year. The difference between the year-end and beginning of the year claim reserves is called the increase in reserves and may be added directly to the paid claims to produce the incurred claims.


Literally, “to save harmless.” Thus, one person or organization agrees to protect another against loss.


A benefit paid by an insurer for a loss insured under a policy.

Inflation Factor

The regular but varying annual increase in health costs based on increases in the cost of medical services. It is usually closely tied with the general economic inflation forecasts. Sometimes referred to as a trend factor.


A means of providing or purchasing protection against some of the economic consequences of loss. Risk of loss is transferred to a third party in exchange for a “consideration” or premium. This exchange creates an insurance contract.

Insurance Contract

An irrevocable contract in which the insurance company unconditionally undertakes a legal obligation to provide benefits in return for a premium, thereby transferring risk from the employer (or the plan) to the insurance company.

Insurance Tax

This is a provincial tax applicable to every insurance company. It is more commonly referred to as Premium Tax.


An organization, insurance company or other, that assumes the risk and provides the policy to the insured.

Job Description

A summary of a job’s purpose, listing its tasks, duties, responsibilities, and the skills, knowledge and abilities needed to perform the job competently. A job description describes and focuses on the job itself, not on any specific individual who might fill the job

Key Employee

A criterion used to describe highly compensated officers or owners of companies and to establish whether a defined benefit pension plan is top-heavy; if it is, special requirements for vesting, contributions and benefits must be met to retain tax qualification. Before 2002, a key employee was a participant who, at any time during the plan year: (1) earned at least 50% of the dollar limitation for defined benefit plans (adjusted annually) and was an officer; (2) earned more than the dollar limitation for defined contribution plans (adjusted annually) and was one of the ten employees owning the largest interest in the employer; (3) owned more than 5% of the employer; or (4) earned more than $150,000 and owned less than 1% of the employer. After 2001, a key employee is a participant who at any time during the preceding year is described in (3) and (4) above or who is an officer and earns more than $130,000 (as indexed).

Key Employee Insurance

Protection of a business firm against the financial loss caused by death or disability of a vital member of the firm; a means of protecting the business from the adverse results of the loss of an individual possessing special skills or experience.

Large Amount Pooling

An approach whereby individual health claims in excess of a pre-determined level are not charged to the group’s claims experience but rather to the pool of the insurer. The insurer charges a pooling charge for this protection.

Level Commission Scale

A commission scale which applies the same % commission rate to the premium each year, regardless of the policy year.

Level Down-Scaled Commission Scale

A commission scale which provides a varying rate of commission based on the size of the annual premium. This is the most common type of commission scale used under group plans. There is often a separate scale for Life & Health and LTD. The AD&D premium may be included with the Life & Health premium or it may have a separate flat commission rate. A typical level down-scale is as follows:

Life and Health Premium LTD Premium 
On the 1st $10,00010.0%On the 1st $15,00015.0%
On the next $15,0007.5%On the next $10,00010.0%
On the next $25,0005.0%On the next $25,0005.0%
On the next $50,0003.0%On the next $50,000 plus1.0%
On the next $150,0002.0%  
On the next $250,000 plus1.0%  

The process by which an agency of government–usually state government–grants permission to an individual or organization to engage in a given occupation or business upon finding that the applicant has attained the competency necessary to ensure that the public health, safety and welfare will be reasonably well protected.

Life Insurance

A type of insurance that provides a sum of money if the person who is insured dies while the policy is in effect.

Long-Term Care

Includes all forms of services, both institutional and noninstitutional, that are required by all people with chronic health conditions, the elderly or those with physical disabilities who need help with activities of daily living. Long-term care is palliative only–relieving symptoms, but not effecting a cure.

Long-Term Care Benefit

An accelerated death benefit provided by some individual life insurance policies under which the insurer agrees to pay a monthly benefit to an insured who requires constant care for a medical condition.

Long-Term Care Insurance

A type of health insurance available through private insurers that covers long-term care nursing home care and long-term custodial care at home. Designed to prevent depletion of the policyholder’s assets.

Long-Term Disability

A disability that prevents a person from continuing in the occupation for which he or she was trained, lasting two years or more.

Long-Term Disability Income Insurance

Insurance issued to an employer (group) or individual to provide a reasonable replacement of a portion of an employee’s earned income lost through serious and prolonged illness or injury during the normal work career.

