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George & Bell Perspectives.

B.C. Medical Services Plan Premiums: Significant Challenges on the Horizon for Employers and Plan Sponsors

B.C. Medical Services Plan Premiums: Significant Challenges on the Horizon for Employers and Plan Sponsors

May 11, 2017. Category: Benefits, MSP. No Comments on B.C. Medical Services Plan Premiums: Significant Challenges on the Horizon for Employers and Plan Sponsors.
Written by Mike Greschner.

On May 9, 2017, British Columbia had an election resulting in what appears to be a minority government.  Medical Services Plan (MSP) premiums were a topic in the election.

In this article, I discuss the resulting potential changes to MSP premiums and, in particular, what employers and multi-employer benefit plans should be doing to ensure that MSP savings are maximized without introducing significant administrative burden and privacy concerns.

Background

British Columbia currently uses a monthly premium to partially fund public health care and it is the only remaining province to use this funding approach to supplement general provincial government tax revenues and Canada Health Transfers.

For much of their history the premium rates were infrequently adjusted, but when rates were changed, they were generally significant. In recent years, premium rates have increased annually (2017 being a notable exception).

Current monthly premium rates are $75 for single coverage and $150 for couples and families, regardless of whether you are actively working or retired. Premium rate assistance for families with an adjusted net income of less than $42,000 per year is available on a graded basis until the premium is fully waived at the $24,000 income level.

For many B.C. residents the premium is fully or partially paid by their employer or through a multi-employer benefit plan. If this is the case, employer or multi-employer benefit plan payment of MSP premiums is a taxable benefit for employees.

Proposed MSP Changes

In the election, all major B.C. political parties agreed that MSP premiums should be eliminated as a source of government revenue.  Decreasing the burden of MSP premiums in the short-term and ultimately eliminating MSP premiums in the long term appears to be a likely priority of the B.C. government, regardless of its ultimate composition.

The only short-term MSP premium reduction proposal was included in the 2017 pre-election B.C. Provincial budget.  The budget included a 50% premium rate reduction for families earning less than $120,000 annually starting in 2018. The proposed plan for 2018 appears possible, potentially subject to revisions.

Financial Impact of Proposed MSP Premium Reduction Policy

First the good news. If the proposed changes are implemented and fully realized by plan sponsors, plan sponsors would recognize immediate savings for employees with family earnings lower than $120,000 starting in 2018. This could translate to as much as $75 per month for an employee or retiree with couple coverage (half the amount for singles). This would translate into significant savings for plan sponsors.

Now for the first challenge.

The premium reduction is based on family earnings and the vast majority of plan sponsors will have no line of sight to an individual’s family earnings. Even for a single employee this can be difficult to estimate due to other sources of income such as secondary employment, pension earnings or investment income. For a dual income family, the challenge becomes even more daunting.

As a result, at this stage, no simple estimate of aggregate savings for plan sponsors exists.  For most sponsors, however, the savings would be substantial because most single employees earn less than $120,000 per year, many dual income families earn less than $120,000 per year and most retirees earn less than $120,000 per year.

Plan Sponsor Administrative and Privacy Issues of Proposed MSP Premium Reduction Policy

Unless there are significant changes in administration of MSP premiums for plan sponsors, actually realizing the MSP premium savings will be very challenging.

MSP currently has an application process for individuals to obtain the premium reduction due to the existing premium rate assistance provision (i.e. adjusted net family income of less than $42,000).  The current system is cumbersome for plan sponsors:

  • Individuals must apply for premium assistance.
  • There is no way for plan sponsors to know if individuals have applied for premium assistance unless the plan sponsor insists on inserting itself into the application process.
  • The application process involves the disclosure of information that many British Columbians will consider sensitive, like total family income. The B.C. government has access to this information through the tax system but employers and multi-employer benefit plan administrators do not.
  • Further, individuals are generally not immediately inclined to participate in an effort to save MSP premium for employers and plan sponsors, increasing the intensity of individual concerns about privacy when plan sponsors insist on application for MSP premium assistance.

A simple change to the application form to remove disclosure of family income would help somewhat (with the government then being able to source the missing information from the tax system), but the result of the process would still provide a fair amount of information to employers and plan sponsors would know exactly which individuals have family incomes in excess of $120,000.  An employer would know this information anyhow for an individual earning more than $120,000, but would a single person earning $60,000 from his employer be comfortable with his employer knowing that his income exceeded $120,000 regardless of the source?  We think not.

Today, most employers do not insist on actively working employees applying for MSP premium assistance because the income thresholds are set at a level where most jobs that include a benefit package that pays for MSP premiums earn more than the current threshold ($42,000 per year) on their own.  Some plans that provide for payment of MSP premiums for retirees require application for premium assistance – but it is extremely cumbersome and fraught with privacy concerns.

Plan sponsors will be highly motivated to save 50% of MSP premiums for many or most of their participants.  Most plan sponsors, including employers, will likely insist that all employees (or perhaps all employees earning less than $120,000 per year in the case where the employer is the plan sponsor) apply for premium subsidies.

Conclusions

While a reduction to MSP premiums is positive, there are significant issues with the proposed system that are likely to lead to major challenges for plan sponsors.  Plan sponsors should be aware of these challenges:

  • Maximizing savings will be highly cumbersome for plan sponsors. But, the savings will justify taking on the cost of administration and burdening individuals.
  • Plan sponsors must be involved in the application process in order to confirm that individuals actually applied, because MSP does not send a confirmation of receipt of an application after-the-fact.
  • Existing application forms are poor and involve sharing more information than necessary with plan sponsors.
  • Regardless, employers and plan sponsors will indirectly learn sensitive family income information from employees and participants. This will lead to major problems.

Plan sponsors should be engaging with the B.C. government to head off the significant issues.  Forms and processes could easily be changed to remove some irritants.

Regardless, it is worth considering the merits of inserting means-testing at a fairly high level of family income in the MSP premium system.  Employers will learn which employees have family incomes in excess of $120,000 per year.  Although it appears to be “good politics” to insert means-testing into various taxes and programs, the government should be considering whether there are more sensitive ways to achieve a similar result.  Could it make sense to cut all MSP premiums by 50% rather than introducing the $120,000 family income test?  The B.C. government could make slight offsetting changes to the much more private personal income tax system to insert additional progressivity.

Further, if the B.C. government actually intends to eliminate MSP premiums in the not-too-distant future, why would the BC government introduce a temporary period of administrative burden for employers, benefit plans, individuals and themselves?  And, why would the B.C. government introduce a period of unnecessary sharing of private information between employees and employers? Once this information is shared, even if only done once, it could irreparably change the relationship that an employer has with a particular employee.

If the B.C. government is intent on implementing the system as proposed in the budget, the potential cost savings are so large for employers and plan sponsors that pay for MSP premiums that they will likely need to require participants to apply for premium assistance.  Employers and plan sponsors will need to review their plan provisions and policies, warn their employees and members about some upcoming administrative requirements and prepare for some inevitable conflict.

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