Employee Benefits Glossary

This glossary is designed to help employers and employees understand common terms related to group benefits, eligibility, coverage, and plan administration in Canada.

AD&D

Accidental Death and Dismemberment

Coordination of Benefits

If desired, members can enroll themselves and/or their family under their own plan and also under their spouses’ plan, in order to take advantage of Coordination of Benefits provisions (coverage coordinated between two plans).

Members claim to their own Employer’s plan first, then submit any unpaid remainder to their spouses’ plan. Children claim first to the plan of the parent whose birthday falls first in the calendar year (and then any remainder to the other parent’s plan).

Please note that reasonable and customary reimbursement limits usually still apply.

Continuation of Benefits

In the event the Employer wishes for coverage to continue past the date an Employee is terminated (i.e. severance situation) the Employer must request approval from the insurer.

Conversion of Benefits Option

Employees have the option to set up an individual health and dental plan without medical underwriting/approval within 30-90 days (depending on the new insurer) of leaving the group plan. Employees can choose any insurance provider and plan that meets their needs; they do not need to set up individual coverage with the same provider as the group plan they are leaving.

Some insurers offer the opportunity to convert life insurance coverage as well; this is typically priced based on age and amount.

Cost Sharing of Premiums

Employers can choose how to split premium costs with employees, however a minimum of 50% must be paid by the Employer. Taxation of various benefits is an important consideration.

Credibility

A measure of the statistical predictability of a group’s experience. In plain language, credibility is the weight an insurer gives to a group’s own claims experience when setting premiums, compared to relying on broader pooled data.

As the size of a group and number of years of experience increases, claiming patterns become more predictable and more consistent in future years. The higher the credibility, the more weight is given to the group's own experience in rating the group.

Critical Illness (CI)

Critical Illness

Definition of Earnings

This is how the contract defines an insured’s compensation. Please ensure you understand your contract wording with regard to the ‘definition of earnings’ for your salary-based benefits to ensure members are correctly insured for their type of earnings (OT, Salary, Partnership etc).

Dependents

A dependent is your spouse, common-law partner (opposite or same-sex and have been cohabitating for 12 months) and child(ren). A dependent child is a child of you or your spouse. To be eligible under most plans, a child must not be married or common law, and be under age 21 (or 25 if a full-time student and financially dependent on you). Children of any age are typically eligible if incapable of self-supporting because of a physical or mental disability. Parents of employees and their spouses are generally not eligible, regardless of caregiving or financial situations.

Disabled Lives Reserve

This is the amount of money set aside by an insurer, calculated based on various factors such as interest rates, gender, age at onset of disability and benefit amount. The reserve is set aside to pay the benefit to the claimant for as long as the person is on disability and regardless of whether or not the group remains in force with the provider with whom the claim was originally incurred.

Eligibility

Employers define eligibility based on employment type and hours (minimum average of 20 hours per week is required by most providers).

Experience Weighting

The amount of weight attributed to a group’s experience for a certain time period. For example, the more recent time period may be more heavily weighted than a prior time period. The weighting is often expressed in percentages, such as 70/30 with 70% to the more current year, and 30% to the prior year.

Larger cases may use a single year, while smaller groups may require multiple years of experience (usually up to 3 years).

Explanation of Benefits (EOB)

An “EOB” is the statement issued by the insurance carrier, breaking down the claim submission and the payment for the claim, along with a notation as to any relevant details. An EOB may be needed for Coordination of Benefits (claiming to the second plan).

Extended Health Care (EHC)

Extended Health Care

Grace Period

Usually 30 days, this is the period of time past the plan’s waiting period during which enrolled employees would avoid having ‘late applicant’ status restrictions.

Incurred But Not Reported (IBNR) Reserve

Claims or benefits that occurred during a specified time period but have not yet been reported or submitted to the benefit provider.

Incurred Claims

In contrast to Paid Claims (actually paid to the member, by the insurer) Incurred Claims refers to the total value of claims for a specified period. This includes all paid claims plus the change in IBNR. The incurred claims amount is used to predict the expected claims in the next claims period.

Large Amount Pooling (LAP)

This is a mechanism to protect against the effect of catastrophic claims, or claims above a pooling threshold. LAP claims are paid claims in excess of a specified dollar amount (the pooling limit) per individual per calendar year or renewal year.

