Employers with staff in Saskatchewan will see their insurance premiums rise by six per cent this August due to a new tax introduced by the provincial government in its 2017/18 budget.
The six per cent provincial sales tax will apply to all group benefits plans with life, accident and health insurance policies.
“This new tax is not something that plan sponsors can directly negotiate the cost away with an insurance provider,” says Nick Gubbay, a principal and group benefits consultant at Eckler Ltd. who works with plan sponsors across western Canada. “Maybe over time, that will be part of their broader negotiation strategy [with insurance companies], but certainly we expect the six per cent increase to apply directly to the costs they’re incurring at the moment.”
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Employers with administrative services-only arrangements or flexible benefits plans will also absorb the tax but they may not feel the effect immediately, particularly if they decide to keep their current deposit or contribution rates unchanged, notes Gubbay. He says plan sponsors will only feel the full tax impact around the annual renewal when insurance companies or third-party administrators reconcile the rates with actual claims.
“That may come through over time when the employer adjusts the pricing of the flexible benefits program or the deposit rate on an annual basis,” says Gubbay.
Employers that share benefits costs with employees will also have to ensure they inform them about the new tax, says Gubbay. “If the plan sponsor and the employee are sharing the cost of a life insurance benefit 50/50, then we expect the six per cent increase to be passed through to the employee as well.”
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With the implementation date just over a month away, it’s important for employers to connect with their insurers immediately, says Joseph Gill, an associate at McKercher LLP in Saskatchewan. “Get the ball rolling. Figure out the quantifiable impact on both yourself and employees. How will this work mechanically? Is it as simple as a six per cent tacked on an insurance bill or does it require more legwork on the employer side in terms of accounting?”
Staying in touch with insurers will also keep employers up to date on additional details that come out over time, says Gubbay.
As for how the tax may affect employee benefits, Gill says it’s unlikely to result in cutbacks. However, employers that are currently considering enhancing their benefits plan may pause in light of the new tax because their cost analysis has changed, he says.
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