7 Ways to Cut Your Group Benefits Costs Without Screwing Your Employees

Your renewal just came in: $4,800/month. Up from $4,200 last year.

You can't afford it. But you also can't afford to lose your benefits package and watch your best people walk.

So what do you do?

Most small business owners think they have two options:

•Pay the increase and eat the cost
•Cancel benefits and lose their competitive edge

Both suck.

But there's a third option: strategic cost reduction that keeps your benefits competitive while bringing your premiums back to reality.

I've helped dozens of small businesses in Ontario cut 15-30% from their benefits costs without gutting coverage. Here's exactly how to do it.

Strategy #1: Increase Deductibles and Co-Pays

(Save 10-15%)

This is the fastest way to reduce premiums without eliminating coverage.

What to change:

•Drug deductible: Increase from $25-50 to $100-150
•Drug co-pay: Drop from 90% to 80% or 80% to 70%
•Dental maximum: Drop from $2,000 to $1,500 or $1,500 to $1,000

Current plan:

•$25 drug deductible, 90% coverage
•$2,000 dental maximum, 80% basic / 60% major
•Cost: $450/employee/month = $4,500/month

Modified plan:

•$100 drug deductible, 80% coverage
•$1,500 dental maximum, 80% basic / 50% major
•Cost: $370/employee/month = $3,700/month

Savings: $800/month = $9,600 annually (17.8% reduction)

Impact on employees: They pay more out of pocket for routine stuff (prescriptions, dental work), but catastrophic protection stays identical. For a healthy employee, the difference might be $300-600 annually - way less than if they had no benefits at all.

Key: Frame this correctly when communicating to employees: "We're maintaining your coverage while adjusting cost-sharing to keep benefits affordable long-term."

Strategy #2: Eliminate or Reduce Short-Term Disability

(Save $50-80/employee/month)

Short-term disability (STD) is expensive relative to its value for very small businesses.

What STD costs:

$50-80/employee/month

= $6,000-9,600 annually for 10 employees

What it does:

Replaces income (typically 75% of salary) for short-term illness/injury, usually for 15-26 weeks before LTD kicks in.

The problem: For a 10-person business, you're often covering short absences informally anyway. You're paying $8,000/year for coverage that may never get claimed, or if it does, it's for situations you would have handled with sick days.

Alternative approach:

Keep long-term disability (LTD) - this is your catastrophic protection and NON-NEGOTIABLE
Drop STD entirely
Implement a sick day policy (5-10 paid sick days) and temporary layoffs for longer absences
For serious illnesses before LTD kicks in (the 90-120 day gap), work with employees on case-by-case basis

Savings: $600-800/month = $7,200-9,600 annually

When NOT to do this:

⚠️If you have 25+ employees (STD makes more sense at scale)
⚠️If you can't handle absences informally
⚠️If you're in an industry with frequent injury claims

Strategy #3: Implement or Increase Employee Cost-Sharing

(Save 15-20%)

Most small businesses either pay 100% of benefits or have minimal employee contribution. Adjusting this can significantly reduce your costs while keeping benefits in place.

Current scenario: Employer pays 100% of $4,200/month ($50,400 annually)

Option A: 80/20 split (employer pays 80%, employee pays 20%)

Employer pays: $3,360/month ($40,320 annually)

Savings: $840/month = $10,080 annually

Option B: Employer pays 100% for employee-only, employees pay for dependents

Roughly 40-50% of premiums are for dependent coverage

Employer pays: ~$2,500/month ($30,000 annually)

Savings: ~$1,700/month = $20,400 annually

Option C: Tiered cost-sharing (employer pays more for core, less for optional)

Employer pays 100% of LTD, life, basic health

Employees pay 50% of dental, STD, enhanced coverage

Savings depend on structure, typically 10-15%

The psychology: Employees actually value benefits MORE when they contribute. Zero-dollar benefits feel free and get taken for granted. When someone pays $75/month toward their benefits, they use them more thoughtfully and appreciate the value.

Communication is key: "We're adjusting cost-sharing to keep benefits sustainable. Your contribution helps ensure we can maintain this program long-term."

Strategy #4: Remove Low-Value Optional Coverage

(Save $15-35/employee/month)

Many plans include coverage that employees barely use but you pay for every month.

Vision care:

$10-15/employee/month

Typically covers $150-300 every 24 months for glasses/contacts. Many employees buy glasses at Costco or online for less.

Savings: $1,200-1,800 annually for 10 employees

Critical illness insurance:

$25-40/employee/month

Pays lump sum if diagnosed with cancer, heart attack, stroke. Low claims rate for younger workforces. Consider it optional coverage employees can buy themselves.

Savings: $3,000-4,800 annually for 10 employees

Travel insurance:

$5-8/employee/month

Covers emergency medical while traveling. Many employees have this through credit cards. Often underutilized.

Savings: $600-960 annually for 10 employees

Accidental death & dismemberment (AD&D):

$5-10/employee/month

Only pays for accidental death (regular life insurance covers all deaths). Keep for construction/high-risk industries, consider dropping for office workers.

Savings: $600-1,200 annually for 10 employees

Total potential savings: $5,400-8,760 annually by removing 3-4 low-utilization coverages

Important: Survey your employees before cutting any coverage. What you think is low-value might matter to them, and vice versa.

Strategy #5: Shop Your Benefits Every 2-3 Years

(Save 10-25%)

Loyalty doesn't pay in insurance. Carriers know switching is a hassle, so they slowly increase your rates knowing most small businesses won't shop around.

