Canada’s healthcare and benefits system is often regarded as one of the most comprehensive in the world. Many employees across the country enjoy a wide range of health benefits, such as prescription drug coverage, dental care, and vision care. These benefits are an essential component of employee compensation packages, helping businesses attract and retain top talent.
Although coverage can vary by employer and insurance provider, they all aim to enhance employee well-being. So, how exactly do these benefits work?
In this article, we’ll explain how employee health benefits work in Canada, what they typically cover, and how employers can provide them. We’ll also explore how an Employer of Record (EOR) can assist your business manage and navigate the complexities of providing health benefits while staying compliant with Canadian employment requirements.
Ready to learn how health benefits work in Canada and how they can benefit your employees? Let’s dive right in!
The Canadian public healthcare system
Canada’s health care system, commonly referred to as Canadian Medicare, is a publicly funded system that provides universal access to medically necessary healthcare services for citizens and permanent residents. Funded primarily through taxes, the system operates under the guidelines of the Canada Health Act, which sets national standards for healthcare delivery across the country.
While healthcare is administered by each province and territory through its own public insurance program, all jurisdictions must comply with the five key principles under the Canada Health Act in order to receive federal funding:
- Public Administration: Provincial and territorial health plans must be administered by a public authority on a non-profit basis.
- Comprehensiveness: The plans must cover all medically necessary services provided by hospitals and physicians.
- Universality: All eligible residents are entitled to the same level of healthcare.
- Portability: Residents can access healthcare services in different provinces without losing coverage.
- Accessibility: Residents must have reasonable access to healthcare facilities and professionals without financial or other barriers.
Under this framework, provinces and territories oversee the delivery of healthcare services while receiving federal funding to ensure consistency across the country. Core services such as physician visits, hospital care, and emergency treatment are generally provided without direct charges at the point of care.
However, many healthcare services are not fully covered by the public system. Prescription drugs, dental care, vision care, and paramedical services (such as physiotherapy or chiropractic care) are typically paid for through private insurance plans, employer-sponsored health benefits, or provincial programs.
Although the Canadian healthcare system provides broad access to essential medical services, the actual delivery of healthcare can vary by region. For example, some provinces may have shorter wait times for certain treatments or offer additional services that others do not. Many provinces also offer supplementary healthcare programs for vulnerable populations, such as seniors, children or low-income individuals, ensuring that they have access to expanded services like home care or long-term care.
Overall, the Canadian healthcare system emphasizes universal access and public funding. On average, Canada spends $9,626 per person on health care each year, significantly lower than the $15,474 per person spent in the United States. While healthcare spending in Canada remains high compared to many developed countries, it is still significantly lower per capita than in the United States.
The U.S. healthcare system
Unlike Canada, the United States does not have a universal public healthcare system. Instead, healthcare coverage is provided through a combination of private insurance and government programs.
Most Americans receive health insurance through employer-sponsored plans, where both employers and employees contribute toward the cost of coverage. Individuals who do not have access to employer-sponsored insurance may purchase coverage through the individual insurance market.
The Affordable Care Act (ACA), also known as Obamacare, enacted in 2010 introduced reforms designed to make health insurance more affordable and accessible for Americans. Under the ACA, insurance plans in the individual and small-group markets must cover a set of essential health benefits, including services such as hospitalization, prescription drugs, and maternity care.
In addition to private insurance, the U.S. government operates several public health programs. Medicare provides health coverage primarily for individuals aged 65 and older and certain people with disabilities, while Medicaid provides coverage for eligible low-income individuals and families.
Despite these programs, access to healthcare coverage in the United States often depends on employment status or eligibility for government programs. As a result, some individuals face significant out-of-pocket expenses, including deductibles, copayments, and coinsurance associated with private insurance plans.
The most common types of health benefits in Canada
While Canada’s public healthcare system provides coverage for medically necessary hospital and physician services, many healthcare services are not fully covered by provincial health plans. Services such as dental care, vision care, outpatient prescription drugs, and many paramedical treatments often require additional coverage.
