Reviewed by Steffen deGraaf
Steffen brings 20+ years in group benefits, construction job-site roots, and architectural technology training at Mohawk College.
The best cost-cutting strategies improve plan discipline and fit instead of just stripping out coverage people actually use and value.
Key Takeaways
- •Cost reduction should be strategic, not reactive.
- •The page keeps the strong substance of the original article while calibrating the framing.
- •It should connect directly to cost and renewal guides.
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/monthTypically 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/monthPays 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/monthCovers 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/monthOnly 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:
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:
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:
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:
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.
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.
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Reviewed by Steffen deGraaf
Construction is in Steffen's blood: job sites as a teenager, architectural technology at Mohawk College, and 20+ years in group benefits for Ontario employers.
Meet Steffen and learn how AEC Benefits worksFrequently Asked Questions
Does cutting cost always mean cutting coverage?
No. In many cases the better move is to redesign structure, usage logic, or contribution strategy instead of removing the parts of the plan employees actually notice.
Why should this page connect to plan design?
Because cost pressure is often the symptom of a design problem rather than just a pricing problem.
What if I need savings before my next renewal?
Start with the renewal audit and cost guide so you know which levers are realistic before making fast coverage cuts.
Related Pages
Want to talk through your options?
If you want real numbers instead of generic plan talk, AEC Benefits can pressure-test pricing, structure, and fit for your team.