Healthcare is an increasingly high priority among Canadian workers, particularly those in customer service, food service, office work, and other jobs that require face-to-face contact with the public. Although the federal and provincial governments provide universal healthcare, many health costs that the government does not cover can be a source of anxiety for employees. Health care reimbursement can be an attractive part of a benefits package.

A qualified small employer who contributes to their workers’ healthcare costs can relieve some of their anxiety. This allows workers to be more productive and demonstrates to employees that the company cares for their well-being. Insurance products like individual coverage Health Reimbursement Arrangements (HRAs) are cost-effective ways for employers to foster employee loyalty, reduce work stress, and reduce turnover.

Before considering the benefits and drawbacks of health insurance reimbursement for individual insurance policies, let’s consider the role of reimbursement more broadly in Canadian Healthcare.

Reimbursement in the Canadian Healthcare System

Although the public perception in many countries is that Canada has “free” healthcare and that the government directly pays for all healthcare costs, the reality of the Canadian healthcare system is more complex and relies on a system of reimbursement at multiple levels.

The federal government does not directly pay health costs to individual hospitals and health care providers. Instead, the provinces manage the health care needs of their citizens. The federal government reimburses them according to government policy.

Doctors and other healthcare providers also receive reimbursement from the provincial government to cover the costs of services they provide. The reimbursement process at each level allows every entity involved in the healthcare system, from the federal government to general practitioners and ER doctors on the front lines, to have autonomy in the role they play while at the same time providing accountability and oversight.

A doctor can act quickly to make a lifesaving medical decision but is accountable to the hospital and provincial authorities at a later date to show that they acted in a medically necessary and cost-effective manner.

Provincial authorities have flexibility in allocating funds to communities and facilities that need them but are accountable to the federal government to ensure that they use taxpayer money responsibly.

Health insurance reimbursement through individual coverage HRAs allows both employers and employees to benefit from a similar relationship when allocating health costs within a business or organization. Individual coverage allows employees to select the plan that works well for them, rather than compelling all employees to enroll in the same group plan.

The provision for health insurance reimbursement allows employers to cover costs while at the same time imposing restrictions on costs. In this way, both employer and employee can shape the health care arrangement to suit their practical and financial needs.

What Is an Individual Coverage HRA?

An HRA or Health Reimbursement Account (or Arrangement) is a mechanism that allows employers to pay for some of the healthcare costs of their employees. The employers fund the accounts, and the accounts reimburse the employees for certain qualifying expenses, which include:

•       Some medical treatments
•       Reimbursement in the Canadian Healthcare System
•       Vision care
•       Dental coverage

For more information about specific healthcare policies, visit healthrates.ca and insurdinary.ca.

In many countries, individual coverage HRAs offer tax benefits to companies that use them. The tax benefits of an ICHRA in Canada are subject to the rules set out by the Canada Revenue Agency. Learn more about Canada’s tax code regarding medical expenses here and find out more about tax credits for medical expenses.

How Does Health Insurance Reimbursement Happen with Individual Coverage HRAs?

When an employee selects a policy for supplemental insurance, that employee takes on the responsibility of paying insurance premiums. The premiums are not automatically deducted from the employee’s paycheck, although the employee could set up an automatic payment plan with the bank.

Are There Limits to Reimbursement with Individual Coverage HRAs?

Employers can limit the reimbursement allowances for policies that individual coverage HRAs cover. At the time of this writing, it is unclear whether Canadian healthcare legislation limits reimbursement, as is the case elsewhere. For the latest information on reimbursement limits, consult with a tax attorney or contact us at Group Enroll.

Factors Determining the Amount of Reimbursement for Individual Coverage HRAs

Health Reimbursement Arrangements are not a one size fits all system.  There are many factors to be considered when the reimbursement amounts are calculated.

Family Size

An employee with a spouse and one or more dependent children might reasonably incur a higher monthly family expenditure for healthcare costs than a single employee would. Employers can structure reimbursement rates for employees to allow for changes in expected health care costs due to changes in family size.

Employee Age

Older employees typically have higher medical expenses for medications, screening procedures, and other healthcare costs. An individual coverage HRA can increase the monthly allowance for older employees within the same employment class to take account of the greater need for health services.

Employee Class

Employees in different roles might receive different reimbursement allowances or access to different plans. This allows the employer some latitude in using expanded healthcare benefits to attract talent for key roles in the company or to tailor health coverage to the anticipated healthcare needs of employees that encounter different health risks in the workplace due to their role.

