As 2025 comes to a close, Western Canadian employers are staring down another year of escalating group benefits costs. Industry forecasts for 2026 predict Extended Health increases between 6% and 10% and Long-Term Disability (LTD) increases around 6% to 8%. This persistent inflation, driven by specialty drugs, high utilization, and the complexity of the current labour market, is hitting budgets hard across BC, Alberta, and Saskatchewan.
The standard response—simply accepting the rate increase or slashing benefits—is no longer viable. Cutting coverage risks alienating employees in an already competitive talent market. The smartest strategy for the new year is to adopt proactive cost containment measures that manage the biggest spending drivers without dismantling the value employees rely on.
This year, success lies in understanding the biggest claims culprits and implementing targeted, surgical changes rather than broad cuts.
1. Controlling the Drug Cost Triple Threat
Prescription drug costs are the primary engine of Extended Health inflation. For many plans, a handful of high-cost claimants (often less than 1% of members) account for up to one-third of total spending. Employers must actively manage three key areas:
- Mandatory Generic Substitution (MGS): Ensure your plan strictly enforces MGS, meaning the plan covers the cost of the lowest-priced generic equivalent, unless the physician specifically requests a “no substitution” drug. This simple control can save up to 12% on overall drug costs.
- The Biosimilar Shift: High-cost biologic drugs (used to treat chronic conditions like rheumatoid arthritis and Crohn’s disease) are the single biggest cost driver. As patents expire, biosimilars (near-identical, lower-cost versions) enter the market. Your broker must proactively implement a strategy that requires claimants to transition to the biosimilar version, ensuring the plan benefits from the massive cost savings.
- Drug Caps and Special Authorization: For the most expensive specialty drugs, implement a Special Authorization program where the carrier reviews the necessity of the drug against established clinical criteria. For catastrophic claims, ensure your plan’s Pooling Threshold is set correctly to protect your own claims experience from these massive expenses.
2. Managing the Paramedical Creep
Paramedical services (massage, physio, chiropractor, etc.) are seeing high utilization across the West, particularly with mental health claims driving demand for counselling. The goal here is to optimize coverage to encourage effective, preventative care while limiting over-utilization.
- Reasonable & Customary (R&C) Limits: Instead of simply increasing annual maximums, review the per-visit dollar amount allowed for common services like massage therapy. Ensuring your plan’s R&C limit aligns with the average fee in your region (Calgary or Vancouver are often higher than Saskatoon) prevents funding services priced at the extreme high end.
- Shift from Annual to Per-Visit Limits: Consider structuring coverage to have a lower per-visit maximum (e.g., $50 per visit) but a lower overall annual maximum (e.g., $500 per practitioner). This encourages employees to spread out their visits and ensures they prioritize the most impactful sessions.
- Expand Practitioner List: To manage mental health costs, ensure your plan covers a broad list of practitioners (Psychotherapists, Clinical Counsellors, Social Workers). There are far more of these practitioners than registered Psychologists, and they often charge lower hourly rates, providing the employee with greater access to care at a lower total plan cost.
3. The Power of Cost-Sharing and Flexibility
The most effective way to manage financial risk is to share it slightly with the employees. However, this must be done strategically, paired with a tool that enhances flexibility.
- Implementing a Deductible or Coinsurance: Even a small change—like moving from 100% coverage to 80% coverage for Extended Health, or adding a $100 annual deductible—can significantly reduce the employer’s financial risk profile and stabilize renewal rates.
- Pairing Cost-Sharing with an HSA/WSA: Crucially, if you shift cost to the employee (e.g., lower percentage coverage), compensate by re-investing the saved premium dollars into a Health Spending Account (HSA). This allows the employee to use the tax-free HSA funds to cover their deductible or the 20% co-payment, giving them a sense of control and choice over how they spend the money, softening the impact of the cost-sharing change.
By implementing these smart solutions, Western Canadian employers can avoid the reactive cycle of cutting benefits, transforming their benefits plan from a volatile expense into a financially controlled and competitive asset for 2026.