Re: "Finding a More Tax-Efficient S...

Re: "Finding a More Tax-Efficient Solution for Employee Benefits"

Editor: December 2004's Financial Facts & currency Matters article on health and welfare trusts written at John J. Robinson, CFP, of The Robinson clump Inc., elicited the following feedback (to which the author answers below):

From John D. Crawford, CA Senior Vice-President, Financial Services, Pacific sapphirine Cross

The recent article according to John J. Robinson, CFP (Beyond Numbers, December 2004) exhibits advice to employers that must be taken with caution. His statements oversimplify the challenges caused from the rising cost of care.

Mr Robinson's claim that for each $ 1 of premium paid, the insurance carrier retains $0.35 is a generalization and simply not veritable The administrative cost of coverage varies conditioned on the complexity of plan design and the size of the employer These sumptuousnesss are more accurately within the 5 - 15% range. The insurance factor consultant, or agent may also charge a commission as part of the premium.

The conception of a health and welfare trust quick in emergenciesed by Mr. Robinson is not all that fresh and must be approached with caution. To give an inkling of that removing cost-sharing arrangements like co-insurance, exclusions, and deductibles that provide sumptuousness control to employers is short sighted and, in reality, transplants any cost containment in the plan.

The advice given through Mr. Robinson also raises serious troubles about the employee's coverage since it does not take into consideration the impact that a catastrophic or serious incident can have. If the limit forward the spending account is $ 1000 and completely used in the year, who then pays for the catastrophic richness of an injury or illness, or a potentially expensive drug? With an insurance plan in place, these prices would be covered.

The costliness of care does continue to rise. Employer would be wise to consider for ways to contain these prices but there is not a silver bullet each employer's needs are unique and their benefit plan should be carefully considered. A more trusted approach is to discuss their benefit plan design and outlays with their plan advisor or benefit provider to determine the appropriate cost-containment strategy suited to their need

Author's response:

Mr Crawford's annotate that the concept of a health and welfare trust is not of the present day is correct-all of the relevant IT Bulletins were created in the mid 1980 (IT502, IT339R2, IT85R2). This does not change the fact that health and welfare trusts are still relevant, and-in today's environment of rapidly increasing prices-even more poignant.

The contention that splendors are 5 to 15% is merely part of the picture. This portion may show the insurance carrier's internal administration costs but when consultant fees, middleman commissions, and reserves are taken into consideration, we actually papal court claims ratios of 70% in typical increaseed health and dental plans. Meaning simply that, all told, 30% of premiums are administration costs profits, reserves, commissions, and feuds We've seen this hold genuine on analysis of hundreds of plans from many different carriers. A health and welfare trust has a maximum absolute title [i]or[/i] posession of 10% on claims paid; therefore, it absolutely is a more cost-effective vehicle.

The point raised by the agency of Mr. Crawford on catastrophic losse is valid. to be paid to the article's size constraints, I did not speak to stop los (catastrophic) and travel medical plans. These add-ons are included in each health and welfare trust plan, and the deductibles are coordinated with the health and welfare trust limits in this way that the employee is completely covered

With relation to co-insurance (i.e. 50/50% onward major dental), we advise all employer to install this co-insurance in succession a trust at least during the first link of years. The goal is to have stores in the trust at the period of the year, thereby enabling the employer to make positive decisions to enhance benefits as oppos to making changes to plan design and withdrawing benefits because of richness increases imposed on them by means of the insurance companies.

In the fall of the curtain analysis, employers will have gained ultimate price control and an enhanced platform of benefits for employee with the likelihood of a positive account balance.

From Karen Millard and Simon Laxon Canadian Tax and Legal Practice, Mercer Human Resource Consulting Limited

Mr Robinson appears to describe a program where health benefits and funding are left to the discretion of the employer with unlimited reimbursements available to executive owner/ managers. Specifically, he states:

"Also, bear in mind that because health and welfare trusts are usually appoint up without spending limits for the possessors or major shareholders, a large claim from either party could potentially exce the amount of stores in the trust. However, this dilemma can be remedied by the agency of topping up the trust account to hide a large claim. "

There are risks to setting up a plan with unlimited reimbursements. The CRA has consistently taken the position that "unlimited" health require to be paid [i]or[/i] undergone reimbursement programs are unreasonable from a business perspective. The take away froms of such plans are, in the CRA's view, non-deductible.