Most Canadian employers are unlikely to expand their employee benefits programs, despite a recent Supreme Court of Canada decision that opened the door for the development of a private health care system that could exist alongside the country's single-payer health care system.

That's because Canadian employers are struggling with escalating health care costs, and current tax codes give them no incentives to cover health care services already provided by the government, consultants say.

In a June 9 decision, the court ruled in Chaoulli vs. Quebec (Attorney General) that Quebec's ban on private insurance for health care services that are already provided by the province is unconstitutional.

While the decision technically applies only to Quebec, observers say it will have widespread implications for the rest of the country. While five provinces-Alberta, British Columbia, Manitoba, Ontario and Prince Edward Island-have bans similar to Quebec's on private insurance, all Canadian provinces currently have restrictions on the ability of providers and clinics to collect payments directly from patients or third parties if they receive government funds. "The expectation is that the other provinces will follow suit, so all plan sponsors should be looking at this," said Greg Durant, group and health care Central Canada practice leader for Watson Wyatt in Toronto.

As a result of the ruling, unions and employees are expected to increase the pressure on Canadian employers to offer private care options for doctors, specialists and hospital visits normally covered by the government. Offering private health care options would enable employees to avoid the long waiting periods often associated with government-funded health care services, consultants say.

"The pressure will be to expand their benefit programs to allow employees to have private health care," said Larry Jackson, the Toronto-based health and welfare practice leader for Canada for Buck Consultants, an Affiliated Computer Services company.

The first step for employers is to examine their labor contracts to see whether these contracts require them to cover private health care services. Barring any contractual obligations, though, employers are unlikely to offer private health care options unless the federal income tax code is amended to allow them to deduct these expenses, consultants say. The current tax code does not allow employers to deduct expenses for private health care services already offered by the government, a fact that employers will cite when asked to cover these services, Mr. Durant said.

Another obstacle is that Canadian employers are already dealing with escalating health care costs. In Canada, where most prescription drug costs are not picked up by the government, double-digit increases in drug costs account for about 65% of health care benefit expenses.

"Financially, I believe employers are tapped out," said David Haber, president of Vancouver, British Columbia-based Health Benefits Consulting Inc.

Canadian employers already carry the burden for a significant share of health care costs, observers note. Employers in Ontario and Quebec pay payroll taxes that fund their health insurance system, while many employers in Alberta and British Columbia pay monthly premiums for health care services on behalf of their employees.

Canadian employers are unlikely to pay for private health care services "unless they are going to get a break on the payroll taxes they're paying," Mr. Jackson said.

The development of a private health care system, though, could be beneficial to employers even if they do not receive a tax break if it allows employees to get access to care faster and return to work more quickly, consultants say.

Another key issue for employers is the development of insurance products that they could purchase to cover such services. Insurers are waiting for provincial legislatures to come up with plans to address the ruling before they make costly expenditures on developing such products, said a spokeswoman for the Toronto-based Canadian Life & Health Insurance Assn. Inc. "We simply do not know at this point," she said.

How the government responds to the Supreme Court decision is a key issue that adds to the uncertainty for employers, consultants say. Provincial officials will try to circumvent the ruling without creating a two-tiered medical system by decreasing the waiting times for public health care services, consultants say. "In that case, the private system doesn't evolve," said Tim Clarke, senior benefits consultant for Hewitt Associates based in Toronto.

Part of the solution may be for the provinces to delist certain services, removing them from the roster of government-covered services, as Ontario did last year for chiropractic services and routine optometry exams except for seniors and residents under 20 years old (BI, July 12, 2004).

Last year, more than 90% of Ontario employers indicated that they would not pay for these delisted services, which will be the likely reaction of employers if additional services are delisted in response to the Supreme Court ruling. "I think what employers reaction will be is, 'Our health care costs are already high enough, and we're not going to cover these services,"' Mr. Clarke said.

For the most part, employers must wait to see what steps government officials take to deal with the ramifications of the Supreme Court decision. "A lot of this is something employers should be aware of and thinking of, but there's not much that's actionable yet," Mr. Clarke said.