The debate between the provinces and the feds about healthcare funding rages on. The question of who owns what remains at the core of the debate, but one undeniable truth underlies the discussion: We—as Canadians—cannot afford our current healthcare funding commitments. If we are going to sustain our healthcare system into the future, we are going to need to consider innovative approaches to treatment, delivery and, quite possibly, funding.

With this backdrop, it is difficult to rationalize the Canada Revenue Agency’s (CRA) recent policy directions related to employee benefits. As detailed in a Mercer communiqué dated Dec. 8, 2011, the CRA has made three policy changes that do not bode well for employee benefits plan sponsors. The policy changes are as follows:

Trading bonus to fund healthcare spending accounts — In the past, the CRA had allowed some flexibility in trading future bonus for flex credits, which could, in turn, be used to fund healthcare spending accounts (HCSAs). This was a great opportunity to enhance the flexibility of benefits programs without adding employer costs. But the CRA will no longer accept these arrangements.

Auditing private health services plans — There is some ambiguity in terms of allowable expenses under a private health services plan (i.e., extended health benefits, including HCSAs). The CRA and the insurance industry have different perspectives, with the CRA taking a more restrictive view. It appears now that the CRA has started to audit these programs, and, if anything is found to be offside, it may reassess all benefits under the plan to be taxable.

Disputes with the CRA — In the past, if the CRA found that a plan sponsor was inappropriately calculating tax on its benefits plan obligations, the employer could pay for any resulting tax liabilities without impacting the plan beneficiaries. Going forward, the CRA will reassess both the employer and employee as a result of an under-reporting of tax, thereby putting additional stress on plan sponsors to carefully consider the tax risks it takes in providing these benefits.

In short, it appears that the CRA is making it more challenging for plan sponsors to provide for benefits at a time when these plans have never been more important in supporting the health of Canadians. The bigger picture has somehow been lost within the complicated maze of public policy decision-making, and no one is connecting the dots on this important issue.

So, to provincial and federal governments alike—including the CRA—I offer the following suggestions:

• You need help. The cost of healthcare has the potential to cripple the Canadian economy and stand in the way of future economic prosperity. We’ve made promises that we simply cannot keep.

• The problem is not going away. The cost of healthcare is not going to go down anytime soon. In fact, it will only get worse. Demographics, for one thing, are not in our favour.

• Employee benefits plans are important in supporting the health of Canadians. And they will become increasingly more important as governments continue to struggle with their funding obligations. However, this struggle is not limited to public programs—employee benefits plan costs are also going up at significant rates. Plan sponsors cannot simply pay more; there needs to be added flexibility to get more money into these programs without adding more cost.

• Pre-tax dollars go further than after-tax dollars. The CRA is motivated to collect the tax revenue that it believes the government is owed. However, the solution to the healthcare funding issue is not to collect more tax revenue that may or may not find its way back into the funding of healthcare. The solution is to expand on the tax regime already in place for employee benefits and make it easier for employers and employees to pay for their healthcare expenses on a tax-preferred basis.

We need to reform not only the healthcare system but also the tax system to support the broader funding of, and investment in, the health of Canadians. We need to make it easier for employers to implement and fund benefits plans (including for retirees), and we need to make it easier for individuals to save for future medical costs not otherwise covered by the public system.

Health is everyone’s business. We need collaboration and co-operation, not regressive public policy.

Brian Lindenberg is a senior partner and the health and benefits leader at Mercer Canada.. He has more than 30 years of experience in the employee benefits field.

These are the views of the author and not necessarily those of Benefits Canada.

Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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Scott Warner:

For me this was a rare clunker from this well spoken authority. Unfortunately this article reads like yet another special interest group proclaiming doom if their special little part of the equation is not given priority. The author correctly discerns the CRA has made some decisions on various issues related to employee benefits. Yet upon reading these profound changes – no trading bonus to fund spending accounts? (Is this one of those 1% problems? quick hands up all those impacted?) Auditing of health services plans (for an industry that spends so much time prattling on about governance you would think this would not be such a big deal if you are doing it right why fear an audit?) and addressing tax liabilities with both the employer and employee (really seems rather fair since both parties benefits from the claim\programs) – one is underwhelmed by what if any impact they might have on the vast majority of plans currently in place. What is not placed in the proper context – and we would not expect that from a special interest – is the issue of funding. The government has been very clear about exactly what funding there will be for health care in Canada, and how it will be shared among the provinces – for years into the future. They have removed the strings attached by prior governments – in other words it is now up to the provinces to lead, innovate and truly serve their population’s – which is as it should be. Like it or not employee benefit plans are the tail not the dog in the healthcare situation in Canada. They are plans designed to cover sundry (miscellaneous) health expenses, or they were and if there is an issue (for plan sponsors, advisors and providers) – here it is exactly that – never mind public healthcare is unsustainable – so are employee benefit programs (biologics – any plan that covers them is arguably “unsustainable”) if they do not realize or come to terms with what they were designed to do, how far a stray they have gotten in the service of the consumer and find where they fit in the emerging relativity of healthcare as the provinces begin to experiment with alternate (private) delivery. This nation needs leadership on the healthcare file – the federal government has done their part now it is time for the balance of the industry to get in line and lead not complain.

Tuesday, February 07 at 10:14 am | Reply

Brian Lindenberg:

Thanks for taking the time to express your opinion Scott although I might take exception with the characterization of my article as a “clunker”. Ironically I think we agree on a number of points. I am not sure I said the CRA policy changes were profound however I do think they are representative of one of the fundamental problems in we have on this issue – there are many different stakeholders in this area with different perspectives and/or vested interests. To your point, we need leadership on the healthcare file and this includes not only in the delivery but also in the funding of services (which from an employer perspective also means how to get money into these programs without increasing costs). Funding is central to the issue – as noted throughout my article – and we need creative ideas to get money into these programs which speaks to among other things tax reform. I fundamentally believe that we have made health care commitments on which we can not deliver and that we need collaboration and cooperation in finding a solution. Once again I appreciate your perspective Scott.

Tuesday, February 07 at 8:54 pm

Scott Warner:

To be fair Brian – I did indicate “rare” clunker … quite rare. I suspect the intersection of our concern is as with many Canadian’s – leadership on the fundamental change required in this vital area of not only our economy but our society as well. So for me this system is beyond repair and nothing but a top down re- think of health care in Canada will suffice. Ever bearing in mind that the current demographics will change again by about 2030, once the boomers (myself included) move well into their 70’s. Not unlike the discussion about OAS, sure the system will be strained but it could survive the crunch then it will be back to a much more even distribution of people in age groups. In both cases though getting beyond the crunch will require loads of taxes and spending – and there is no guarantee we can get beyond it – is that fair to the next generation? And what type of health care system do we want in Canada … For me we need to get the front end going in the direction we want then align benefit programs, which for me are not a huge part of the equation, changes in primary care could mean new markets for carriers, instead of just off loading … The feds have given the provinces their marching orders the funding is set and now the provinces with true leadership will begin to define a new era of healthcare in Canada – the provinces of Ontario and Quebec seem content to kick the can down the road, seeking to blame, and avoid the demands of their people, so for me the game is afoot. I appreciate your personal reply – I do enjoy your articles.

Thursday, February 09 at 9:05 am | Reply

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