Loss of Benefits

An employee’s right to accrued benefits from personal contributions is not subject to forfeiture under any circumstances. However, a plan may provide for the forfeiture of vested benefits derived from employer contributions in the event of the employee’s death before retirement. This forfeiture rule does not apply if the employee continued to work after retirement eligibility and if a joint or survivor annuity was to be provided. A limited forfeiture may take place if a retiree returns to work for his or her employer (or returns to work in the same industry, in the case of a multiemployer plan).

Loss Ratio

The ratio of paid and incurred claims plus expenses to premium.

Loss Reserve

As stated on a financial statement, an amount representing the estimated liability for unpaid insurance claims (losses) that have occurred as of a given date. Includes losses incurred but not yet reported (IBNR), claims being adjusted and amounts known to be payable in the future (e.g., long-term disability). On an individual basis, loss reserve represents an estimate of the total amount ultimately to be paid out on that claim.

Magnetic Resonance Imaging

A noninvasive diagnostic procedure of imaging soft tissues using a powerful magnet and radio waves to produce computer-processed images of the inner body.

Major Medical Insurance

Supplementary insurance coverage (beyond basic medical) intended to cover the costs associated with a major illness or injury. Although characterized by large maximum limits, some limitations apply. The term can also refer to the catch-all portion of a medical plan that picks up payment for miscellaneous charges.

Mandatory Employee Contribution

A contribution that is made by employees in order to participate in the plan, share in employer contributions or in some way receive more favorable treatment than those not contributing.

Manual Rate

Premium rate for group insurance coverage from the company’s standard rate tables; based on the experience of an average group, not any particular group. It is used to determine the premium for a small group.


The practice of soft tissue manipulation with physical, functional, and in some cases psychological purposes and goals.

Master Contract

A life insurance policy that insures a number of people under a single insurance contract; a contract between an insurance company and a group policyholder in which the individuals insured are not parties to the contract.

Medical Insurance

Protection that provides benefits for the cost of any or all of the numerous health care services normally covered under various health care plans.

Medical Loss Ratio

An index which compares the costs of delivering health benefits with the revenues received by the plan.

Minimum Continuing Capital and Surplus Requirement (MCCSR)

These are regulatory rules that contain detailed instructions for determining the amount of capital that a life insurance company is required to maintain. In general, companies are expected to maintain a MCCSR ratio of available capital over required capital of at least 120%.

Minimum Group

The least number of employees permitted by law to effect a group for insurance purposes; the purpose is to minimize risk and maintain some sort of proper division between individual policy insurance and the group forms.

Minimum Participation Rules

Numbers of employees to participate in most retirement plans. Usually at least 50 employees or 40% of the total number of employees enrolled.

Miscellaneous Hospital Expenses

A provision for the payment on a blanket basis or schedule basis of hospital services (other than room and board, special nursing care and doctor fees) up to a stipulated maximum amount. Also called ancillary charges.


The incidence and severity of sickness and accidents in a well-defined class of people.


The incidence of death in a well defined class of people.

Multiple Employer Group

A group of two or more employers that are not financially related.

Naturopathic medicine

A “Complementaty and Alternative Medicine” complementary and alternative medicine which emphasizes the body’s intrinsic ability to heal and maintain itself. Naturopaths use natural remedies such as herbs and foods rather than “Surgery”or synthetic “Medication” drugs.

Non Discrimination Rules

The requirements that self-funded employee benefit plans not provide significantly greater benefits to higher paid employees and owners than to lower paid employees. Although some disparity is permitted, there are limits which, if crossed, result in the benefits being deemed taxable income to the beneficiaries.

Non Evidence Maximum

is the amount of insurance offered to a plan member without any requirement that the member provide information about his or her state of health. If a member requests a coverage limit in excess of the non-evidence maximum, the member must complete the Proof of Insurability.

Non Exempt Employees

Employees who are subject to the minimum wage and overtime pay provisions of the Fair Labor Standards Act. Most are paid on an hourly basis.

Non Occupational Death Benefit

A benefit payable upon the death of an employee, resulting from any cause other than that occasioned by the performance of an act or acts of duty.

Non-contributory plan

A group insurance plan in which the employer pays the total premium cost.

Non-Medical Maximum

See Non-Evidence Maximum.

Nurse Practitioner

A registered nurse who has completed a nurse practitioner program at the master’s or certificate level and is trained in providing primary care services. Generally, nurse practitioners provide services at a lower cost than primary care physicians.