Large Amount Pooling Charge

Also known as Pooling fees, the percent of health premium charged by the insurance carrier to the plan sponsor to cover the cost and risk associated with large amount pooled claims.

Late Applicants

Members who enroll past the program’s waiting period (and grace period) are considered late applicants. Late applicants may be subject to medical approval and may have their benefits restricted for a period of time. Most insurance carriers apply similar rules regarding coverage for late applicants. First, the dental reimbursement is restricted to $250 in the first year. Secondly, the applicant must complete a medical questionnaire and be approved in order to receive extended health care, life and disability coverage.

Life Waiver of Premium

Refers to the waiver of life insurance premiums for those on disability claim. The insurance and death benefit remain intact, without premiums.

Life Years

The cumulative count of covered employees each year. Life years is calculated as the total number of people covered under the plan × fraction of the year they were covered. This figure is used to more accurately calculate rates.

Long Term Disability (LTD)

Long Term Disability

Manual Rates

Manual rates are “book rates” based on the insurer’s book of business, adjusted for the group’s demographics, benefit plan design and other factors. This reflects the calculated rates using all characteristics of a group without incorporating the actual experience from that group.

Maternity & Parental Leave Coverage

Employees on maternity leave are entitled to the same coverage for which they are eligible while they are at work. Employees have the option to waive coverage for which they pay all or a portion of the premium. All Employer-paid coverage must continue as usual. Typically, employers will collect post-dated cheques from employees to cover their portion of the cost, if they do not have payroll from which to deduct premiums during the maternity leave. Upon their return to work, any waived benefits are reinstated immediately.

The actual amount of claims paid to the employees and their dependents during the experience period.

The ratio of claims paid to premiums collected over a time period. For example, if a company pays $80 in claims for every $100 in collected premiums, the loss ratio would be 80%.

Pooled Claims

Refers to claims that are incurred, but not included in a group’s claims experience, as it relates to their pricing calculation for the upcoming renewal year. For example, EHC claims in excess of the Large Amount Pooling level are excluded from the group’s renewal experience. Emergency out of country travel claims are also fully pooled, at first dollar.

Pre-Existing Conditions

Many insurance plans (specifically, Long Term Disability and travel coverage) include pre-existing conditions clauses; this means that medical issues that existed prior to your insurance becoming effective may not be covered. There are specific timelines that apply, and certain wording that is very important in describing the situation. It is important that you understand exactly how this clause works within your own contract of insurance.

Reinstatement of Coverage

Employee coverage (for terminated employees) may be reinstated within 6 months without application of a new waiting period and usually, any pre-existing conditions restrictions.

Short Term Disability (STD)

Short Term Disability

Target Loss Ratio (TLR)

The target ratio of claims to premium, for the insurer to be at their ‘break-even’ mark, considering all costs to administer the plan. For example, a Target Loss Ratio of 85% indicates the remaining 15% as the requirement to pay admin expenses, commissions, premium tax and insurer profit.

Termination of Coverage

Employers can choose to have coverage termination at the date of an Employee’s termination or continue to the end of the month of termination. Depending on the provider, premiums may or may not be pro-rated.

Trend Factor

An inflationary factor used to adjust the premiums or claims, over time. The trend factor is expressed as a percentage and reflects the expected increase in the cost of health and dental claims next year, versus the current year. This factor reflects changes in the underlying costs of expenses, as well as upticks in utilization or other factors.

Volume

The total amount of insurance in-force within a class, division and/or group. For example, a group with 10 members each insured for $25K of life insurance will have a life insurance volume of $250K.

Waiver of Benefits

Members who are covered under a similar plan (i.e. – as a dependent on their spouse’s plan) can choose to ‘waive’ the health/dental coverage through their employer’s plan. Most small group programs are considered ‘mandatory’ meaning employees must enroll for other coverage lines.

Waiver of Waiting Period

Employers may request to waive the waiting period entirely, however the waiting period for an individual cannot be customized. Either the program waiting period is applied or waived in full.

Waiting Period

Employers may choose a waiting period for new hires; this is typically 3 months, or matched to the probationary period the employer has in place. The waiting period can be customized depending on the needs of the business.

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