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Taxing Health Care Benefits

UPDATE:

During Question Period on February 1, Prime Minister Justin Trudeau confirmed that there would be no new taxation of health and dental benefits in the 2017 Budget.

The Prime Minister’s response comes after a concerted campaign against the taxation of health and dental benefits by a broad coalition of health care providers, including CAO. This multi-faceted advocacy strategy included a press conference, meetings with MPs, Bureaucrats, and staff from the offices of Health Minister Jane Philpott and Finance Minister Bill Morneau, as well as an online public education campaign, Don’t Tax My Health Benefits, which provided information and a form letter opposing the action to individual MPs and the Minister of Finance.   

Thank you to all who joined the more than 80,000 Canadians that participated in that campaign.

Background

The employee-sponsored health care tax exemption encourages employers to offer their employees health benefits without the disincentive of paying a hefty tax bill on top of it. Employer provided benefits help keep Canadians in good physical and mental health, so they are able to work better, be more productive, and contribute more fully to our economy while living healthier, happier lives. Taxing health care benefits would cost employees hundreds of dollars each year and result in fewer employers willing to offer these benefits. This decision would mean many lower income and middle class Canadians not being able to afford access to necessary and preventative care.

This scenario was demonstrated in the province of Quebec when they began taxing health benefits in 1993. The plan resulted in a 14 percentage point drop (roughly 20%) in employer-provided supplementary insurance. Very few (10-15%) of those employees self-insured after losing their benefits and when it came to smaller businesses (fewer than 20 employees), there was a 19-26 percentage point reduction in coverage. Studies suggest the removal of this tax benefit across the board could result in a decrease of 50% of small firms who offer the health benefits today.

In addition to vision care, if this plan goes ahead, fewer Canadians will be able to access vision care, dental care, prescription drug, mental health services, and musculoskeletal care (physio, chiro, massage therapy). In exchange for the foregone tax revenue, the increased access to preventative care helps to save publically funded healthcare systems by addressing and preventing health care issues early. Even if an employer opted to continue to providing these benefits, the added burden on employees could prove prohibitive as the reduction in the number of enrollees in insurance programs would erode any pooling effect, causing the costs for those remaining to sky rocket.

The main victims of a decision to tax health and vision benefit plans would be the lower income and middle class Canadians and the smaller employers in Canada, creating a truly regressive system. Taxing these benefit plans will not simplify the tax code, nor bring more fairness to Canadians, it will download complexity and leave many without the health care they need.

CAO, alongside several other health care associations have individually sent letters to the federal Finance Minister, expressing significant concern over this proposed tax measure, and asking for proper consideration and consultation before implementing this decision in the upcoming budget 2017, and/or into future Budgets.