Cost, Tax and Take-Home
Cost-sharing is a tax design question, not only a budget one. Getting the treatment right costs nothing and changes what your people actually receive.
The terms
Rate basis
How each line is priced. Health and dental are normally rated per single and per family unit per month; life and AD&D per $1,000 of volume; LTD per $100 of monthly covered earnings.
Because health and dental are priced per unit, an employee moving from single to family coverage raises cost immediately, mid-year, with no rate change at all.
Per employee per month
PEPMTotal cost divided by covered employees per month — the metric used to compare plans of different sizes.
Only meaningful alongside the tier mix. A single-heavy group always looks cheaper PEPM than a family-heavy one on identical coverage. That is demographics, not value.
Ontario retail sales tax on premiums
RSTOntario applies 8% retail sales tax to group insurance premiums, including health and dental, and to the funding of self-insured arrangements.
It sits on top of the quoted rate. When comparing a quote to an invoice, one includes tax and one does not — confirm which before concluding anything about price.
Premium tax
A tax levied on insurers on premiums written, in the order of 2% in Ontario. Embedded in the rate rather than shown separately.
Part of why retention never drops below a floor, and a useful answer when asked why an insurer cannot simply cut expenses further.
Taxable benefit treatment
Federally, employer-paid health and dental premiums are not a taxable benefit to the employee. Employer-paid life, AD&D and critical illness premiums are. Employer-paid LTD premium is not itself taxed but makes the eventual benefit taxable. Quebec taxes health and dental premiums provincially.
The standard efficient structure is employer-paid health and dental, employee-paid LTD. It costs the employer nothing and materially improves what a disabled employee receives.
Administrative services only
ASOThe employer self-funds claims and pays an insurer to adjudicate and administer, normally with stop-loss protection above a threshold.
Needs meaningful size and stable claims, and applies to health and dental only — never disability. On a small group it transfers volatility to an employer who cannot absorb it.
If your employer currently pays the long-term disability premium, switching to employee-paid makes any future LTD benefit tax-free instead of taxable. The cost to the employer is nil. It is the most valuable no-cost change available on most small plans.