There are four ways to subsidize your group health benefit premium:
1. Maximizing the tax efficiency of health benefits for your small business, as well as for your employees.
The CRA recognizes group health benefits as a tax-free employee benefit, which does not attract income payroll taxes for the employee or the business.
A defined contribution (DC) plan provides 100% tax-free dollars to purchase the health benefits employees need and want.
On the other hand, with a traditional defined benefits (DB) health plan, employees receive only partial payment in tax-free dollars and must use after-tax out-of-pocket dollars to make up the difference. DB plans are very tax inefficient because they require employees to use tax-paid out-of-pocket dollars for this important tax-free benefit perk.
2. Claiming the health benefit dollars from a spousal health plan added to your own plan.
Families require more benefits than single employees on average. A large percentage of families have two working spouses with traditional insured DB benefit plans for each spouse.
Unlike DB plans, DC health plan rules allow both spouses to top up their benefit plans to provide double the benefits for their families.
3. Integrating high drug costs with public plan coverage.
Catastrophic drug costs are a major risk to the stability and affordability of DB plans for small businesses.
Most business owners are unaware that the provinces provide catastrophic drug coverage, which is paid for through the tax base. Why then are small business owners exposing themselves to pay significant costs of catastrophic drugs and paying premiums or catastrophic drug coverage to insurance companies as well as through taxes to government?
A DC plan permits small businesses to access catastrophic drug coverage for employees who need it in their province of residence. This represents a significant cost savings and health benefit premiums.
4. Reducing high insurer administration costs and inefficiencies.
Small business owners with DB plans are kept in the dark with respect to the significant administration costs and inefficiencies of insurers. For each premium dollar paid by a small business in Canada, approximately $0.65 is allocated by insurers to pay benefits for employees and $0.35 is retained by the insurance for administration and other purposes.
A DC plan has admin costs in the order of $0.10 saving up to $0.25 per premium $1.00.