The fact is that medical insurance is a highly regulated industry, and anything that provides advantages to taxpayers is going to be highly scrutinized. These factors are a recipe for a lot of red tape! Most of the time, we take it in stride: enrollment paperwork, medical underwriting and blood tests, employment or salary updates, and providing official notices of accidents, deaths, and disabilities. However, it can be very frustrating for a staff member to try to submit a request for a “simple claim” just to find that more medical documentation is required.
One of our Group Benefits program’s most frequently asked questions is, “Why are prescriptions or doctor’s notes required for certain expenses?” We often hear this asked during plan reviews with plan administrators, and they tell us they’ve heard the same asked by their employees! While it might seem like an extra hurdle, there are important reasons behind these requirements, stemming from both compliance requirements and insurance contract specifics.
The CRA and Medical Expense Tax Credit (METC)
The first and most important reason is that the Canada Revenue Agency (CRA) has regulations requiring them. In certain cases, the CRA mandates a prescription or doctor’s note to confirm that an expense qualifies for the Medical Expense Tax Credit (METC). This tax credit allows individuals to reduce their tax burden by claiming eligible medical expenses. For these expenses to be tax-deductible, the CRA often requires a prescription to prove they were medically necessary.
Many insurance companies base their decisions on this CRA requirement, incorporating it into their contracts to ensure reimbursed expenses are medically related. This is especially relevant in group plans where ensuring compliance with medical expense eligibility can help keep premiums under control. For instance, many group plans require doctor’s notes for massage therapy because there was a time when massage therapy was so frequently reimbursed for non-medical reasons that it significantly impacted the overall paramedical rates for their entire group. By implementing stricter documentation requirements, such as prescriptions or doctor’s notes, the plans could maintain lower premium rates for employers and employees.
Tax Advantages for Employees and Employers
While charitable organizations already benefit from significant tax advantages, these documentation requirements can be crucial for expenses and premiums to be tax-free for the employees. The CRA requires that the costs align with the METC eligibility lists for medical expenses to qualify for tax advantages. These lists include the eligible medical expenses across Canada and the authorized practitioners for each province.
To make things easier, here are some essential CRA resources:
- CRA – Eligible Medical Expenses – A list of medical expenses that employees can claim.
- CRA – Authorized Medical Practitioners – A list of eligible practitioners in each province.
- CRA – Medical Expense Tax Credit – The CRA’s full tax folio outlining the METC.
Ensuring Plan Integrity and Keeping Premiums Low
Most insurance companies, even those not legally required , rely on the CRA’s Private Health Services Plan framework for determining eligible medical expenses. This framework helps ensure that the premiums paid are used for expenses directly related to health and wellness, reducing the likelihood of non-medical reimbursement from the medical plan. By requiring prescriptions or doctor’s notes, insurance companies can confidently demonstrate in the event of an audit that they provide coverage compliantly.
These requirements help maintain the integrity of the benefits plan and ensure that it remains cost-effective for individual and group plan participants.
Trending Change
For several years, the Government of Ontario has heard calls from the Ontario Medical Association and Ontario College of Family Physicians, among others, to reduce the administrative burden that affects doctors’ front-line capacity and the effectiveness of the health system. On April 24, 2024, the Ontario government streamlined the administrative requirements for physicians, including digitizing the referral and recommendation forms and adding Artificial Intelligence integrations to existing processes.
As these changes progress and gain momentum outside of Ontario, we may see the beginning of a shift in different medical documentation and prescription processes. This momentum has the potential to make an impact on both the broader group insurance landscape and within our workplaces.
A Final Word
While it may seem like an extra step, these documentation requirements protect employees and employers in the long run. They help keep group benefits affordable and compliant with CRA guidelines, ensuring that employees can maximize their tax advantages and that insurance providers can offer sustainable coverage. All the good reasons aside, staff rarely have enough familiarity with the regulations of group plans to separate prudence from inconvenience.
When managing group benefit plans, staff sentiment toward these plans is highly important, and decisions are often based on the expressed employee needs. Helping the employer communicate the details of a plan can ultimately help the employees understand the “why” behind these rules, can turn this potential inconvenience into a safeguard and can help staff appreciate all the benefits that are provided.
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