Nursing Home

A licensed institution that provides skilled nursing care and related services but does not qualify as a skilled nursing facility as defined by Medicare. Nursing homes are usually operated for profit. Medicare and private Medigap insurance plans reimburse only a small portion of the costs; Medicaid covers the entire cost for qualified individuals.

Occupational Death Benefit

A benefit payable upon death of an employee resulting from his performance of an act or acts relating to the duties of his position in the employer’s service.

Occupational Disability Benefit

A benefit payable on account of disability arising out of and in the course of employment.

Occupational Therapist

A health professional who is trained in the practice of occupational therapy.

Office of the Superintendent of Financial Institutions Canada (OSFI)
The federal agency responsible for regulating and supervising banks, insurance, trust, loan and investment companies, federally-regulated pension plans, and co-operative credit associations that are licensed or regulated by the federal government. The federal Minister of Finance oversees OSFI.

Office of the Superintendent of Insurance

This is a provincial agency established to administer the province’s insurance laws and regulations. While most provinces call this agency the Office of the Superintendent of Insurance, Ontario replaced this agency with the Ontario Insurance Commission in 1990 and then with the Financial Services Commission of Ontario (FSCO) in 1998. The director of the Office of the Superintendent of Insurance is known as the Superintendent of Insurance.

Ontario Insurance Commission

See Financial Services Commission of Ontario.

Open Claims Reserve (OCR)

See Disabled Life Reserve.

Open Enrollment

Usually refers to the granting, by the insurer, of group insurance benefits to a specified group of employees as of a certain date or between two specified dates. The offer usually entails waiving the normal evidence of insurability requirements.


A practitioner of “Osteopathy”, a system developed by Andrew Still in the United States of America and practiced throughout the world. osteopathic medicine is a complete system of healthcare with a philosophy that combines the needs of the patient with the current practice of medicine. Doctors of osteopathic medicine (DOs) practice a whole-person approach, which means they consider both the physical and mental needs of their patients.


Self-employed individual who owns the entire interest in an unincorporated business, or a partner who owns more than 10% of the capital or profit interest of the partnership. If the owner-employee established a plan just for his or her employees but does not cover himself or herself, the rules for qualification and tax treatment of contributions and benefits are the same as those plans established by corporate employers.

Paid Claims

The dollar value of all claims paid (e.g., hospital, medical, surgical) during the plan year, regardless of the date that the services were rendered. Measures a plan’s performance.

Paid Premium

Agreed upon fees paid for coverage of medical benefits for a defined benefit period. Premiums can be paid by employers, unions, employees, or shared by both the insured individual and the plan sponsor.

Part-Time Employees

Refers to employees who work less than 1,000 hours for an employer in a year. Such employees may be kept from participating in qualified retirement plans.

Partial Disability

An illness or injury that prevents an insured person from performing one or more of the functions of his or her regular job.


The number of employees insured under the group plan in relation to the total number of employees eligible for coverage. It is usually expressed as a percentage. All insurers have minimum participation requirements on contributory plans, which usually vary by the size of the group.

Participation Requirements

Most pension and other employee benefit plans provide that a new employee must wait a specified length of time before he or she is eligible to participate in the plan


Concerned with the diagnosis and treatment of gum disease known as periodontitis. Periodontists are also concerned with the implementation and maintenance of dental implants to replace missing teeth.

Permanent Disability

Employee’s inability to work at any job, rather than at the specific job held at the time the disability was incurred. Permanent disability is typically covered by insurance for those employees who become disabled before reaching the age of 65.

Physical Therapy

Treatment of disease and injury by physical means, including exercise, manipulation, electricity, heat, cold and water.


Physiotherapists treat patients with physical difficulties resulting from illness, injury, disability or ageing. They treat people of all ages including children, the elderly, stroke patients and people with sports injuries. Physiotherapists work with patients to identify and improve their movement and function. They help promote their patients’ health and wellbeing, and assist the rehabilitation process by developing and restoring body systems, in particular the neuromuscular, musculoskeletal, cardiovascular and respiratory systems. They devise and review treatment programmes, comprising manual therapy, movement, therapeutically exercise and the application of technological equipment, e.g. ultrasound. Physiotherapists also provide advice on how to avoid injury.


