As we transition out of the COVID-19 pandemic, employee benefits are being reconsidered by organizations in order to attract and retain their top talent. The Health Benefit Plan (HBP) has seen a considerable increase in popularity as a tool that helps to attract and retain talent by allowing employers to pay for tax-deductible employee medical expenses, with those medical expense payments not being considered a taxable benefit to the employee. The simplicity and cost effectiveness of the HBP cannot be overstated.
The Setup Process
Setting up the HBP with your company is a simple process, which your GBL representative will guide you through. The setup process allows for you to fully customize your plan with classes of employees and percentages of expenses reimbursed as long as each member of a class has the same benefit level. Below is an example of a potential HBP class structure for a doctor’s office:
|Title||Class||Expense Maximum (Annual)||Percentage of Reimbursement|
|Doctor (Clinic Owner)||A||$20,000||100%|
*GBL recommends that expense reimbursements be limited to a maximum of 20% of one’s annual T4 earnings, to a maximum of $20,000 per annum. For example, $80,000 of earnings would be limited to $16,000 of medical expenses, while earnings of $100,000 or above would be limited to $20,000 of medical expenses.
Once the HBP classes and reimbursement percentages have been defined and the HBP documentation signed, you can then open an HBP-dedicated corporate chequing account (The HBP Account). This is used as an intermediary account between the employee and employer. The employee submits their medical expenses to the employer. The employer then adjudicates the claim, and once approved, requests that the cost of the medical expense be transferred from the corporate account to the HBP account. Then HBP account then pays the employee for their expenses. The process is shown below:
HBP Benefits to the Employee
Many Canadian small businesses do not offer health insurance to their employees due to its high cost. In these cases, the HBP can act as a standalone benefits plan that provides employees with benefits, while they would not have had any benefits otherwise. For companies that do offer health insurance to their employees, the HBP can be used as an enhancement to their existing health insurance. For example, many are familiar with the costs of a trip to the dentist being covered 80%, with the extra 20%, plus other fees being covered by the employee. For a $500 visit to the dentist, the employee would need to cover $100 plus extra fees with a standard health insurance plan. The HBP can be used to cover this employee portion, so that the employee can keep more of their hard earned dollars in their pockets. Another example would be an employee who visits a massage therapist once every two months at $100 per visit. Standard insurance plans include $500 in spending for a massage therapist, so the employee would need to pay $100 out of their pocket for their final visit. The HBP could be used to cover the cost of this extra visit, and allow the employee to visit the massage therapist more often if needed.
HBP Benefits to the Employer
The HBP allows for the employer to turn employee medical expenses into tax deductible corporate expenses. Not only does this provide talent attraction and retention incentives for employees, it also provides the opportunity to use these expenses to reduce corporate tax.
The HBP is cost effective at a one-time fee of $1,500 and no cost-plus fees afterwards (ie: versus a 10% cost on top of all medical expenses that are submitted, as with other health plans and Health Spending Accounts). The HBP requires that employers adjudicate their own claims, rather than having another company do so for them as with a Health Spending Account (HSA), but the considerable cost savings of a one-time fee of $1,500 are an excellent argument for self-adjudication as in most cases, the HBP will have paid for itself within the first 1-2 years that it has been in place.
Annual Health Plan Fees: HBP vs HSA vs Health Insurance
|Health Benefit Plan |
(Setup Fee Only –
No Additional Costs)
|Health Spending Account |
(Cost + 10% –
No Setup Fee)
|Total (5 Years)||$1,500||$5,000|
*HBP, HSA, and Health Insurance assume $10,000 in medical expenses per year.
As our society slowly returns to normal after the COVID-19 pandemic, employees are demanding competitive total compensation packages from their employers. Contact your GBL representative to learn more about how the HBP can be used as a powerful talent attraction and retention tool.
By Ryan Ackers, MBA, Vice President, Business Development & Client Relations, GBL
Founded in 1995, GBL is a leading provider of retirement and health solutions for business owners across Canada. For more information on our services and strategies contact: [email protected] or 403.249.1820 and follow us to learn how we can help Build Your Future.