A major legislative change regarding health trusts was introduced in the summer of 2021. Health trusts are used to offer employee health benefits in a manner that is tax effective for the employer and employee.
Prior to the change, the type of trust used depended on the employee demographics of a business (i.e., employer). Businesses with a large percentage of key employees, that is employees who are highly paid and/or involved in the ownership of the business, used health and welfare trusts (HWTs) to set up group health insurance benefits, whereas larger corporations with many employees established employee life and health trusts (ELHTs).
As part of Budget 2018, the federal Department of Finance proposed new legislation that would streamline the use of trusts in sourcing and administering group benefits for employees. This legislation would eliminate the health and welfare trust structure and broaden the definition of the ELHT structure to accommodate existing HWTs. The 2021 Budget Implementation Act (Bill C-30) received royal assent on 29 June 2021, and the revisions pertaining to ELHTs went into effect. It required all existing HWTs be converted to ELHTs by the end of 2021.
The Doctors of BC Health Benefits Trust Fund (HBTF) was established in 2005 as a health and welfare trust to provide health and dental insurance benefits to physician members, their families, and their employees. The HBTF was affected by the revised legislation and, as a result, it was converted to an ELHT as of 1 January 2022. In October 2021, Doctors of BC contacted members of the HBTF plan and advised them of the pending changes. While these changes do not affect the insured benefits that members currently enjoy under the plan (i.e., health, dental, and travel insurance benefits), they do impact the self-funded Cost-Plus feature that approximately 1600 of our incorporated physicians use.
The Cost-Plus feature allows an employer to convert an employee’s personal health expenses into self-funded health plan premiums. This is a tax-effective way to pay for medical expenses, and previously under HWT administrative rules there was no certainty of the premium limit. As a result, physicians could elect a Cost-Plus annual entitlement limit that they and their tax advisors felt was reasonable. The change to ELHT brings certainty to the premium limit as there is a defined formula for calculating the limit that is used for all participants under the HBTF plan.
For many physicians, the defined formula results in a premium limit that is lower than their 2021 Cost-Plus entitlement. However, there is an advantage for unincorporated physicians: the defined formula results in a higher premium limit and it may now be appropriate to add a Cost-Plus entitlement.
The formula that is calculated for the premium limit is as follows: $2500 for the employee + $2500 for each of the employee’s dependants (as defined by Canada Revenue Agency). Since the premium limit includes both insurance premiums and self-funded Cost-Plus entitlement, members participating in the HBTF plan must deduct the annual premiums for the insured benefits to determine the appropriate Cost-Plus entitlement.
As with any legislative change, it may take time for all tax advisors to become well versed in the impacts on clients. Doctors of BC will endeavor to keep members updated on the changes and on any actions members must take.
Advisory Services Manager
Members’ Products and Services, Doctors of BC
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