An arrangement under which employer and employee contributions, if any, are deposited with a trustee who is responsible for the administration and investment of these monies and the income earned on accumulated assets of the fund, and who is normally responsible for the direct payment of benefits to eligible participants under the plan. Benefits are often paid by an insurance company with transfers from the trust fund as required. The trustee may be a corporate trustee (trust company) or an individual.

Plan Participant

Any employee or former employee of an employer, member or former member of an employee organization, sole proprietor, or partner in a partnership who is or may become eligible to receive a benefit of any type from an employee benefit plan, or whose beneficiaries may be eligible to receive any such benefit. See also Active Participant; Participation Requirements.

Plan Sponsor

The party that establishes and maintains the plan, which is (1) the employer, in the case of an employee benefit plan maintained by a single employer; (2) the employee organization, in the case of a plan maintained by an employee organization; or (3) the association, committee, joint board of trustees or other similar group of representatives of the parties involved, in the case of a plan maintained by one or more employers and one or more employee organizations.

Plan Suspension

An event in which the pension plan is frozen and no further benefits accrue. Future service may continue to be the basis for vesting of nonvested benefits existing at the date of suspension. The plan may still hold assets, pay benefits already accrued and receive additional employer contributions for any unfunded benefits. Employees may or may not continue working for the employer.

Plan Termination

When the plan ceases to exist and benefits are settled. Replacement with another plan is not a termination. ERISA requires that all accrued benefits (to the extent funded) must be fully vested upon the termination or partial termination of a plan. (A partial termination might result from a large reduction of the workforce or a sizable reduction of benefits under the plan.) (Canada) Voluntary or involuntary discontinuance of a plan.


A field of medicine devoted to the study and treatment of disorders of the foot and ankle. It is practiced by podiatrists.

Pool Adjustment

Pool adjustment refers to the portion of the Health and/or Dental renewal rate which represents the carrier’s pooled, or manual, rate. This is the non-credible portion of the premium rate.

Pool Credibility

Pool credibility refers to the amount of the pool adjustment that will be used in the determination of the Health and/or renewal rates. It is expressed as a percentage and calculated as the Experience Credibility.

Pooled Rates

See Manual Rate


This is a funding method whereby the premiums and claims, for a particular benefit, are combined or pooled with those of many other groups.

Pre-Existing Condition

A physical and/or mental condition of an insured person that existed prior to the issuance of his or her policy. Some plans may cover these conditions after a waiting period of six months to a year, while others may permanently exclude a person with a preexisting condition from coverage.

Premium Rate

The rate charged per unit (i.e. per $1,000 of coverage, per employee, etc.) for a particular benefit. With respect to health and dental coverage the premium rate may be divided into the following:

Single rateThe rate charged for single coverage
Couple rateThe rate charged for 2 persons (usually husband and wife)
Family rateThe rate charged for family coverage. Also called the married rate.
Dependent rateThe portion of the family rate applicable to coverage on the lives of the employee’s family. It is calculated by subtracting the single rate from the family rate.
Premium Tax

See Insurance Tax.

Prescription Drug Formulary

A listing of prescription medications that will be covered by a plan or insurance contract that often fosters substitution of generic or therapeutic equivalents on a cost-effective basis.

Prescription Drug Plan

Usually a provision under medical coverage plans whereby the beneficiary can obtain prescription drugs without incurring potentially large out-of-pocket expense. Different types of prescription drug plans are available. Examples are discount plan, closed panel drug plan, service-delivered plan, mail-order plan and maintenance drug option with major medical plan.

Preventive Care

Comprehensive care emphasizing priorities for prevention, early detection and early treatment of conditions, generally including routine physical examinations, immunization and well-person care. See also Wellness (Health Promotion) Programs.

Primary Payer

The insurance carrier that has first responsibility under coordination of benefits.

Probationary Period

See Eligibility Period and Waiting Period.

Proof of Insurability

Also known as Evidence of Insurability; additional information required about a person’s health, job and lifestyle to decide if the requested coverage will be provided.


A written submission to a prospective group insurance policyholder usually made through an advisor. This submission outlines the benefits and costs under the plan being proposed and the basis on which the insurer is willing to provide it. Also referred to as a quote, quotation or prospectus.

Qualification Period

The period of time between the beginning of a disability and the start of a policy’s benefits.

