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.
- Plain language.
- Your plan wording.
- Clear next steps.
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.