To help fill these gaps, many Canadian employees rely on private health insurance, often provided through employer-sponsored benefits plans. These plans play an important role in helping employees manage healthcare costs while supporting overall well-being.
As a result, many Canadian employers offer comprehensive health benefits packages that supplement the public healthcare system. These plans typically include coverage for a range of services that are not fully funded through provincial healthcare programs. Here are some common services covered by employer health insurance:
Extended health insurance
Extended health insurance is designed to supplement provincial health insurance plans by covering additional healthcare services and medical expenses. It typically includes:
- Vision Care: Preventative vision care is important for Canadians of all ages. Employer-sponsored plans can range from covering basic eye exams to more comprehensive services, such as coverage for contact lenses, glasses, and visits to optometrists.
- Prescription Drugs: Prescription drug coverage is one of the most common components of extended health benefits. While provincial programs may provide drug coverage for certain groups - such as seniors, children, or low-income residents - many working Canadians rely on employer-sponsored insurance plans to cover the cost of prescription medications.
- Paramedical Services: These include health services provided by health care professionals such as physiotherapists, psychologists, chiropractors, and massage therapists. These services are often not fully covered by provincial healthcare plans, so employer benefits frequently include annual allowances to help employees access these treatments.
Dental insurance
Access to dental care continues to be a challenge for many Canadians. Nearly one in four (24%) report avoiding visits to dental professionals due to high costs, and over one in three Canadians (35%) do not have dental insurance at all. While 55% of Canadians have private dental insurance - often provided through an employer, a private plan, or through a university - other groups face greater challenges. For instance, only 4% rely solely on public dental insurance, and 6% are either unsure if they have insurance or are unaware of the type of coverage they hold.
In response to these gaps, the federal government has introduced the Canadian Dental Care Plan (CDCP), which is being rolled out to improve access to dental care for eligible Canadians. The program is expected to support millions of uninsured individuals, particularly those with family incomes below $90,000.
Despite the expansion of public programs, employer-sponsored dental insurance continues to play a critical role in providing access to routine and preventative dental care. For many employers, offering dental coverage as part of a broader benefits package remains an important way to support employee well-being while attracting and retaining talent.
Other types of insurance
Offering a comprehensive benefits plan can help employers attract and retain talent. In addition to extended health and dental coverage, many employers in Canada include the following types of insurance in their benefits packages:
Life insurance
Life insurance provides financial protection for an employee’s beneficiaries in the event of their death. Under a group life insurance policy, the insurer pays a lump sum benefit to a designated beneficiary. Employees can typically choose who will receive this payout, making it an important component of financial planning.
Accidental death and dismemberment insurance (AD&D)
AD&D coverage extends protection beyond standard life insurance. This type of life insurance pays benefits in the event of an employee's accidental death, severe injuries, or limb loss. If an employee dies due to an accident, beneficiaries receive a lump sum. For non-fatal incidents, such as limb loss or paralysis, the employee will receive a percentage of the total coverage.
Critical illness insurance
Critical illness insurance provides a lump sum payment if an employee is diagnosed with a covered serious illness, such as cancer, stroke, or heart disease. This payment is typically made upon diagnosis and can be used to cover medical expenses, lost income, or other financial needs. Coverage and eligibility depend on the specific terms of the insurance policy.
Disability insurance
Disability insurance provides income replacement for employees who are unable to work due to illness or injury. Coverage is typically divided into:
- Short-term disability (STD): Provides income replacement for up to 6 months while sick or injured.
- Long-term disability (LTD): Provides ongoing income support if an employee is unable to return to work after the short-term disability period ends. Most long-term disability plans will replace 60% to 70% of your normal income.
In addition to employer-sponsored disability coverage, employees may be eligible for Employment Insurance (EI) sickness benefits, which provide up to 26 weeks of financial support for eligible individuals who are unable to work due to illness or injury. Employees can receive 55% of their salary, with the highest amount being $729 per week.
Employees with severe and prolonged disabilities may also qualify for Canada Pension Plan (CPP) disability benefits, subject to eligibility requirements.
