The possibility that health and dental While this article was in production, Prime Minister Trudeau announced that – contrary to speculation – the upcoming federal budget will not include measures to tax employer-provided health and dental benefits. That is good news and in keeping with public opinion. Reaction to the proposed taxation had been decisive and largely negative. Health care providers feared taxation of benefits would limit access to care. Overall, an IPSOS poll found that 70% of Canadians were also opposed to the plan.¹ Lobbying in opposition was strong and seems to have worked. What was bh to  do? Instead of cancelling the articles, bh decided to keep it – with some editing – since the debate stimulated by the proposal raised important points that argue for an expansion, not contraction, of tax free workplace health and dental benefits.

What was the source?

The possibility that health and dental benefits might be taxed arose from a 2015 report commissioned by the Conservative government which included recommendations to end the tax-free status of health and dental benefits and allow employees to claim the expense as part of a refundable health tax credit. It was estimated that such a change would bring the government an additional $2.9 B in revenue but be expensive for individual taxpayers.² Stephen Frank, senior vice-president of policy for the Canadian Life and Health Insurance Association, estimated that for each employee, an employer currently contributes up to $3,500 a year in a typical benefit plan, an amount that, if taxed, could add about $1,300 a year to an individual employee’s tax bill.³

Who is in favour?

Not everyone was opposed. Writing in the National Post, columnist Andrew Coyne argued that not taxing health benefits was not good policy because it was both “inequitable” and “inefficient.” His argument was based on dollars and cents:

At base, the argument for taxing employee health benefits as income is simple: they are income. Like any benefit, they have a value that can be expressed in dollars. They are a part of the total compensation package unions negotiate on behalf of their members, the same as salary (or, for that matter, life insurance, which oddly enough is taxable).

Indeed, rather than purchase health insurance on your behalf, your employer might have paid you the same amount in cash, with which to purchase it yourself.

Had it paid you in cash, however, it would have been taxable to you, and so to provide you with the equivalent to your current health benefit, after-tax, your employer would have had to pay you an additional amount to cover the tax. The non-taxation of benefits, then, is as much a subsidy to employers as it is to employees …. ⁴

What was at stake?

It may be true that a tax on health and dental benefits might have been a primary source of new government revenue. A closer look, however, suggests that the issue is more complex. If, as expected, taxing benefits led to a reduction in demand for services, the taxable income of health and dental services providers would be lower. Loss of spending on their services would therefore bring with it a corresponding loss of tax revenue that was likely to exceed $2.9B, even as it would restrict access to preventive care in areas such as mental health, vision care, hearing and speech-language services, occupational therapy, prescription drug, dental care and musculoskeletal care (physiotherapy, chiropractic therapy and massage therapy). Restricted access to preventive care was likely to mean higher health care costs for sicker patients and a corresponding loss of productivity at work.

Additional facts provided in a media release of 21 December 2016 by a coalition of nine health care professional associations united in their opposition to the change include:

• • Employees who are offered cash instead of taxable health benefits, choose cash. When employers continue to offer benefits, premiums rise and coverage may be reduced since younger, healthier workers are more likely to opt out, leaving older, sicker and more costly employees.

• • When benefits were taxed provincially in Quebec in 1993, almost 20% of employers dropped their coverage, including up to 50% of small employers.

• • Loss of coverage can significantly impact the lowest paid employees.

The IPSOS poll referenced above indicates that predicted trends were likely to materialize if health and dental benefits were taxed:

• • 48% said they would prefer to take cash over health benefits if they were taxed at the same rate, and;

• • 84% would end up delaying or forgoing treatment or medication if they didn’t have coverage.

Not just money

Although it appears that almost half of employees preferred money over benefits, those who take money when they have a choice may not be doing themselves a favour, given that a large percentage said that without benefits, they would delay or forgo treatment or medication. As a result, they were likely to suffer personally from more serious illnesses, incurring even higher medical and dental costs. At the same time, employers who cancel plans because they seem uneconomic with lower participation rates, would “pay” for their decision with a less healthy, less productive workforce. In contrast, Odina Love, CEO of the Canadian Dental Hygienists Association and co-chair of HEAL, an organization representing 650,000 health care providers, has pointed out that the current policy approach “is working” – “75% of Canadians and a total of 24 million Canadians have access to care through these benefits.… Taking care away from millions of Canadians is certainly not the way to address fairness and equity."¹

Clearly, the possible taxing of benefits is not just a money issue. The question – “To tax or not to tax?” – gets to the heart of why health and dental benefits are important. bh

References

¹ Canadian Dental Association. 2016, December 21. Health Care Providers Urge Federal Government to Not Tax Health Benefit Plans. Media Release. Ottawa: CNW. Available: www.newswire.ca/news-releases/health-care-providers-urge-federal-government-to-not-tax-health-benefit-plans-607812646.html

² Althea Raj. 2017, January 31. Will Liberals Tax Health, Dental Benefits? Trudeau Doesn’t Rule It Out. Huffington Post. Available: www.huffingtonpost.ca/2017/01/31/liberals-tax-health-dental-benefits-trudeau_n_14532540.html

³ Bruce Campion-Smith & Alex Boutilier. 2017, January 31. Ottawa hears opposition to taxing health perks. The Toronto Star. Available: www.thestar.com/news/canada/2017/01/31/ottawa-hears-opposition-to-taxing-health-perks.html

⁴ Andrew Coyne. 2016, December 12. If fairness is the goal, Liberals should tax health and dental plans. National Post. Available: news.nationalpost.com/full-comment/andrew-coyne-if-fairness-is-the-goal-liberals-should-tax-health-and-dental-plans