Qualified Disability Benefit

A disability benefit provided by a plan that does not exceed the benefit that would be provided if the participant separated from service at normal retirement age

Quality of Care

Refers to the degree of success by which a medical provider increases the probability of desired patient outcomes and reduces the likelihood of undesired patient outcomes, given the state of medical knowledge. Quality of care is dependent on the training, credentialing and experience of medical providers. Measurements for quality of care can include preventive services, death rates, surgery rates, inpatient stays, outpatient utilization, use of drug therapies and survival rates for catastrophic illness.

Rate Change Date

See Renewal Date.

Rate History

The chronological history of all premium rate revisions, and date of these revisions, on a particular benefit or group of benefits.

Rate Stabilization Reserve (RSR)

See Claims Fluctuation Reserve.


The process that determines how much a particular package of benefits will cost and what will be charged (premium) to cover those expected costs for a specific group of people.

Reasonable and Customary (R&C) Charge

The prevailing charge made by physicians of similar expertise for a similar procedure in a particular geographic area. See also Usual, Customary and Reasonable (UCR) Fees.


Services and facilities patients use as part of recovering from an accident or illness. Restoration of a totally disabled person to a meaningful occupation. A provision in some long-term disability policies that provides for continuation of benefits or other financial assistance while a totally disabled insured is retraining or attempting to resume productive employment.


The acceptance by one or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer.

Renewal Date

The annual date on which a group insurance plan is reviewed and the premium rates recalculated for the upcoming policy year. Also referred to as the anniversary date or rate change date.


The process of making the transition from an overseas assignment to the home country.


A sum set aside by an insurance company or self-funded plan to assure the fulfillment of commitments for future claims.

Retail Sales Tax

This is a provincial tax applicable in Ontario & Quebec and is charged on all insurance plans regardless of whether they are insured or self-insured.


The amount retained by the insurance company for its expenses, commission, premium tax, risk charge and profit charge.

Retention Accounting

The actual display of a group’s annual financial results detailing the premiums paid, claims paid, the insurer’s retention charges and the resulting surplus or deficit.

Retention Agreement

The document which outlines the terms and conditions under the retention accounting arrangement.

Risk Charge

See Contingency Charge.

Risk Pool

The population of individuals (or groups) across which costs for insured expenses are spread through premiums or other mechanisms.

Risk Sharing

A method by which premiums and costs of medical protection are shared by plan sponsors and participants.

Secondary Payer

The insurance carrier that is second in responsibility under coordination of benefits.

Segregated Fund

An annuity offered by an insurance company which guarantees a specific percentage return on the investment upon maturity. It is similar to a mutual fund, and is offered by a insurance company. The term “segregated” is used because the funds are kept separate from the issuing company’s other investment funds. Segregated funds also contain other beneficial provisions, including the exemption from certain fees, such as the probate fee that would normally be charged when funds are passed to a beneficiary.

Self-Administered Plan

(Directly Invested or Trusteed) A plan funded through a fiduciary, generally a bank, but sometimes a group of individuals, that directly invests the funds accumulated. Retirement payments are made from the fund as they fall due. This term is used to designate a plan that is not funded through an insurance company. (Health Care) A plan administered by the employer or welfare fund without recourse to an intermediate insurance carrier. Some benefits may be insured or subcontracted while others are self-funded.

Self-Insurance (Self-Funding)

A fully noninsured or self-insured plan is one in which no insurance company or service plan collects premiums and assumes risk. In a sense, the employer is acting as an insurance company–paying claims with the money ordinarily earmarked for premiums. Regardless of the specific self-funding technique a firm chooses, it will need to either buy its administrative services (ASO) outside the company or develop them in-house. Hence, self-funded arrangements are referenced as ASO or self-administered.

Service Provider

Any of the following who provide service to a benefit plan: persons, such as accountants, attorneys, enrolled actuaries, investment managers, trustees or other plan fiduciaries; entities, such as third-party administrators or insurance carriers.

Short-Term Disability

Often considered to be a disability lasting usually not longer than two years.

Short-Term Disability Income Insurance (STD)

An income replacement benefit, which is usually payable weekly, after an elimination period, to a disabled employee. It typically replaces a percentage of the employee’s earnings. Generally, a Short Term Disability plan refers to a self-insured employer sponsored plan. Whereas, a Weekly Indemnity plan refers to an insured plan.

Sick Leave

Plans that provide employees protection against short-term disability and typically specify a maximum number of benefit days per year or per disability that an employee may take at full pay before insured short-term or long-term disability benefits are initiated.