The tax treatment of group insurance benefits depends on how the plan is structured. In general:
- Employer-paid life insurance premiums are considered a taxable benefit to employees.
- For long-term disability (LTD), employees typically pay the premiums if they want any future benefits to be tax-free.
Because tax treatment can vary, employers should review plan design carefully when structuring benefits packages.
Health spending accounts (HSA)
A Health Spending Account (HSA) allows employers to reimburse employees for eligible medical, dental, and vision expenses. HSAs provide a flexible way to supplement traditional benefits by giving employees more control over how their healthcare dollars are spent.
When structured properly (typically as a Private Health Services Plan (PHSP)), HSA reimbursements are generally tax-free for employees, making them a cost-effective way to enhance a benefits package. Employers only reimburse actual expenses incurred, helping manage costs while still offering meaningful support.
Employee assistance programs (EAP)
An Employee Assistance Program (EAP) provides confidential support services to employees and, in many cases, their immediate family members. These programs typically include access to counseling and resources for managing personal challenges such as stress, anxiety, depression, substance use, and relationship issues.
EAPs help employees deal with personal issues that might affect their work performance. By offering an EAP, employers show that they care about their employees’ mental health and well-being, which can boost workplace morale and productivity.
Virtual healthcare
Virtual healthcare has become an increasingly common component of employee benefits in Canada. These services allow employees to consult with healthcare professionals through video, phone, or secure messaging platforms.
Depending on the provider, employees may be able to receive medical advice, prescriptions (where appropriate), and referrals without visiting a physical clinic. This can improve access to care, particularly for employees in remote areas or those with limited time or mobility.
How health benefits in Canada are sold
In Canada, employee health benefits are most commonly arranged through licensed brokers or benefits advisors, who work with employers to design and implement group insurance plans. These advisors help businesses evaluate different insurers and plan options based on factors such as employee needs, coverage levels, and budget.
Once a plan is selected, the broker typically supports the implementation and enrollment process, and continues to provide ongoing guidance on plan management, renewals, and cost optimization.
Employers may also work directly with insurance providers, but brokers are often used to simplify plan selection and ensure the benefits package remains competitive and aligned with market standards.
For companies hiring employees in Canada without a local entity, an Employer of Record (EOR) can manage health benefits as part of a broader employment solution. An EOR acts as the legal employer on behalf of the client company, handling responsibilities such as payroll, benefits administration, and compliance with local employment regulations. This includes enrolling employees in group health benefits plans and ensuring that coverage is structured in accordance with Canadian standards.
By working with an EOR, businesses can provide locally competitive health benefits to their employees in Canada without needing to establish and manage their own benefits infrastructure.
How much benefits cost in Canada
The cost of employer-sponsored health benefits in Canada can vary widely depending on factors such as plan design, employee demographics, and coverage levels. In general, a typical group benefits plan often falls in the range of $5,000 to $7,000 per employee per year, or approximately $420 to $580 per month, although actual costs may differ significantly based on the size of the organization and whether coverage is individual or family-based.
In recent years, employers have also experienced steady increases in benefits costs. Industry reports suggest that benefits costs are expected to rise by approximately 8.3% in 2026, following lower increases in prior years. These rising costs are largely driven by increased spending on prescription drugs, dental services, and paramedical care.
The increasing cost is in line with the projected 9.8% global increase in the cost of employee benefits, and employers should anticipate annual price increases to their group benefits plan.
Benefits with Thirdsail
Providing the right employee benefits is crucial for attracting and retaining top talent. If you're unsure where to start, partnering with an Employer of Record (EOR) like Thirdsail can help simplify the process. Thirdsail offers both Health Spending Accounts (HSAs) and private health insurance, ensuring your employees are fully covered while helping you effectively manage costs.
Thirdsail assists companies worldwide in hiring employees in Canada without the need to set up a local subsidiary. We make it easy to hire quickly and enroll your employees in the right benefits plan - whether through an HSA or private health insurance - tailored to fit your budget and business needs.