The Amount of Time That Has Passed Since the Medical Treatment or Payment

Employees should pay particular attention to the deadlines to submit claims for reimbursement under the terms of their ICHRA. In the United States, reimbursement deadlines are based on the plan year, which is the calendar year in which the employee incurred costs that the plan covers. Canadian ICHRAs may have different deadlines. Employees should check with their insurance provider or human resources at their company to make sure that they submit claims by the deadline.

The Overall Cost of Health Insurance Reimbursement

Employers can set limits on the total amount of reimbursement. Typically, this takes the form of a monthly allowance for health care premiums and health costs. It might be possible for employees who do not spend their allowance in a given month to roll over the unused balance to the following month. Consult with the insurance policy provider for the rollover provisions in employee plans.

Some Types of Healthcare Plans

Individual Coverage HRAs allow employees to purchase plans that their employer has approved. In Canada, the choice of policies and plans available to the worker may be subject to limits that the  employer determined when they set up the healthcare reimbursement arrangement.

Some Pharmaceuticals

The universal healthcare system in Canada does not provide comprehensive drug coverage, so employee insurance policies can in many cases make up the difference by providing drug coverage. Supplemental drug coverage is often a core benefit of Canadian health insurance policies.

Benefits for Employers in Setting Up Individual Coverage HRAs

Employers who fund ICHRAs for their employees gain consistency and control over the healthcare reimbursement process. They can set limits on how much money an employee can receive through reimbursement. The employer can decide what medical costs are eligible for reimbursement, allowing the employer to assess the cost of HRA reimbursement more easily.

By enrolling all employees in an individual coverage HRA, employers can spread risk throughout the workforce so that the medical costs of a few employees with a high degree of need do not pose a threat to the financial health of the business.

Benefits to Employees in Setting Up Individual Coverage HRAs

Employees gain a degree of control in how they supplement government health benefits. They can choose between policies and tailor their individual coverage HRAs to suit their needs. Employees might also receive tax benefits for receiving reimbursement through an ICHRA.

Because the employer has the option of changing the reimbursement allowance to account for age and family size, among other factors, the ICHRA can automatically grow and change throughout the employee’s career without the hassle of having to modify the plan.

Group Enrollment Vs Individual Coverage Reimbursement Vs Increased Pay

Many insurance companies offer group enrollment in a single employer-provided plan as well as individual insurance policies funded through an HRA. Both options will provide healthcare for employees, but they do so within a different framework. Each has benefits and disadvantages.

Enrolling employees in a single group plan has the advantage of defining costs at the outset. The employer can simply pay the premiums for employees directly and be able to budget for healthcare without the complications of individual variation. If the plans are the same for all employees, then there can be no question of bias in coverage eligibility policies.

In contrast, individual coverage gives employees more autonomy without making an inordinate amount of work for the company’s administrators. They might have to make more decisions, but many employees appreciate the freedom to choose.

One-size-fits-all policies could frustrate some employees with particular needs, such as maternity care, mental health treatment, care for children with special needs, or other circumstances. Within limits, individual coverage HRAs (ICHRAs) empower these employees to search for plans tailored to their circumstances.

A salary increase equal to the reimbursement allowance would in principle allow for the greatest freedom of choice for employees, but several drawbacks exist.

The money paid to the employee would necessarily count as income and be taxable, while a reimbursement plan that pays insurance premiums and other qualifying medical expenses would not be considered taxable. This arrangement allows employees to pay for healthcare costs with pre-tax dollars.

The individual coverage HRA also provides flexibility in allowing for factors that directly affect healthcare costs. Employees might find this option more equitable than a simple across-the-board salary increase. Alternatively, continually changing employees’ salaries based on healthcare costs could be an administrative headache to employees who encounter a life change (such as a divorce) that changes their healthcare status.

Let Group Enroll Help Your Business Set Up Individual Coverage HRAs

At Group Enroll, an Alliance Income Services company, we are ready to help you find insurance plans that suit the needs of your business and your employees. We partner with many insurance companies, which compete to provide you with attractive rates and flexible plans.

Group Enroll is not an insurance company. We do not actually sell policies. What we do is act as a broker to connect Canadian businesses with insurance companies. We help employers cover medical, dental, vision, life, disability, and other employee benefits through both group enrollment and individual coverage RHAs.

If you have questions about healthcare insurance reimbursement arrangements, individual coverage plans, or group coverage plans, contact Group Enroll using the Contact Us page on the website or by clicking the Get a Quote button in the upper-right corner of the website’s main page. Contact us by email at [email protected] or write to 10 Great Gulf Drive, Unit 5, Vaughan, ON, L4K 0K7.