By Dan Eisner, Employee Benefits Advisor
On March 22, 2022, Prime Minister Justin Trudeau announced an agreement reached by the federal Liberal and New Democratic Parties in Parliament. As part of this agreement, the federal NDP effectively agreed to support Trudeau in any non-confidence votes in exchange for Liberal support on some key NDP initiatives. One of those is a national dental care plan for all Canadians. This initial announcement was followed by the Federal Budget announcement on April 7, 2022, which reinforced the concept and provided a framework for funding the program. This program aims to provide dental care for low-income Canadians, starting in 2022 with children under 12 years of age whose families meet the income threshold, then expanding to under 18-year-olds, seniors and persons living with a disability in 2023, and then being fully implemented by 2025. The program, as proposed, would be restricted to families with an income of less than $90,000 annually, with no co-pays for anyone under $70,000 in annual income. This announcement has naturally raised questions for plan sponsors that currently provide employees with dental care plans, in terms of how those plans might be impacted. There are a lot of details yet to be confirmed and, while we wait, here are a few thoughts for plan sponsors who currently offer a dental plan to consider:
- Should you change/eliminate your current dental plan? Dental plans are a major part of an employee benefits package and so are their costs. A natural first thought might be to eliminate company-provided dental care and direct employees to the federal plan. ZLC Perspective: Plan sponsors will need to fully understand the details of the federal program before making these kinds of decisions. With the proposed federal program, as announced to date, being intended for low-income Canadians, many employees will not qualify. Of course, there may be situations where an organization largely employs individuals making less than $70,000 annually (or $90,000 as a family) but most employers have employees in different income brackets, so some employees will likely not qualify for the federal plan.
- Should the federal plan be first or second payor? This decision will have a major impact on how the federal program impacts company-provided dental plans. If the federal plan becomes “first payor”, the company plan could be used effectively as “second payor” to just pay for services not covered by the federal program. However, if the federal program is second payor, company-provided dental plans will not see cost savings unless plan designs are changed. ZLC Perspective: In Pharma Care provinces, like B.C., that is effectively what is happening right now for drug plans. Where the government pays for certain drugs and employees meet eligibility criteria, the government effectively becomes first payor and coverage is coordinated with insurers with company-provided plans being second payor. While it might be possible for a federal dental care program to be first payor, the Canadian insurance industry would have to make some significant changes in terms of being able to identify those Canadians eligible for the federal dental program and then coordinating payments between the plans. Another related issue is how this new federal program would coordinate with existing low-income dental programs being delivered by some provincial governments.
- Should plan sponsors change their plans to provide top-up coverage only? There may be ways to design an employer-sponsored plan to effectively top-up the federal plan coverage. This would reduce cost but still allow employers to provide enhanced dental coverage differentiating themselves from other employers. ZLC Perspective: Without sufficient details right now, it is hard to say whether the proposed federal dental plan will be providing comprehensive coverage for all services currently covered under traditional company-provided benefits plans. Once details are developed, there may be ways to remove coverage for certain core services, so that the federal government program pays and then have the company-provided plans pick up the rest. This might be most practical for higher cost major dental coverage and orthodontia, which the federal program might not cover.
- Should employees be allowed to opt out of company-provided dental plans? In much the same way that we currently allow employees to opt out of extended health and dental benefits if they have other coverage (e.g., through a spouse’s plan), will insurers allow this if the employee is eligible under the federal program? This might be advantageous for employees when there is significant cost sharing on the company-provided dental plan. ZLC Perspective: This opt-out strategy has the potential to save both employer and employee dollars (where employees share the costs), but still ensure employees (and their dependents) that don’t qualify for the federal program have access to dental coverage. If an employee opted out of the employer plan sponsored dental plan, would the plan sponsor consider using those saved premiums to provide some form of additional compensation or coverage to that employee by way of a spending account (see below)?
- Should plan sponsors change the premium rate structure by establishing couple and family rates? If the intent of the initial roll-out of the federal dental care program is to focus on young Canadians (under age 12 and then under age 18), might there be an opportunity to remove dependent children coverage for company-provided dental plans? Currently the most common practice is a 2-rate structure, with premiums set for single and family (which includes couples with no dependents). ZLC Perspective: This strategy is already available to plan sponsors and is often used to more fairly apply cost sharing for employees with and without children. By setting up couple rates, an employee could maintain coverage for themselves and their spouse/partner but remove coverage for dependent children who might be eligible under the federal program. While savings might be available with this strategy, there would undoubtedly be additional administration to ensure proper coverage based on life changes (i.e., age, income levels, spousal coverage) and there would be risk around liability for any administrative mistakes.
- Should plan sponsors transition their dental plans to spending accounts? Given that employees are already looking for more choice and flexibility in their benefits plans, one of the strategies many employers have already implemented over the last couple of years has been by way of spending accounts. The savings from eliminating a dental plan could be used to fund spending accounts. ZLC Perspective: It might be possible to simply remove dental coverage all together and instead provide a comparable level of financial coverage through a Health Care Spending Account, Lifestyle/Wellness account, or both. Employees would then defer to the federal program first and expense any additional charges through these spending accounts. They would theoretically be motivated to take full advantage of the federal plan, working with their dentist, to maximize the value of their spending account.
We do not recommend making any major decisions until the federal dental program is confirmed and full details are provided. However, we have provided some initial thoughts and considerations given that full details around the nature and functioning of the newly announced federal dental care program are still to come. Canadian benefits plan sponsors are essentially going to be in a holding pattern until more fulsome details are provided. As well, somebody ultimately has to pay for this new government program and, if that comes by way of higher corporate taxation, plan sponsors might be more motivated to eliminate dental coverage to off-set those higher tax costs. Lastly, the Canadian Life and Health Insurance Agency (CLHIA) needs to review this new federal dental care program and develop integration guidelines, meaning all Canadian insurers will need to adapt their systems accordingly. We agree that taking advantage of federal programs could help contain current plan costs and mitigate future plan inflation. However, we must remember that employee benefits plans continue to play a critical role in attracting, retaining and engaging key employees, so dental care benefits will need to remain competitive. While opportunities may exist to coordinate with a new federal program, plan sponsors will also need to gauge how their competitors are reacting and how employees might perceive any changes. Should you have any questions on the above, please don’t hesitate to contact me or a member of our team. ZLC Employee Benefits Solutions is one of the fastest growing advisors for employee benefits and group retirement programs in Vancouver and we are fortunate to have the best people, resources, and clients. We provide value to you by leveraging one of the most skilled benefits teams – collectively over 400 years of experience within our team of 19 employee benefits specialists. We have been working with businesses ranging from 3 to over 75,000 plan members for over 35 years.