Elimination of B.C. medical services plan premiums good news for employers

British Columbians are ringing in the new year by joining all Canadians in not paying monthly rates for health care.

Premiums under the province’s medical services plan will be eliminated on Jan. 1, saving individuals up to $900 a year while families will pocket up to $1,800. The change comes two years after premiums were halved and a year after B.C. introduced an employer health tax of 1.95 per cent for businesses with a payroll above $1.5 million. Companies with a payroll under $500,000 were exempt from the tax, while those in between have paid a reduced rate.

Read: Employer-paid benefits to be subject to new B.C. health tax

In December, Finance Minister Carole James said the last such health-care tax in the country has been the most complex of any of the province’s programs to manage. “It was a problem for business when new employees would come on and having to register, it was a problem for individuals who were leaving companies that paid medical service premiums and then didn’t,” she told a news conference. “Getting rid of medical service plan premiums makes a huge difference to people in our province when it comes to dollars in their pockets.”

The regressive tax was unfair because everyone paid the same premiums, said James. “Whether you made $500,000 or you made $50,000 you were paying the same amount,” she said, adding the premiums generated about $1.2 billion when the amount was slashed in half.

Premier John Horgan said the employer tax replaces medical premiums that amounted to a regressive tax system and is a better way of financing health-care costs while saving money for families and individuals who will have it to spend in small businesses in their communities.

“Every other jurisdiction in Canada has found a way to progressively collect revenues to provide services for people,” he said. “We’re following suit with other jurisdictions. This is not extraordinary. It’s a small, small sliver of the business community that’s been asked to help us meet our costs and I think that’s fair and that’s equitable.”

Read: B.C. to introduce employer health tax, remove health premiums

The premiums will amount to a net tax cut of $800 million, according to the province’s ministry of finance. 

Employers have complained that paying both the employer health tax and medical premiums in 2019 amounted to “double dipping,” eating into their bottom line.

Jock Finlayson, executive vice-president of the Business Council of British Columbia, said the elimination of premiums will especially help students, retirees and the underemployed, noting those on social assistance and low incomes were exempt from paying the rates. “A lot of smaller employers did not pay it,” he said of workers who had to cover their own premium costs.

The current employer health tax, despite the elimination of medical premiums, has resulted in a net cost for employers and criticism from some business groups including the B.C. Chamber of Commerce and the Canadian Federation of Independent Business, said Finlayson.

However, the health tax is not any different from how some provinces, including Ontario, Quebec and Newfoundland and Labrador, fund health-care costs, he noted. “It’s a misnomer to call it a health tax, it’s a payroll tax.”

Read: B.C. employers to consider benefits plan design in light of new health tax

The elimination of MSP premiums is good news for plan sponsors that currently cover some or all of these premiums for their plan members, noted Eckler Ltd. in an update. “Without the change, they would have also been paying the employer health tax introduced by the government in 2019 to make up for the resulting loss in MSP premium revenue. Additionally, employer MSP subsidies are a taxable benefit to employees and retirees. As such, with the elimination of the premium and corresponding employer subsidies, many plan members and pensioners will see an increase in their net take-home pay or pension.”