National Post Oct 7th 2000
A cure for
TAKE TAX-FREE APPROACH
By Lorna Phelps
CALGARY . Health and dental benefit costs are staggering to the business owner. Due to inflation, health care, including prescription drugs, and dental costs, are rising at alarming rates. And while technology has created tremendous new health-care advances, these advances come with high costs.
Traditional group insurance companies have few choices – increase costs or exclude services. Some examples of exclusions are laser eye surgery, alternative medicine and, of course, lets not forget Viagra.
Employers are looking at the same unfortunate reality: 25% of their employees use 80% of the premiums being submitted and 75% of their employees use the remaining 20%.
To add to the problem, the 25% who use most of the premiums are often new employees who have never had a health-care plan or employees who know they will be terminating their employment and want to get to the dentist first.
As an employer, I can assure you that this is not the intent of group benefits. Most firms want to compensate their long-term employees who, for the most part, have taken care of their health because they’ve had coverage available.
Many employees are tired of supporting big families at the expense of their own health-care needs. For instance, not being covered after submitting a vision-care claim for $500 as your only claim of the year (and being told that you have a $200 cap on that expense), you walk into the office next door to fins a colleague leaving to take his three kids to be fitted for braces at $5,000 each, of which $4,500 will be claimed against your corporate group insurance.
We have an answer to these concerns. Under Section 248 of the Tax Act, Revenue Canada allows employers to deduct the health and dental costs of their employees and pass the money to the employee tax-free – as long as it is processed through a health and welfare trust.
Under the Private Health Services Plan, the employer controls the dollar maximums in the spending accounts and the distribution of the health-care dollars. Employees control the use of their individual health-care dollars specific to their unique needs.
Frequent users can choose to purchase a province-wide health and dental plan with their spending account. Claims are then absorbed by a large provincial pool. Average users can use their funds to cover 100% of all legitimate health care expenses up to their account maximums. There are no deductibles or co-insurance, no limitations, no maximums and most important, no rejections,
Incorporated businesses have long been deducting private health-care premiums.
To create a level playing field for owners of incorporated and unincorporated businesses, the government allows the self-employed to deduct from business income any premiums paid for private health-care coverage.
The self-employed individual’s coverage must be no greater than the benefits provided to that individuals arm’s-length employees.
If there are no arms-length employees, deductible premiums are limited to $1,500 each for the individual and spouse and $750 for each child. This only applies to an insured plan, not a private health services plan.
If you have health-care expenses and pay income tax, talk to your accountant to determine if this concept would work for you