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Normandin Beaudry

The aging population's impact on the cost of group insurance plans

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There, in black and white

Bulletin NB Vol. 9 N. 8, September 2006

It is a known fact that the Canadian population, and thus the Canadian workforce, is aging. According to Statistics Canada’s most recent projections, the average age of the Canadian population will increase by 3.4 years over the next 15 years, climbing from 38.8 in 2006 to 42.2 in 2021.

Several impacts related to these demographic changes have been discussed in great detail. Challenges with plans for attracting and retaining employees and difficulty ensuring knowledge transfer are but two examples. This document is intended to define and quantify a direct and significant effect of the aging of the workforce that has only been touched on briefly: the aging workforce’s impact on the cost of group insurance plans.

The aging workforce’s impact on the cost of life insurance and long-term disability insurance is generally recognized. Accordingly, all things being equal, an older population would pay a higher rate for these two types of insurance. A one-year increase in the average age of a group is estimated to result in a 5% to 10% rise in insurance rates.

The equation pertaining to health insurance, dental care insurance and short-term disability insurance is more subtle and less recognized. The impact of the aging of the workforce is specific to each type of care covered by these insurances. For instance, notwithstanding general inflation, we can expect to see an increase in claims for bridge work and dentures for an older employee group, and a decrease in other dental claims. The overall impact on dental care insurance premiums will depend on the dominance of each of the types of care covered.

A study conducted by Normandin Beaudry allows us to identify benefits-related trends broken down by age group. Claims from more than 30,000 active employees were analyzed for this study. Please note that the average benefits indicated in the charts below were established using a standard claim of $100 for the group under age 25, a claim chosen arbitrarily that varies according to the generosity of the plan. 

Keep in mind that this data reflects the impact of aging only for a population of active employees. It has been shown that the impact is not necessarily identical for a population of retired employees.

Understanding the effects of the demographic changes of a group on the cost of its group insurance plans is crucial, and can, among other things, be an asset for negotiating renewal terms (pricing).

Moreover, although it is important for an employer to understand the current demographic distribution of its workforce, understanding the evolution of this distribution in the years to come proves even more beneficial. This projection could allow an employer to identify, for example, challenges related to recruitment or evaluation of short, average or long-term financial obligations.

 

Please feel free to contact us for additional information.

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