Should I Administer My Own Health Benefit Plan?
Business owners are always looking for ways of not only growing their businesses, but how to do more with less. In today’s economy it is vital to look inward and search out potential savings to add to the bottom line. The question is; how far should the business owner go to save money? How far is too far? Each business owner has a unique situation of combined business and family, so it is difficult to come up with one answer that fits all or most business owners.
For business owners looking to potentially administer their own health benefit plan, the advantage is clear; there are some dollar savings. Should the decision be made to administer their own benefit plan solely on savings? What if the money that they are saving actually had some real value when it was used for a benefit provider or third part administrator (TPA) to administer their benefit plan? Well, let’s look at what a good benefit provider or TPA does:
· Ensures that there is proper and sufficient plan documentation. Many business owners are under the impression that a simple Board of Director’s resolution is enough to start administering their own benefit plan. The Board of Directors resolution is to allow the plan to be created and it is does not constitute the plan in itself. Although this was done in the past for those who wanted to administer their own benefit plan, the Canada Revenue Agency (CRA) during audits/ reviews are asking for the supporting documentation that describes various details such as how the plan is to operate, employee entitlement, etc. to ensure it is not offside with legislation, and particularly, the Income Tax Act (ITA) of Canada. Business owners without plan documentation have been found to be non-compliant resulting in disallowing the deductions to the business and the claims paid to employees deemed as a taxable benefit.
· Applies the appropriate benefit limits. In many cases the benefit limit can be set by the employer, but must be set by employee class. In other cases, CRA mandated limits apply to both the business owner and any employees. Benefit providers or TPAs also know who is eligible to participate in the plan and under what circumstances.
· Adjudicates and documents processing the benefit claim. Most business owners just approve benefit claims and do not properly adjudicate them. In some cases claims are processed without proper supporting documentation. Important factors in adjudicating a claim are:
o Is the claim an allowable expense under the ITA
o as per the ITA, the claim is paid by a first payee before any other supplemental plan
o Is the claimant an employee or dependent of an employee
o benefit limits are not exceeded
o the claim is not a duplicate
o receipts seem reasonable and do not appear fraudulent
o calling the medical provider for verification if needed or with any questions
o keep copies of receipts and documentation
The above with appropriate documentation will eliminate headaches and scrambling to find what is needed in the case of an audit from a regulatory body.
· Protects both the employee and employer with regards to privacy. This is very important, especially if there is arm’s length employees involved. The potential liability to the employer can be very large even if the employee signs a waiver that they are aware and permit their privacy to be breached by having the employer see their private health details through receipts, records, prescriptions or reports. If a terminated employee believes that they were “let go” because of their health condition which the employer knew, or found out about by administering their claims, the legal and settlement costs could be astronomical if the employee pursues action through a violation of the Human Rights Code - quite possibly hundreds of thousands of dollars. Benefit providers and TPAs are very aware of the privacy laws and provide only the allowable information regarding benefit claims to the employer.
· There to answer questions and provide specific knowledge and expertise. Self-administering a benefit plan probably means that the business owner processes claims a couple of times a year, and other than that, has nothing to do with the plan. Benefit providers and TPAs set up and administer plans daily. It makes sense that as it is their day to day business, they truly are the experts. Did you know you can claim travel and meal expenses in certain circumstances? Did you also know that there are various types of health benefit plans, some of which cannot be self-administered? Having a resource who knows more details and the “ins and outs” can definitely be invaluable.
· Keeps the plan and its administration updated to current legislation. Ongoing compliance is paramount and also key to not having any claims reversed by a regulatory body. This can cause a taxable event to the employee with a potential of penalty and interest being applied. A good example of this is the change to allowable expenses that occurred a few years back. Cosmetic treatments in most cases are no longer an eligible health expense that can be claimed through a benefit plan.
· Knowing which expenses to claims or not. What are some expenses that you are not claiming or not even knowing that it is medical? Ie: treatment outside of town. Travel, meals, logging…
· Reduces the chance of audit. Let’s face it; it is far more likely that a self-administered plan will allow a non-eligible claim, or perhaps a duplicate claim to go through the plan. The lack of proper systems, checks and procedures, and an arm’s length relationship, will more likely draw the attention for an audit than that of the benefit provider or TPA. Have you ever had a CRA review (audit)? Rarely does CRA leave empty handed. They are trained to dig and dig until something is found; many times unrelated to the reason for review.
Some business owner advisors, and even accountants, are recommending administering your own benefit plan. It is understandable as you can save a bit of money … however you may be losing a lot of value. For example, as a business owner, you could probably do your own accounting and save a few dollars; but there are good reasons why you employ, or use the services of an accountant. Be sure you understand the source giving you the advice; they most likely cannot provide you the full expertise that a good benefit provider or TPA can.
The most important things to consider when deciding whether to administer your own health benefit plan or not are:
- What are my risks?
- Am I satisfied with my risks and potential liability?
- Do I truly have all the information and expertise I need?
- Does the person making recommendations to me have the appropriate knowledge and expertise? Do they understand their liability if there are any issues?
- Am I comfortable and confident that I can keep the plan compliant and current to any legislative or related changes?
- Is my time involved to administer the plan better utilized within the business?
- Will I be confident and prepared in case of a CRA review or regulatory body audit?
As you can see, there is more to know than just taking deductions for medical receipts. So we come back to the question: Should I administer my own health benefit plan? In some cases it may make sense, however in most cases it probably doesn’t due to all that is involved with the management of the plan including:
- Appropriate plan documentation
- Annual resolutions and filling/ reporting
- Employee issues such as benefits limit, privacy, eligibility
- Adequate adjudication of medical expenses
- Plan compliance including ensuring any legislative changes are reflected in the plan
…. the list goes on.
In the end it is up to you to decide. Hopefully now you are better equipped to make that decision.