I guess I have been in this business too long. One of my colleagues asked me what I thought about this talk on taxation of benefit plans and I barely flinched. We have been watching for this in budget after budget, both provincial and federal, and yet it has been a long time since taxation on benefit plans was expanded. I am surprised that this is under consideration under this government and particularly this Minister of Finance.
As a bit of background, employer-paid premiums for Life insurance have been taxed federally and employer-paid premiums for all benefits, except disability, are taxable in Quebec.
According to the National Post, the government is looking for tax fairness and to simplify the tax code. The article further suggests that the government would roll out tax credits as an offset, that would apply to all Canadians and not just those with employer-paid Health and Dental plans. This, in theory, would be more equitable as employees (outside Quebec) do not pay income tax on either the premium for their Health and Dental plans or on the claims they have reimbursed, but they do on Life Insurance premium. Individual coverage on the other hand is paid for in after tax dollars, although the premium qualifies for the medical expense tax credit.
Personally, while I am not in favour of more tax, this is a bigger consideration than how much tax we pay. I am concerned that the government has lost sight of the advantage employer plans bring to Canadians. Would they be collecting additional tax with one hand and paying it out in lost productivity and higher health costs with the other?
I am always surprised at the value people place on their benefit plan, as the average family probably claims less than $2,000 annually in Health and Dental claims. And though I say that as if $2,000 were nothing, it is a consequential amount in a typical household budget. In 2015, Money Sense magazine estimated 60% of Canadian households had incomes of less than $90,000. These are average Canadians, who have to keep a roof over their heads, keep the lights and heat on, and put food on the table. They require transportation, not to mention house insurance and telephone. In addition, there are an onslaught of “must haves” like cell phones, internet and television services that seem to come at an uncontrollable price and are no longer luxuries. Even at the top end of the average income, finding an extra $2,000 for Health and Dental services in the budget will be challenging. And what if there is a catastrophe? What if an expensive drug is required when there is no employer plan? That family turns to the government plan. Of course, that would be a provincial plan, funded with transfer dollars from the federal government.
Which offers the greater benefit to Canada, having a healthy population or simplifying the tax act? Healthy people, to my mind; they’re the ones who can innovate, grow the economy, pay income tax, and not spend time in the medical system: all great things.
The National Post article indicates that, when Quebec introduced tax on Health and Dental, the number of employer-sponsored plans decreased and there was no offsetting increase in the number of private policies issued. As already noted, few households are looking to take on additional expenses, but more important is the underwriting basis of individual plans. Under individual plans, evidence of insurability and pre-existing exclusions limit the number of people eligible for coverage and the benefits available. These provisions screen out people, like you and me, who have a family history of something, or even their own managed medical condition. Employer plans, for all but the smallest employers, do not have these restrictions, so society benefits from the contribution of the person with, for instance, treated high blood pressure or diabetes or arthritis, and the employee has access to drugs without worrying about budgeting for the cost.
In short, Mr. Finance Minister, you are well qualified to know the advantage employer-sponsored Health and Dental plans bring to Canada. Yes, they provide a small tax advantage to Canadians covered under these plans, but they ensure a healthy population and prevent millions of dollars of cost each year from falling on public plans.