The Brokers & Planners Guide to Group Health Benefits

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1 health spending accounts for small business The Brokers & Planners Guide to Group Health Benefits

2 Smart Plan Design of is a breakthrough for small business producing $2 or more in benefits for employees using the same premium $ 1 for the small business. TABLE OF CONTENTS 1. How Smart Plan Design maximizes tax savings for small business owners and their employees. 2. How Smart Plan Design maximizes benefits by integrating with available government and private health plans. 3. How Smart Plan Design guarantees a refund of premium each year. 4. How much a self-service automated administration platform saves a Small Business. 5. How Smart Plan Design ensurers protection for your employees against serious illness and/or hospitalization. 6. How Smart Plan Design removes the problems of annual renewal and makes Quotes easy.

3 How Smart Plan Design maximizes tax savings for Small Business owners and their employees. Traditionally, brokers have used the funds provided by small business or group health benefits to purchase a 100% insured benefit plan. This has now become the standard for the industry. With increasing group health premiums for small business and decreasing health benefits for employees, there is now an urgent need for a different approach to extract the most value and health benefits for each premium dollar. The value of a tax-free benefit in today s compensation package is poorly understood by small business and your employees. For example, an employee making net income of $45,000 a year receives approximately $620 after income and payroll taxes are deducted from a $1000 bonus. In addition, the small business pays a profit in $225 on the thousand dollar bonus in their share of CPP, E.I and other mandatory payroll taxes. In other words, it takes almost $600 in taxes from the employer and the employee to net $620 in wage earnings. Group health benefits are tax-free perk. A payment of $1000 for employee health benefits costs $0 for the employer in payroll taxes and $0 for the employee in income and their share payroll. The full $1000 available is available for the employee to spend on healthcare expenses tax-free. A Traditional group health benefit plan only provides partial tax-free dollars to purchase health needs because traditional plans require co-payments, deductibles and other barriers requiring the employee to spend precious after-tax dollars. In addition, traditional group plans only cover healthcare needs as defined by Plan Rules. This excludes many Canadian Revenue Agency (CRA) allowable medical expenses to be paid 100% by the employee of after-tax pay. This includes, necessary items such as dental braces for their children, dental implants, laser eye surgery, and many more. The net result is the traditional plans force employees to pay after-tax dollars for pretax benefit. To make matters worse, some plans insist employees pay up to 50% of the health benefit premium and after-tax dollars. This is a tragedy!

4 A Tax-Free Benefit is Equivalent to a $2000 Wage Increase BENEFITS AND TAXES EMPLOYER COST (%) EMPLOYEE COST (%) Canada Pension Plan (CPP) 4.95% 4.95% Employment Insurance (EI) 2.63% 1.88% Employee Health Tax (EHT) 1.95% N/A Worker s Compensation (WSIB)** 3.0% N/A Vacation Pay 4.0% N/A Group Benefits* 6.0% N/A Income Tax N/A Ontario Health Premium N/A ( $450 No Change) TOTAL 22.53% 37.98% Net Cost of $1000 Wage Raise $1, $ No Employee Should Pay After Tax Dollars for a Tax-Free Benefit How Smart Plan Design maximizes benefits by integrating with available government and private. Canadians are well aware of the benefits of government provided Medicare which provides coverage for hospital and medical expenses. Canadians are well aware that companies provide employee benefits which are tax assisted to provide access for employees and their families to private healthcare needs such as prescription drugs, dental and other healthcare expenses. Most Canadians are not aware of PHARMACARE, provided by the provincial governments, that assists in helping with the costs of expensive prescription drugs due to in chronic conditions such as multiple sclerosis, other chronic illnesses and cancer. Canadians pay for Pharmacare in our taxes. However, Pharmacare is specifically excluded from employees who have a traditional insured health benefit plan.

