Group Benefits for a Business With Fewer Than Ten Employees

Every page written for a small employer says the same encouraging thing, that a group plan can be put in place from two or three lives, and then describes a plan built for a company with forty employees. The reader with six people on payroll is left to work out which half applies to them. It is a real gap, because almost everything changes at the bottom of the size range: which carriers will quote, how the price is set and what moves it, how much of the design is genuinely yours, how many of your people must enrol before the contract will issue, and where the owner sits inside the arrangement. None of it is secret. It is simply never written down for the reader it applies to. This page writes it down, and it also says plainly where a full plan is the wrong answer at this size and what the alternatives actually are.

What a carrier will actually quote at this size

Availability and appetite are different things. Carriers do publish minimum group sizes in the range of two or three insured lives, and those minimums are real. What they do not tell you is that the product offered at that size is a packaged small group contract with a largely fixed menu, not the negotiated arrangement that general writing about employee benefits describes.

So at fewer than ten lives you choose between assembled packages rather than design a plan. A carrier presents a few tiers combining life insurance, accidental death coverage, extended health, dental and sometimes a disability benefit, and your decisions are which tier, which optional modules, and what share of the cost the business carries. That is narrower than owners expect, and it is arithmetic rather than a judgment on the business.

Not every carrier competes seriously here. A survey at six lives returns fewer quotes than the same survey at sixty, and some of what returns is a decline rather than a price, usually because the carrier does not write that industry at that headcount. Ask about industry appetite at the very beginning: it decides who is worth approaching.

Pooled, not earned: how the price is set

In a large group the price is set mainly by the group itself. The carrier looks at what those employees claimed, adds administration and margin, and quotes. That is experience rating, and it is what people mean when they say a benefit plan rewards a healthy workforce.

At fewer than ten lives the arithmetic collapses. One employee with a serious ongoing condition can generate more claims in a year than the whole group pays in premium, and no defensible price comes from a sample that small. Small groups are therefore pooled: the carrier combines many small employers into one block, prices the block, and moves your rate with the pool rather than with your own claims.

That cuts both ways. In your favour, one catastrophic claim inside your group does not by itself destroy your renewal. Against you, a year in which nobody claimed earns no reduction. Above this size part of the price begins to follow a group’s own claims, which is why the renewal conversation changes as a company grows. That letter is taken apart in Reading the Renewal Letter.

The Quebec obligation, which changes the decision

A small employer in Quebec faces an obligation that does not exist in the same form elsewhere. Under the Act respecting prescription drug insurance, an eligible person who is part of a group with private coverage must become a member under the group contract or employee benefit plan applicable to that group (section 16), and the Régie de l’assurance maladie du Quebec states the same rule: a person eligible for a private plan must join it and cover a spouse and children under it. Only a person not eligible for a private plan may register for the public plan.

Two things follow. The drug portion is not something an employee can decline because they would rather keep the money. And the plan cannot be a token: every group contract covering pharmaceutical services and medications is deemed to provide basic plan coverage, and coverage at least equal to the basic plan must be provided to the group (sections 35 and 38). The floor is set by statute, not by the carrier and not by your budget.

The same statute carries a protection that matters more here than anywhere. Section 43 requires all insurers transacting group insurance and all administrators of employee benefit plans providing that coverage to pool the risks arising from the basic plan coverage they provide, so the cost of a very large medication claim is shared across the market rather than landing whole on one small employer. The honest first step in Quebec is therefore a conversation rather than a quote, because a plan moves your people off the public plan and onto yours.

What a plan this small can actually include

The core is familiar and useful: group life insurance and accidental death and dismemberment coverage on each employee; extended health coverage, meaning prescription medications, paramedical practitioners, medical equipment and out of country emergency travel; and a dental benefit, which is very often the reason employees notice the plan exists. The ceilings and frequencies are in What a Group Plan Actually Covers.

Beyond that, a small contract usually makes room for a short term disability benefit, an employee assistance programme and sometimes a critical illness module. An employee assistance programme is one of the few items whose cost per person barely moves with size, which is why it appears in very small plans more often than owners expect; see The Employee Assistance Programme.

Long term disability is where small size shows. Some carriers will not offer it below a certain headcount, and where it is offered the amount available without individual medical evidence is modest. Confirm that in the booklet rather than hope, and read Disability Insurance When You Work for Yourself. A health spending account can usually be bolted on and is the one element at this size that genuinely flexes: see The Health Spending Account for a Small Business.

The limits that are real and do not bend

You cannot design around a person. An owner who has looked at the numbers sometimes asks whether the one employee with a difficult health history can be left out. The answer is no. A group contract covers a defined class on defined terms, and the legitimacy of group underwriting rests on individuals inside the class not being selected against.

Executive style arrangements do not fit either. Carving out a richer class for the owner is normal in a larger plan and generally not available here, because a class needs enough people in it to be a class. If the objective is meaningful coverage for one or two individuals, that is met outside the group plan, and the comparison is in Group Coverage and Individual Coverage.

The annual negotiation described elsewhere is also mostly unavailable, because a group of six has few of the levers a large employer has. And the administration is real: someone becomes the plan administrator, usually the owner, and enrolling a new hire inside the deadline, removing a departure and reporting a salary change are obligations with consequences when missed. Those rules are in Waiting Periods and Enrolment.

