The Federal Government is considering implementing a tax on employer-provided health and dental plans in the Spring 2017 Budget.
Why would they do this?
Taxing the premiums paid on employer-provided health and dental benefits could generate an estimated $2 billion of additional revenue for the Federal Government.
What does this mean for the average Canadian employee?
Employer-provided health and dental plans help to incentivize more than $30 billion in health care spending by Canadians, keeping them healthy, productive and engaged in the workplace. If the proposed tax was to come into effect, fewer employers of all sizes would offer benefits plans, and many would reduce coverage.
Potential implications for your clients and the market:
- Small and medium sized employers are the most likely to reconsider their health benefit plan offering. Given the choice of continuing to offer a plan which will be taxed or simply giving the employee the equivalent amount spent in cash compensation, many smaller companies will choose the latter.
- Employees with lower wages will be most impacted by the reduction or elimination of coverage as they will now need to be medically underwritten as individuals to buy protection. For employees with pre-existing conditions, the cost will be higher than under a “Group Plan”. Those employees who are younger and/or healthier may decide to forgo coverage altogether.
- Larger organizations and union plans governed by collective agreements are less likely to change their benefit plans yet the employees will be faced with a new tax bill.
In 1993, Quebec implemented a similar tax which drove a substantial decline in total private health insurance. When Amy Finkelstein (MIT Professor of Economics) and Mark Sabine (U of T Professor of Economics) researched the effect of adding this tax, they found that:
- The number of group plans dropped by 20%
- Of individuals who were no longer covered by a group plan, 85% did not purchase individual coverage
- There was a 19-26% decrease in group coverage in groups with less than 20 employees
What can you do to help?
Use your voice and demand that no new federal tax be introduced. Visit donttaxmyhealthbenefits.ca to send a letter to your local MP and the Minster of Finance. We also encourage you to share this information with your clients to help spread awareness.
We will not know if this change becomes a reality until the budget is released. In the meantime, let us know what you think, by sharing your thoughts on our Twitter, Facebook or LinkedIn using the hashtag #donttaxmybenefits!