British Columbia : Changes in health care funding
The British Columbia provincial government is continuing to make changes to its healthcare programs, most recently by announcing the elimination of Medical Services Plan (MSP) premiums, the implementation of a new employer health payroll tax and a reduction to the deductible for prescription drug coverage for lower income earners.
MSP premiums and payroll tax
The provincial budget released on February 20, 2018 included the elimination of MSP premiums by January 1, 2020. In 2017, the premiums were $900 per year for single people and $1,800 per year for families, and since January 1, 2018, the premiums are $450 per year for single people and $900 per year for families, and will likely remain at their current levels until they are phased out. Employers commonly pay part or all of the premiums on behalf of their employees and sometimes also for retirees.
It was also announced in the provincial budget that a new employer health tax will replace MSP premiums. The government intends to introduce legislation in 2018 to implement an employer health tax effective January 1, 2019, with the following rate structure:
- Businesses with a payroll of more than $1.5 million will pay a rate of 1.95% on their total payroll.
- Businesses with a payroll between $500,000 and $1.5 million will pay a reduced tax rate.
- Businesses with a payroll under $500,000 will not pay the tax.
The government noted it would provide further details about the employer health tax before it takes effect in 2019. The announced changes would go into effect provided the current provincial government remains in power—in the most recent election, the NDP government won a minority of seats and is being supported by the Green Party to form government.
The government established a task force in Fall 2017 to recommend a new approach to fund provincial health care. It is worth noting that the budget announcement goes against the interim advice from the task force. A preliminary report was filed February 1, 2018, and recommended MSP revenue be replaced with a combination of measures and alluded to a combination of personal and payroll tax. The interim report also suggested there be no phase-in or phase-out of revenue measures and to provide a reasonable notice period for when the changes will take effect. The task force is still expected to submit a final report by March 31, 2018.
MSP has been a contentious issue in the province in recent years. Premiums have risen steadily over the last decade and the system has been criticized for being regressive and unfair since all households with annual net income of $42,000 or more pay the same amount. As previously mentioned in our News & Views of March 2017 and October 2017, MSP premiums had already been revised to no longer consider children in a household and were reduced by 50% effective January 1, 2018.
This proposed change in health care revenue sources aligns BC more closely with other provinces. BC is currently one of only three provinces that require health care premium payments from individuals (the others being Ontario and Quebec) and the only one of those three not collecting premiums through income tax. Four other provinces (Manitoba, Ontario, Quebec, and Newfoundland & Labrador) require employer health care premiums through payroll taxes similar to the measure proposed in BC. The remaining provinces and territories fund health care from general revenue instead of specific premiums.
While some employers may welcome the elimination of the MSP monthly premiums and the associated administration they require, the new employer health tax likely represents an increased cost for many employers. The ultimate change in cost to employers will depend on whether the employer currently pays some or all MSP premiums and the earnings of employees. As well, since the employer health tax is scheduled to begin in 2019, some employers may pay both the payroll tax and MSP premiums in that year.
Employers should review employment contracts and collective agreements to determine the specific impact of these changes and how their total compensation strategy may change as a result. Plan sponsors who pay some or all of the MSP premiums for retirees or disabled employees are likely to benefit from a significant impact to the obligation for MSP premiums included in their financial statements. Affected plan sponsors are encouraged to discuss the accounting treatment with their auditors to determine whether to reflect this change in financial statements prior to the budget measures being enacted.
Prescription drug deductible
In most cases, the BC Pharmacare program currently pays 70% of eligible prescription drug expenses once an annual deductible has been met. Once a subsequent threshold of expenses has been met, 100% of further eligible prescription drug expenses are covered for the rest of the calendar year. Both the deductible and subsequent expense threshold are based on family income.
Beginning January 1, 2019, the provincial government has announced that deductibles will be reduced for families with net household income of less than $45,000 and eliminated for those families with net household income of less than $30,000 or those with a member aged 79 and older with net income of less than $13,750. The government projects these changes will impact 240,000 families in BC.
While this news may be favourable for many families in the province, there is likely a limited impact for private plan sponsors. Plans with a significant number of lower income plan members or retiree plans may see cost reductions. Regardless, plan sponsors should encourage all plan members to register with the provincial Fair Pharmacare program. Many insurers require proof of such registration for reimbursement of prescription drug expenses under private plans once a certain threshold has been reached to prevent payment of expenses that can be covered by the government plan.