What if you’re a small business owner who can’t justify paying the price tag on your own health and dental insurance plan? What do you do?

Some advisors pitch Association Group Benefit Plans as the best choice, particularly for small businesses. These plans are set up like traditional group insurance plans but are delivered to a group of businesses through professional associations. It sounds intriguing to the typical businessperson, but let's pull back the mask Scooby-Doo style and see what's really behind it.

Let’s start from the top

Association Plans can provide your typical insurance (think health, dental, life, etc.) to members of that association. However, unlike a plan where you’re negotiating directly with a benefits provider, these plans use the collective buying power of the association to secure more “favourable” rates for a cookie-cutter plan design that everyone must accept.

Consider this example to paint a picture:

Take a professional association for engineers. The association works with an insurance company to offer a health and dental plan to its members. It’s up to the association to decide which benefits are included and how much coverage is available.

An engineering firm that is a member of this association can opt into the plan. They may end up paying a premium that is lower than what they would pay for group benefits on their own. The insurance company manages the plan, but the association may oversee the overall administration and ensure members are informed about their benefits.

We assume at this point in the blog, you may be thinking it sounds like a sweet deal. Well, this is where we pull off the mask. (Ruh-roh Raggy)

Some things aren’t better left unsaid

Scooby-Doo references aside, we’re not here to tell you association plans are like the villains in the show. We know they do provide businesses with insurance that otherwise may not have been able to afford any. 

However, it really is just smoke and mirrors. When we pull off the mask, what we thought about the plan suddenly disappears and we see the true nature of the plan:

Limited Customization

Since the association makes decisions about benefits, the plan is one step further removed from the needs of the individual members. In today’s diverse workforce, flexibility and customization within a group benefits plan is everything. 

It’s key to have a flexible plan that meets your team’s diverse needs to retain them and attract new talent. And no one knows your team better than you!

Membership Costs

This is a pretty straight forward point, but the cost of being a member of the association, adds to the overall cost of the benefits you’ll receive. This may not be as top of mind, but still needs to be considered when looking for an affordable plan.

Total Value

This is the big one, and it all goes back to the 80/20 rule that’s the foundation of premium-based plans – they aren’t equitable. Although everyone thinks they’re getting great value, only 20% of Members are claiming more than their share of premiums, while the other 80% are subsidizing the plan.

An association plan is just a macro version of this. When an insurance company sets premiums for an association plan, they don’t just look at how your business is using the plan, they pool the companies and look at the experience of every business using the plan.

Just like every Member on a plan thinks they’re claiming more than they’re paying, most businesses in an association plan believe they’re in the 20% paying less than their Members are claiming.

They’re much more likely to be in the 80% camp. 

The reason this mistake is so common is because of the pooling we mentioned earlier. The full pool of claims determines the premiums, and businesses within these associations don’t typically get to see their individual usage reports. They’re left in the dark.

What this means is that if you are in that 80% camp, the premiums you pay are supporting the usage of other members of your association.

But I can’t afford a plan on my own, so what do I do?

This is the part we cannot talk about enough! Premium-based plans, although still the unfortunate norm, are not the ideal way to provide benefits anymore. With solutions like Health Spending Accounts or Enhanced Health Blends, you can get more wholistic, flexible coverage at the price point you can afford.

Without an insurance company dictating premiums, that price point stays the same and you control your costs, not the other way around. Whether you own a business where you’re the only employee, or you manage a large corporation with hundreds on your team, these solutions can fit your needs.

Don’t stop learning now!

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