Employers want to compensate workers' medical expenses tax free

Dental care.
Dental care. Source: ERR

Employers want to develop Estonia's healthcare expenses compensation scheme further by hiking the cap of expenses exempt from tax and making more health services eligible. For example, employers could in the future compensate dental, rehabilitation or cancer treatments.

If an employer wants to join a gym or go in for regular massages or physiotherapy, they can have their employer pay for a part of these activities. Companies often use the Stebby online environment, previously called SportID, for this purpose.

While sponsoring such expenses would otherwise be subject to fringe benefit tax, legislation was passed four years ago to exempt €100 quarterly or €400 annually from tax, with the aim of supporting and promoting a healthy lifestyle.

Nevertheless, companies that take advantage of the possibility still number few. The Estonian Employers Confederation gives the reason that not all employees of all companies want to hit the gym outside of working hours. For example, people whose work is physical in nature and exercise enough. They would like to see other health expenses compensated instead, head of the confederation Arto Aas suggested.

"People could use services they would perhaps lack access to in the framework of universal health insurance, where queues are very long or in cases where people put off going to the doctor until the issue becomes chronic," Aas noted.

He said that while employees can currently go to the gym on their employer's dime, why not pay for their dental care, rehabilitation or oncological treatments. "Are those really things on which we should charge fringe benefit tax?"

ABB over the limit

The sporting expenses benefit is very popular and employees' favorite perk at energy and automatic systems engineering company ABB, Kaspar Kreek, head of working environment at the company, said.

"We use the €100 per employee in full, with €75 going towards exercise and €25 toward medical insurance quarterly," Kreek elaborated.

He believes the sum exempt from tax should be hiked as insurance providers have already signaled that healthcare services are becoming considerably more expensive. "We will not be able to secure a favorable offer for what we paid last period. In other words, we may end up far on the other side of those €100 per quarter," Kreek said.

He could not say whether ABB will keep the recent perks and pay tax on everything over the supported sum or whether possibilities would be dialed back.

Users too few

The confederation has proposed raising the tax free limit and adding services eligible for the exemption to various ministries on numerous occasions.

The confederation last corresponded with the Ministry of Finance and was told that data from the Tax and Customs Board suggests that just 5 percent of all employees took advantage of employer's health expenses compensation last year. Of those, just 4 percent used up the annual sum, with 11 percent of employers paying more than €400. The average annual benefit per employee was €92.

Erle Kõomets, head of the ministry's tax and customs policy department, found that the problem is not with the low exemption ceiling but rather employers' inactivity in offering compensation.

"Therefore, we must first boost employers' use of the measure, only after which can we analyze whether the limit needs to be raised," Kõomets wrote in her reply.

Benefit not reaching problematic sectors

Minister of Health and Labor Peep Peterson (SDE), who used to run the Estonian Trade Unions Confederation for years, told ERR as much. He suggested that the benefits are being used by banks, IT developers and ministries, or institutions that have high salaries.

Places where employees really have health problems – store clerks, railroad workers and many others – don't really use it right now, whereas we have repeatedly asked employers when they plan to offer these perks to rank and file staff. We have no certainty at this time. We need to make sure not to leave the sick behind while we make the healthy healthier, even though that is also a good idea," Peterson said.

"We will never have 100 percent of employees take advantage of every benefit and service the government offers," Arto Aas commented. "We should not punish the proactive with limitations because others do not care or need the service. It is not reason to suspend development of the whole system."

Aas remarked that the number of employees who use the benefit has been growing annually, while most of it is spent on sporting compensation.

"While this is no bad thing, if we could raise the limit and have fewer restrictions, it would bring a lot more money to the healthcare system," Aas said. He explained that while the tax-free sum can be used for health insurance going through a provider, for some reason, the employer currently cannot pay for health expenses directly.

"These restrictions might have been timely and valid in 2018, when the system was created. There were fears in terms of how it would affect the [healthcare] system and misuse, but the last four years have shown that the scheme has merit and risks are managed. We could develop the system further," the employers' representative said.

Bill ready, missing approval

Evelyn Liivamägi, undersecretary for the Ministry of Finance, said that a health expenses compensation amendment was in the works before state budget talks.

"The aim was not to hike the sums but to get rid of quarterly accounting, so the benefit could be used year-round. Also to have it cover all healthcare workers or other persons with medical training. But because the bill sported a negative impact on the state budget in the way of missed tax revenue, it did not pan out during budget negotiations," Liivamägi said.

"We do not believe it would," Arto Aas said, pointing to fears of negative fiscal impact. He said that it would rather have more money for the system. Aas finds that more private capital should be brought to the healthcare sector. "Without punishment through fringe benefit tax. Tax receipt is not going anywhere."

Peterson said there is political will to expand healthcare compensation.

"It will surely be part of political discussions when we return to the healthcare funding topic next year," Peterson said. He added that separating health promotion and medical insurance has been proposed. The minister added that the emphasis should be on the former when talking about increased funding.

"I would not rush headlong into supporting the employers' recent proposal," he said.


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Editor: Marcus Turovski

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