Enrolment minimums, and why they are not flexible

Almost every small group contract sets an enrolment minimum, a proportion of eligible employees who must be enrolled for the contract to issue and stay in force. On benefits the employer funds entirely, the requirement is usually that everyone eligible is in. Where employees contribute, it is lower but still there.

The reason is anti selection. If enrolment were optional, those who joined would disproportionately be those who expect to claim, claims per member would rise, the price would rise to meet it, and healthier members would leave, raising it again. Enrolment minimums stop that cycle before it starts. They are the price of a group rate.

There is normally one accepted reason to decline, comparable coverage under a spouse’s plan, documented rather than asserted. An employee who prefers the money is generally not an acceptable waiver, and in Quebec the drug coverage is not optional for an eligible person anyway. Ask before signing what happens if headcount falls below the minimum mid term.

Where the owner sits inside the plan

If the business is incorporated and the owner draws employment income from it, the owner is generally an employee of the corporation and is covered like anyone else in the class, subject to the same eligibility conditions and evidence requirements. That is the straightforward case and one of the ordinary reasons a plan gets put in place.

If the business is not incorporated, the owner is not an employee of anything. A sole proprietor or a partner cannot simply enrol themselves as an employee. Where there are employees, coverage can often still be arranged; where there are none, the group route generally closes and the conversation moves to individual coverage and a spending account.

The tax treatment is where owners most often assume wrongly. Federally, benefits derived from an employer’s contributions to a private health services plan, a group sickness or accident insurance plan and several other listed plans are excluded from the general employment benefit inclusion by subparagraph 6(1)(a)(i) of the Income Tax Act, and the Canada Revenue Agency states that where a plan meets all the conditions to be a private health services plan the employer contribution is not a taxable benefit. Group term life insurance is separate: subsection 6(4) includes a prescribed amount in the employee’s income, which is why an amount appears on a slip that nobody received. Quebec departs from that treatment, and Revenu Québec treats the employer contribution to a group insurance plan and to a private health services plan as a taxable benefit on the provincial slip. The subject is in Which Group Benefits Are Taxable, and the amounts belong with a qualified tax professional.

The last point is said least. Group life coverage is modest, priced for a working population rather than an individual, and it ends when the employment does, which for an owner means when the business does. Is Group Life Insurance Enough sets out what it does not do, and Key Person Insurance takes the separate question of the business itself.

What moves the cost when the group is tiny

Four things dominate: the age profile of the group, because health, dental and life costs all move with age; the industry and the nature of the work; the province, because the public system underneath differs; and the benefit mix, meaning how much of the package is predictable spending rather than insurance against something unlikely.

What is unusual here is how violently the first can move. In a group of six, one hire or one retirement changes the average age of the whole group in a way that would be invisible at sixty. Owners plan around headcount and are surprised that its composition matters more than its size.

The lever within your control is cost sharing: what proportion of the premium the business pays, and on which benefits. That is not only a budget decision, because on disability coverage who pays the premium can decide whether the eventual benefit is taxable to the employee. Actual dollars are specific to a group and a moment, which is why none appear here; the structure is in What Group Benefits Cost a Small Business.

The honest alternatives when a plan does not fit

The first is a health spending account on its own. The business commits a defined amount per employee, the employee draws on it for eligible expenses, and the cost is knowable in advance rather than repriced by a pool the employer cannot influence. It is useful for predictable spending and it is not insurance: it will not answer a catastrophic medication claim.

The second is individual coverage, arranged person by person and owned by the person. For disability and critical illness this is often the better structure at very small size, because the amounts a small plan offers without evidence are modest and the coverage disappears exactly when a person leaves. Critical Illness Coverage for Business Owners takes that case for the owner.

The third applies where the owner is self employed and the group route is closed. Section 20.01 of the Income Tax Act permits a self employed individual to deduct premiums paid to a private health services plan, subject to conditions: the business must be carried on regularly and continuously, an income test must be met, an arm’s length employee test applies where the individual has employees, and there are stated limits on the deductible cost per person. Those tests and limits are amendable, so confirm them with the Canada Revenue Agency and a qualified tax professional.

The fourth is a combination, and it is the one that survives contact with a real business: a modest insured plan for what would be ruinous, meaning drugs, catastrophic health costs and a life benefit, with a spending account behind it for the predictable. That is insurance used for risk and cash used for spending.

How to decide, in the order that works

Start with why. An owner who wants to keep a specific person needs a different plan from an owner who wants their own family’s dental costs handled efficiently, and the second objective is often better served by something other than a group contract. Naming the objective first prevents most of the disappointment that follows a plan bought for the wrong reason.

Then ask your people what they already have. In Quebec that is not optional diligence; it is the difference between improving a household’s position and moving it sideways at a cost. Where two plans end up covering the same person they interact under the rules in Coordination of Benefits.

Then price the real thing rather than the brochure: the enrolment minimum, the amounts available without medical evidence, whether long term disability is offered at your size, and what happens at first renewal. And accept that the answer may be no. A business with a young, well covered workforce and thin margins may be better served by a spending account and a properly owned individual policy for the owner. Saying so is part of the job, and the silo sits together in the Group Insurance guide.

Frequently Asked Questions

Continue Learning

Start with Group Benefits for a Small Business for the general case, then What Group Benefits Cost a Small Business for the structure of the price and The Health Spending Account for a Small Business for the alternative that most often fits at this size. Group Coverage and Individual Coverage sets the two against each other, and the Group Insurance guide holds the silo together.