Single Employer Plan

A pension plan maintained by one employer. Also, the term may be used to describe a plan maintained by related parties such as a parent and its subsidiaries.

Skilled Nursing Care

Around-the-clock nursing and rehabilitative care that can only be provided by, or under the supervision of, skilled medical personnel.

Skilled Nursing Facility

A care setting for patients who have chronic diseases or no longer require hospital care, but need 24-hour nursing care and other defined health care services.

Speech-language pathology

The study of disorders that affect a person’s speech, language, cognition, voice, swallowing “(Dysphagia”) and the “Physical medicine and rehabilitation” rehabilitative or corrective treatment of physical and/or “Cognition” cognitive deficits “Speech Disorder” disorders resulting in difficulty with communication communication and/or swallowing..

Stop Loss

Under this arrangement the insurer accepts the financial risk for claims in excess of a pre-determined amount whereby stopping the policyholder’s losses. Stop-loss protection is available on either an individual or aggregate basis. When the stop-loss protection is on an individual basis it is more commonly referred to as Large Amount Pooling.

Stop-Loss Provision

A health insurance policy provision. A stop-loss provision is determined in two ways: either after a certain amount of benefits are paid from the plan or after a certain amount of out-of-pocket expenses are paid by the individual or family unit. When the dollar amount specified is reached, the coinsurance factor is raised to 100%. When there is a stop-loss provision in the plan (besides the separate maximums and coinsurance levels on outpatient mental and nervous disorders), outpatient mental and nervous charges usually do not apply toward the dollar figure used to calculate when the stop-loss begins; after the stop-loss does begin, it does not apply to these charges.


The right of the employer or insurance company to recoup benefits paid to participants through legal suit, if the action causing the disability and subsequent medical expenses was the fault of another individual. Used as a cost-containment measure. Generally, the substitution of one person or entity for another in regard to a legal right, interest or obligation.


Some contributory plans that do not permit employees to withdraw from the plan while continuing in employment do permit them, on application, to suspend contributions temporarily. The term also refers to a temporary interruption of employer contributions that may sometimes be permitted by an insurance company and/or the secretary of the treasury without terminating the plan.

Target Case

A highly regarded case (because of the nature of its business, financial reasons, prestigious account, growth potential, etc.) which is sought after or targeted as a desirable case. Usually special underwriting and pricing considerations are necessary to be awarded these cases.

Target Loss Ratio (TLR)

This is the ratio at which the insurance company has covered both incurred claims and their cost of administering the plan. It is calculated by subtracting the carrier’s total cost, as a percentage, from 100%. (i.e. If the carrier’s total expenses equals 17% of the premium the target loss ratio would be 83% of premium.) As groups grow in size the expenses, as a percentage of the larger premium, is less. Therefore, the larger the group the higher the TLR. Also referred to as the Break-even Loss Ratio.

Temporary Disability Insurance

Insurance that covers off-the-job injury or sickness and is paid for by deductions from an individual’s paycheck; administered by state agency. Mandated in certain states. Also called unemployment compensation disability or state disability insurance.


Describes the final phase of an interrupted pension program. If the plan has enough assets to meet all its obligations, it is called a standard termination. In the case of a distress termination, the PBGC acts as trustee and uses its insurance funds as necessary to guarantee pension payments. Strict regulations govern all payout periods. Essentially all participants must vest 100%. However, the assets will have to be distributed according to the present formula. No money may return to the employer, except in the case of an actuarial error. It is also possible to discontinue contributions, but keep the trust in force, in order to preserve the tax-sheltered status of future payouts.

Third Party Administration (TPA)

The method of administration whereby a third party (neither the insurer or the policyholder) maintains all the records regarding the persons covered under his or her group insurance plan. The third party may be the advisor or a specialized administrative body. The third party prepares the premium statements for each premium due date and submits it with the premium cheque to the insurer. In certain instances, upon the approval of the insurer, the third party administrator may also be involved in the claims payment process.

Total Disability

An illness or injury that prevents an insured person from continuously performing every duty pertaining to his or her occupation or from engaging in any other type of work for remuneration.

Transportation Benefits

Some companies sponsor public transportation subsidies, van pools, employer-sponsored vans or buses that transport workers to the workplace. Aims to increase employee attendance and retention.

