Who should pay for dependant benefits?

By Sheryl Smolkin

Read this article and comments at Moneyville.ca

When your children are born your employer effectively gives you a hefty raise by expanding your benefits coverage to include them.

Is this fair to single employees?

A 2009 study by Towers Watson found that 64 per cent of employers cover all health care premiums and 71 per cent do not have any deductible for single or family coverage. So two employees hired on the same day for the same amount of money may effectively have total compensation packages of different values.

The rationale for this practice is that single employees will have access to comparable benefits at a later date if they marry or have kids. But the needs of Canadian workers for dependent coverage are changing. For example, many members of the “sandwich” generation are supporting elderly parents and young children.

This is not a new problem. In a 1998 Benefits Quarterly article, Mercer attorney and actuary Beverly J. Orth suggests a multi-tier premium structure based on the number of eligible dependents. The simplest version of this elegant solution to the single/family disparity would have three premium rates: one for children under age 18; one for adults between ages 18 and 65; and one for adults who are eligible for government programs (i.e. Ontario Drug Benefits).

After determining the number and ages of eligible dependants, the employee’s premium share would merely be a matter of multiplying the appropriate premium rate times the number of dependants in each category. In this way, the program could also cover dependant older relatives.

Orth acknowledges that there would still be some subsidy differentials because the worker with more covered dependants still receives additional subsidy dollars unless dependant coverage is fully employee paid. But she suggests with this approach the degree of disparity between workers is far less, and both traditional and non-traditional family units are treated alike.

I asked Mercer partner Brian Lindenberg whether in response to shifting workforce demographics, Canadian employers are considering changes to dependant coverage and pricing. While he says there are rumblings from time to time from employers who say their commitment is primarily to their employees, radical changes to dependant coverage are not on his clients’ radar screen. “When you peel back the onion, Canadians are still fairly conservative and paternalistic.”

But I can’t help wonder if we can still justify the current, familiar single/family coverage available under most benefit plans. Maybe it’s time for employers to rethink the definition of dependants and how their benefits are paid for.

What do you think?