Canadian vs. U.S. Benefit Plans: How Do They Differ?

Is your U.S.-based company expanding into Canada? Have you acquired a firm with a Canadian benefits plan that you’re now managing?

First things first – uncurl yourself from the fetal position. You’ve got this! U.S. benefit plans and Canadian benefit plans have similarities - but also notable differences - due to variations in healthcare systems, government regulations, and cultural norms. Let’s go through some high-level distinctions.

Before we discuss differences, let’s look at what’s similar:

• Benefit plans are employer-sponsored private insurance, where the plan design and premiums are based on a number of factors – demographics, industry, plan design, where employees work/live, and external market factors.
• Plans renew annually, and renewals can be a combination of pooled and experience-rated models.
• The categories of benefits are similar – Life Insurance, Disability, Extended Health, Dental, Spending Accounts, etc. What’s included in them can differ.
• Co-insurance also applies in both countries; however, the out-of-pocket portion can vary greatly, whether under a U.S. or Canadian plan.
• It is common for employers and employees to share in the cost of premiums. Most Canadian benefit plans require the employer to pay a minimum of 50% of the total premium.
• No matter the country, benefits should include a strong employee benefits communication strategy with employees so that they understand how their plan works and how it doesn’t.

Open Enrolment - What’s That?

The first major difference? Open enrolment. Most Canadian plans don’t have one (in other words, plan administrators and benefit advisors have a life in Q4). Flexible benefit plans may have an annual enrolment, but benefits stay status-quo if an employee isn’t looking to make any changes.

Government Healthcare

The United States has a predominantly private healthcare system, with employer-sponsored health insurance being a common coverage method. The Affordable Care Act (ACA) expanded access to insurance through marketplaces and Medicaid. Conversely, Canada has a publicly funded healthcare system known as Medicare. Basic healthcare services are provided to all citizens and permanent residents through taxes, with each province managing its own healthcare plan. 

What this means is that you won’t see doctor or specialist visits, the cost of surgeries or drugs that were administered in a hospital in your Canadian benefits plan claims experience. Stop-loss coverage in Canada tends to be used for high-cost prescriptions and out-of-country emergency medical claims, and a typical stop-loss threshold is $7,500-$15,000 per individual. Also, if included in a plan, our Extended Health and Dental deductibles are commonly $25-$100 per year, depending on whether you have single, couple, single-parent or family coverage.

In/Out-of Networks vs. Preferred Networks

U.S. benefit insurers commonly incentivize employees to consider “in-network” vs. “out-of-network” providers with items such as higher reimbursement levels and lower deductibles.

Canadian benefit plans look to influence buying practices and cost-savings in different ways:

• In or Out-of-Network providers such as doctors, specialists and hospitals don’t exist, as these services are provided by governments. Employees are always free to see the doctor they prefer.
• Dental fees are mandated by provinces and territories, using what are called Dental Fee Guides. Again, Canadians are free to use any dentist they wish. (The current exception is Canadians who receive dental care under the New Federal Canadian Dental Care Plan (CDCP).
•  Expensive + prior-authorization medications are commonly provided through insurer-partnered pharmacies, where a case manager works with the employee’s treatment specialists to ensure adherence to the program.
• Some insurers offer a “bump” in reimbursement (% or $) if an employee uses a specific pharmacy, such as Costco.
• Paramedical services, such as physiotherapy, are typically reimbursed at “Reasonable & Customary” levels, which are the average price of the provider in a specific geographical area. Therefore, employees tend to “shop” for practitioners as they will be responsible for charges above the R&C limit.

Spending Accounts:

Canada has two main types of spending accounts – Health Spending Accounts (HSAs) and Lifestyle or Wellness Spending Accounts (LSAs/WSAs).

HSAs are 100% funded by employers (there are no employee contributions). Eligible items are based on the Medical Expense portion of the tax code. They are used to provide flexibility for health and dental expenses that aren’t eligible or aren’t fully paid for by the core plan and allow an employer to provide additional funds for employees to use in ways that suit them and their families best. In most provinces, benefits paid from an HSA are tax-free to the employee, and claims paid by the employer are tax-deductible expenses for the company.

LSAs/WSAs are spending accounts commonly used for employee “perks”—commuting costs, fitness equipment, daycare and summer camp fees, and more. Again, they are funded by employers, and the employer chooses what is eligible for reimbursement. Benefits received from these accounts are taxable benefits to employees in every province and territory. 

It is common for employers to set up spending accounts as hybrid plans. An employee receives an annual amount, and they decide how much they want in the HSA or LSA/WSA buckets. Employees have the option to change their selection on the plan anniversary or when they have a major life event (just like under the core benefits plan).

Disability Benefits:

A large percentage of benefit plans in Canada do not include Short-Term Disability (STD) or Weekly Indemnity (WI) benefits. Employees who are unable to work due to illness or injury can access the Federal Employment Insurance (EI) disability program. Both employees and employers pay into the program, which offers a 55% benefit calculation up to the current 2024 maximum of $668/week in replacement income.

It’s also rare in Canada to see a voluntary, top-up LTD program. Most disability plans are mandatory, with the same plan design parameters for everyone within the same benefit class. 

Therefore, it’s important to put some thought into your disability program. Some questions that should be considered:

• The Federal EI benefit insures a salary of $63,200 in 2024. How many of our employees earn incomes above this benchmark? If there are several, a short-term disability policy or an EI SUB plan to top up the EI benefit should be considered.
• Does your Long-term Disability plan discriminate against your higher-income earners and/or professionally-skilled staff? If you’re unsure, a review is warranted.
  
  

Conclusion

Understanding the differences between Canadian and U.S. benefit plans is essential for any U.S. company expanding into Canada or managing Canadian benefits. Key distinctions arise from the public versus private healthcare systems, regulatory environments, and the structure of benefit costs and coverages. These include unique elements like spending accounts and disability benefits. 

Employers must carefully consider these variations to ensure their benefit offerings are competitive, compliant, and beneficial for employees. Embracing these differences will not only facilitate smoother operations but also enhance the well-being of your workforce, ultimately contributing to your business's success in a new market.