5 The result is that small business pays for Pharmacare with taxes and pays a second time for drug coverage with their private traditional insured group benefit plan. Smart Plan Design corrects this unfair situation and integrates a Tax-free Health Spending Account (THSA) for everyday purchases such as drug and dental needs with PHARMACARE to provide coverage against catastrophic drug costs for their employees. Smart Plan Design eliminates the cost risk and the insurance risk of catastrophic drug costs. High drug costs are the greatest threat to traditional group health benefit plans and the greatest risk to affordability of these plans for small business. Almost 50% of wage earners have a the spouse or partner with a traditional group health benefit plan. Insurance companies have a Plan Rule called the Coordination of Benefits Rule. Essentially, this Rule permits insurance companies to charge to premiums for each spouse or partner to their respective companies but provide only one benefit plan to the family. Smart Plan Design also provides integration with other private traditional insured health benefit plans. Smart Plan Design corrects this unfair situation by allowing both spouses to coordinate their benefits, using the traditional group plan as initial coverage and then using their THSA for all co-payments, deductibles and excluded items. Coordination of Spousal Benefits provides much more generous health benefits for a family and subsidizes your small business plan by avoiding payment of first dollar coverage. FAMILIES GET MORE BENEFITS. How Smart Plan Design guarantees a refund of premium each year. Smart Plan Design assigns funds ( Replacing premiums paid to an insurance company) to each employee s Registered Health Spending Account (RHSA). The amount in the RHSA is called a defined contribution and represents the amount of tax-free dollars in the account available annually to pay for health care expenses. This amount represents the maximum risk of coverage for each employee each year for the small business. On average, 70% of employees do not claim the full allotment in their RHSA. The unused funds then become a refund to the small business at year-end and can be retained by the business or used to make the RHSA s more generous. With traditional insured health plans, premiums are paid monthly to the insurance company. The insurance company allocates a Targeted Loss Ratio (TLR), typically $.65 for every premium dollar the small business pays. The TLR allocates $.65 of each premium dollar to pay benefits to your employees

6 and contains $.35 of each premium dollar for this creation, management and other insurance needs. At renewal, if the employees in aggregate use less than $.65 of each cream in power, the insurer retains the excess. Your small business receive no refund. At best, your business may benefit from a reduced premium increase the following year. On the other hand, if your employees in aggregate exceed the $.65 per premium $1.00, this is called bad benefit experience and the insurance company recovers the excess payment by charging $1.00 premium dollar for every $.65 excess payment. The insurer wins, your small business loses. REFUND GUARANTEED. How much a self-service automated administration platform saves a Small Business. Smart Plan Design allocates a Registered Health Spending Account (RHSA) to each employee. The RHSA Is similar to an online bank account which is accessible to the employee anywhere, anytime. This online account answers frequently asked questions, permits enrollment, allows the employee to track healthcare expenditures as well as receive yearly summary. This functionality for RHSA is equal or better to that provided by major insurers. This saves administration time for your own business and your employee. In addition, the information gathered ( individual privacy is assured) is very helpful to management and your broker in understanding the usage and value of your Plan. On the other hand, traditional insured plans have complex Plan Rules which confuse employees, generate many questions about coverage and lack understanding and transparency. Most employees have no idea what is covered, and what is not, until after they ve made their health care purchase. With RHSA, employees understand because all CRA allowable medical expenses are covered to the maximum in their accounts. There is no confusion, no ambiguity. How Smart Plan Design ensures protection for your employees against serious illness and/or hospitalization. An employee s RHSA forms the cornerstone of an excellent group health benefit plan as described above. Pharmacare coverage for catastrophic drug costs is part of the plan. Access is made easy when necessary with the assistance of a case manager. If your small business desires a more comprehensive Core Health Insurance Option, the tax-free

7 purchases can be made out of the proceeds of each employee s THSA. The cost of this plan is a little as $200 per year per employee, leaving significant funds for everyday tax repurchases. A Core Health Insurance Option provides all the benefits of a traditional insured health benefit plan with the deductible ranging from $1500-$3500. This is an excellent way to transition from a traditional plan to the more cost-effective and valuable Smart Design Plan. Life insurance, disability insurance, out-of-country insurance, critical illness insurance and more is provided as part of many group insurance plans. These benefits, unlike health benefits, are taxable. Smart Plan Design recommends that employees pay these premiums. The benefits of this type are very good value for employee because they receive a group discount for court protection at a fraction of the cost of the benefits that could be provided for on an individual basis. SMART PLAN DESIGN COMBINES THSA WITH APPROPRIATE INSURANCE PROTECTION. How Smart Plan Design removes the problems of Annual Renewal and makes Quotes easy. With the traditional insured group health benefit plan, renewal can be a nightmare for brokers and for your small business. With increasing drug costs from biological treatments, expensive drugs for chronic ailments and treatment of cancer, group health benefit plans for small business are about to come under extreme cost pressure. The basic tool of a traditional group plan to reduce premium costs is to shift costs to employees and force them to pay up to 50% of the premium and up to 50% or more in co-pays and deductibles for, and healthcare expenses. This approach is usually progressive from a tax perspective. Forcing employees to pay after-tax dollars for taxfree benefit is scandalous and taking advantage of your employees lack of tax sophistication. With Smart Plan Design, your small business defines the contribution to each employee and your broker arranges for the best group life and disability insurance quotes on the market. Simple. Easy. Transparent. Sustainable. DR DAVID IMRIE info@myrhsa.com