What typically happens:

•Year 1-3: Reasonable rates to win your business

•Year 4-6: Annual increases of 10-15% "due to claims experience"

•Year 7+: You're now paying 30-50% more than you should

What to do:

Get competitive quotes from at least 3 carriers every 2-3 years, even if you're happy with your current provider.

Real example:

8-year client with Canada Life:

Current premium: $4,600/month

Identical coverage quotes from competitors:

•Sun Life: $3,850/month
•Manulife: $3,925/month
•Equitable Life: $3,650/month

Showed these quotes to Canada Life, they offered to match Manulife at $3,925/month.

Savings: $675/month = $8,100 annually (14.7% reduction) for doing 2 hours of work getting quotes

Pro tip: Even if you don't switch, getting competitive quotes gives you leverage to negotiate with your current carrier.

Strategy #6: Switch to a Simplified or Pooled Plan

(Save 10-20%)

Some carriers offer simplified plans designed specifically for small businesses with 2-25 employees.

What's different:

Standardized coverage options (less customization)
Simplified underwriting (less paperwork)
Pooled risk across many small businesses (stabilizes rates)
Lower administrative fees

Examples:

Blue Cross Small Business Plans

Equitable Life Small Business Solutions

Chambers of Commerce Group Insurance Plan

Industry association plans (construction associations, etc.)

Tradeoffs:

•Less flexibility in coverage design
•May have slightly higher deductibles or lower maximums
•But often 10-20% cheaper for similar protection

When this works:

You're fine with "good enough" coverage vs. fully customized
You're under 20 employees
You want rate stability more than perfect customization

Savings: $300-800/month depending on current plan

Strategy #7: Adjust LTD Waiting Periods and Benefit Percentages

(Save $8-15/employee/month)

Long-term disability is critical, but you can adjust parameters to reduce cost without eliminating protection.

Current LTD:

•60-day waiting period
•67% income replacement
•Cost: $58/employee/month

Modified LTD:

•90-day waiting period (or 120-day)
•60% income replacement
•Cost: $43/employee/month

Savings: $15/employee/month = $150/month = $1,800 annually

The tradeoff: Employees wait longer before benefits start (90 vs 60 days) and get slightly less income (60% vs 67%). But you're still protecting against catastrophic scenarios - and that's what matters.

When this makes sense:

Your industry has seasonal layoffs (align waiting period with typical layoff length)
You have strong sick day policies to bridge the gap
You need to reduce costs but can't eliminate LTD entirely

The Strategic Combination: Cut 20-30% Without Losing Competitive Edge

Here's how to realistically cut $1,000-1,500/month from a $4,500/month benefits plan:

Starting point: $4,500/month for 10 employees

Changes:

Increase drug deductible to $100, drop to 80% coverage: Save $200/month

Reduce dental maximum from $2,000 to $1,500: Save $180/month

Drop STD, strengthen sick day policy: Save $650/month

Implement 80/20 cost-sharing: Save $900/month (reduces your cost, not total premium)

Remove vision care and critical illness: Save $250/month

Extend LTD waiting period to 90 days: Save $150/month

Total savings: $2,330/month = $27,960 annually

New employer cost: $2,170/month (down from $4,500)

Reduction: 51.8%

What you kept:

Solid drug coverage (80% after $100 deductible)
Functional dental ($1,500 max)
Strong LTD protection (the most important coverage)
Life insurance ($50,000)
EAP

Your employees still have legitimate benefits. You just shifted from "premium" to "competitive standard" and implemented smart cost-sharing.

How to Communicate Changes to Your Employees

This is where most small businesses screw up. You make changes to save money, employees freak out, morale tanks.

Bad communication:

"We're cutting benefits because we can't afford them."

Good communication:

"We're adjusting our benefits package to ensure it remains sustainable long-term. Here's what's changing and why:

•We're implementing cost-sharing (80% employer / 20% employee) to keep the program viable. Your contribution is roughly $60/month, which is still far less than individual insurance would cost.
•We're adjusting some coverage levels to focus on what matters most: catastrophic protection. Your LTD, life insurance, and core health coverage remain strong.
•We're removing some underutilized optional coverage (critical illness, vision care) that few employees were using.
•These changes save the company $28,000 annually, which helps us maintain competitive wages and keep the business healthy."

Key elements:

Frame it as sustainability, not cuts
Be specific about what's staying vs. changing
Explain the employee contribution in monthly dollars (not scary annual numbers)
Show what you're protecting (LTD, life, health)
Connect it to broader business health

The Bottom Line

You can cut 15-30% from your group benefits costs without destroying your competitive position. You just need to:

Focus on catastrophic protection (LTD, life, basic health) over nice-to-haves

Shift more cost to employees through deductibles and cost-sharing

Eliminate low-utilization optional coverage

Shop carriers every 2-3 years aggressively

Make strategic tradeoffs (higher deductibles for lower premiums)

The goal isn't to match what Google offers. It's to provide legitimate, valuable protection that helps you attract and retain good people while keeping your business financially viable.

Ready to Cut Your Benefits Costs Strategically?

Want to know what competitive group benefits actually cost for a 10-person Ontario company and what you should be paying? Check out this detailed breakdown with real market rates and coverage examples.

Because benefits aren't an all-or-nothing decision. You can find the middle ground between "premium package you can't afford" and "no benefits that lose you good people."

You just need to be strategic about it.

Read the Complete Cost Guide Get Your Custom Savings Plan

Written by: Steffen deGraaf

Group Benefits Consultant, AEC Benefits

Steffen specializes in helping construction and trades companies build cost-effective benefits plans that save money while keeping teams protected and valued. With over 20 years of experience in Ontario's construction industry, he understands the unique challenges business owners face.