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Normandin Beaudry

Provincial budget's impact on group benefit plans

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There, in black and white

NB Bulletin Vol. 13 N. 4, May 2010

Increase in compensation tax on insurance premiums

Following the lead of other Canadian provinces, Quebec imposes a 2% tax on insurance premiums. A compensation tax on financial institutions is also added to insurance premiums in Quebec.

When the Quebec government tabled its most recent budget, it announced that compensation tax rates for insurance premiums will be temporarily increased by 0.2%. Thus, effective March 31, 2010, the compensation tax rate is 0.55%. This rate is, however, expected to return to its former level of 0.35% on March 31, 2014.

To simplify the remaining text, the term taxes will be used to designate both the tax on insurance premiums and the compensation tax on insurance premiums.

The table below illustrates the amounts subject to these taxes

Type of financial agreementThe taxes apply to:
Fully pooled Insurance premiums
Retention basis Insurance premiums less refund paid by insurer
Administrative services only(ASO) Claims paid plus insurer's administrative fees plus taxes

It is important to note that the taxes are payable by insurance companies who, in turn, rebill them to clients. These taxes are therefore already included in your insurance premiums.

To understand the impact on premium rates for group benefits plans, we surveyed the main insurers operating in Quebec. Although some insurers have yet to make a final decision, we can see a trend developing:

  • Premium rates already communicated or negotiated before the tax increase took effect will not be changed. Most insurers, however, confirmed that they will recover the 0.2% difference retroactively for the months during which the increase was not applied. We believe that the impact will be minor.
  • Beginning March 31, 2010, financial statements for retention basis plan will be calculated using a tax rate of 2.55% (in Quebec).

Increase in QST

A 1% increase in the Quebec sales tax (QST) on January 1, 2011 and January 1, 2012 was also announced. The QST will thus increase from 7.5% to 8.5% in 2011 and from 8.5% to 9.5% in 2012.

QST applies to administrative services only (ASO) plans and health spending accounts (HSAs).

Health contribution

As of July 1, 2010, all adults age 18 or over, with the exception of those whose family income is under a certain threshold (that varies depending on the makeup of the household), will be required to make a health contribution of:

  • $25 per adult for 2010;
  • $100 per adult for 2011; and
  • $200 per adult for 2012.

The contribution of a year must be made by April 30 of the following year and will generally be paid when the Quebec income tax return is filed.

We recommend that you verify the collective agreements in effect in your organization to ensure that they do not contain any clauses referring to payment by the employer of a contribution to a provincial health insurance plan. You could avoid certain legal and financial complications by performing this verification. Keep in mind that when the Ontario Health Premium was introduced a few years ago, some Ontario organization ended up in court because they refused to pay their employees' health contributions, and that their collective agreements provided for the payment by the employer of a contribution required for provincial health insurance.

Health deductible (being studied)

The provincial government also announced that it was examining the possibility of introducing a health deductible.

No parameters concerning this deductible have yet been confirmed, and recent developments lead us to believe that there is little likelihood that this measure will be implemented.

If this measure was to be introduced, it would be interesting to see whether or not this deductible could be paid through a group benefits plan and whether or not it would qualify for tax credits for medical expenses.

For more information on the 2010-2011 Quebec budget, please visit the government of Quebec website at http://www.budget.finances.gouv.qc.ca/budget/2010-2011.


 

 

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