Trend Factor

Most carriers include a trend factor in the renewal rating of the dental benefit. This is in addition to the fee guide adjustment and reflects the annual increase in claims due to pure utilization. See Inflation Factor.

Trended Incurred Claims

Trended incurred claims are determined by multiplying the incurred loss ratio, for each experience period, by the applicable trend and/or inflation factor. The purpose of “trending” the incurred claims is to bring prior year’s claims to the equivalent monetary level of the current year’s claims.

Trended Incurred Loss Ratio

This is the ratio of the incurred claims to the adjusted premium, multiplied by the trend and/or inflation factor.

Turnaround Time

The time required to complete a particular project from the date of receipt to the completion date.

Underfunded Benefit Plan

An employee benefit plan in which the company’s past contributions are insufficient to cover current and future liabilities.


(Insurance) Can mean (1) the company that receives the premiums and accepts responsibility for fulfilling the policy contract, (2) the company employee who decides whether or not the company should assume a particular risk or (3) the agent who sells the policy.


(Insurance) The process of identifying and classifying the potential degree of risk represented by a proposed insured.

Union-Sponsored Plan

A program of health benefits developed by a union. The union may operate the program directly, or may contract for the benefits. Funds to finance the benefits are usually paid out of a welfare fund, which receives its income from (1) employer contributions, (2) employer and union member contributions or (3) union members alone.

Usual, Customary and Reasonable (UCR) Fees

Usual is the fee usually charged for a given service by a health care provider; customary is a fee in the range of usual fees charged by similar providers in area; reasonable is a fee that, according to the review committee, meets the lesser of the two criteria or is justified in the circumstances. Reimbursement is limited to the lowest of the three charges. Usual and customary charges are also being applied to workers’ compensation.

Vision Care Coverage or Plan

A separate plan covering medical treatment relating to eye conditions. Ophthalmologists, optometrists or opticians can render care.

Voluntary Benefits

Employer-sponsored benefits often available at group rates or discounts that create a value employees could not duplicate on their own. Examples include dental coverage, vision benefits, prescription drug coverage, life insurance, long-term care insurance, financial planning, legal services and college savings plans. Benefits are administered by the employer, but paid for by the employees.

Waiting period

See Eligibility Period and Probationary Period.


Relinquishing the right to a benefit, especially in regard to health benefits, flexible benefits or early retirement window plans. An agreement attached to a policy that exempts from coverage certain disabilities or injuries normally covered by the policy. Also known as exclusion endorsement. A supplementary life insurance policy benefit under which the insurer gives up its right to collect renewal premiums if the policy owner dies or becomes disabled. Also known as waiver of premium.

Waiver of Premium Provision

A provision whereby under certain conditions a person’s life insurance will be kept in full force by the insurer without further payment of premiums. It is used most often in the event of permanent and total disability.

Waiver of Premium Reserve

Once a waiver claim has been approved by the insurer they establish a waiver of premium reserve. The level of the reserve is determined by actuarial tables. The life insurance coverage continues, without any premium due, until death, recovery or the age limit specified in the contract.

Weekly Indemnity (WI)

An income replacement benefit, which is usually payable weekly, after an elimination period, to a disabled employee. It typically replaces a percentage of the employee’s earnings. Also see Short Term Disability.

Weighted Loss Ratio

This is the average loss ratio determined through the weighting process. See Weighting.


Weighting represents the portion of both the current and prior year’s experience which will be used to calculate an average loss ratio for the purpose of determining the experience rate. Generally the most current year’s experience is given the most weight since it is assumed to be the most accurate indication of future claiming patterns. However, the most recent year may not always be indicative of past or future claiming patterns so the previous one or two years are also given some consideration. Each carrier has their own weighting formula.

Wellness (Health Promotion) Programs

A broad range of employer- or union-sponsored facilities and activities designed to promote safety and good health among employees. The purpose is to increase worker morale and reduce the costs of accidents and ill health such as absenteeism, lower productivity and health care costs. May include physical fitness programs, smoking cessation, health risk appraisals, diet information and weight loss, stress management and high blood pressure screening.

Year’s Basic Exemption (YBE)

As defined by the CPP/QPP, the first 10% of an employee’s annual earnings up to the amount of the YMPE.

Yearly Maximum Pensionable Earnings (YMPE)

The YMPE is a factor used to define and limit the amount of an employee’s annual contributory earnings on which the employee’s and employer’s compulsory annual contributions to the CPP/QPP are based.

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