Current issues in the costing of life care plans
INSIGHT ARTICLE |
The value of an injured person’s future care needs can often exceed the value of their income loss claim. Hence, the need to ensure that claims are properly prepared and costed.
Commonly disputed issues in the costing of life care plans include:
- the treatment of HST,
- past housekeeping costs,
- applicable discount rates, and
- financial management costs.
Some life care planners do not include HST in their calculations. Since HST is payable, the person costing the life care plan needs to be sufficiently familiar with HST rules to include these taxes, as applicable, in their calculations. To do otherwise could be to understate the value of care needs by up to 13 per cent.
While it is clear that HST needs to be included in the costing, it is unclear whether HST applies to published no-fault rates and maximum limits detailed in the Statutory Accident Benefits Schedule (SABS) under the Insurance Act. For example, in the case of attendant care, is HST in addition to the annual $72,000 or $1 million nominal aggregate cost limits and hourly rates published by the Financial Services Commission of Ontario (FSCO) in the Superintendent’s Attendant Care Hourly Rate Guideline?
Clarification of this issue in proposed legislative amendments is welcome and long overdue. For example, although the Superintendent’s Professional Services Guideline (03/14) deals with services provided by health care professionals and providers, it does not reference services provided by other service providers such as attendant care, and housekeeping and home maintenance providers.
A subsequent Superintendent’s Cost of Goods Guideline (02/16) states:
“The applicability of the HST to goods referred to in sections 15 and 16 of the SABS falls under the jurisdiction of the Canada Revenue Agency (CRA). If the HST is considered by the CRA to be applicable to an item for which an insurer is liable under those sections, then the HST is payable by the insurer as part of the ’reasonable’ expense for that item.”
“This is consistent with the treatment of HST for services subject to the Professional Services Guideline and the Cost of Assessments and Examinations Guideline.”
The implication of the specific reference in this Guideline to sections 15 and 16 (medical and rehabilitation expenses) as opposed to the entire SABS Regulation is that FSCO has the jurisdiction to be selective in the application of HST. To the best of our knowledge, as a consequence of this confusion, few, if any, life care planners apply HST to published attendant care rates (which are detailed in section 19 of the SABS) or to housekeeping and home maintenance benefits (detailed in section 23 of the SABS).
In our experience, there is also confusion as to the application of HST in income replacement benefit calculations pursuant to subsection 7(4) of the SABS. Some insurers only pay up to a maximum of $2,500 inclusive of HST, arguing that this is consistent with the above-noted and currently effective Superintendent’s Professional Services Guideline (03/14) issued by FSCO in September 2014.
The decision in McIntyre v. Docherty et al. 2009 97 O.R. (3d) 189, recognized how important household work is to the pride and self-esteem of an injured party. In this case, household duties were performed by Claudia McIntyre’s family members gratuitously; without her incurring out-of-pocket expenses. At trial, the jury awarded $5,000 for past housekeeping costs; the defendant appealed, and the Court of Appeal dismissed the appeal.
When a plaintiff is seeking compensation for housekeeping costs, the critical factors are the reason for the replacement services, the work done and time expended, irrespective of payment. This decision confirmed that plaintiffs are not required to incur out-of-pocket expenses on housekeeping in order to succeed with a claim. A reduction in a plaintiff’s ability to perform housekeeping tasks at their pre-accident capacity is compensable. This decision remains a leading case on the subject of loss of housekeeping capacity, having been cited in several recent cases across Canada.
For professional services, the courts have held that it is appropriate to use a discount rate below that set out in Rule 53.09(1). This deviation from the set rate has, in the case of future professional services, become common practice.
The discount rate set out in Rule 53.09(1) is calculated based on the rate of interest on Government of Canada real return bonds for the first 15 years and 2.5 per cent per annum thereafter. Furthermore, the express wording of the Rule clarifies that it does not include a productivity factor.
Departures from the Rules of Civil Procedure have, in the case of professional services, been based on evidence that wages have historically increased faster than the rate of inflation and the likelihood that this will continue in the future. Outside of professional services it has been based on evidence that other future health care costs are also expected to increase faster than the rate of inflation. The concept of lower discount rates and higher present value factors applicable to professional services are consistent with the decisions in Roberts et al. v. Morana et al.  O.J. No. 5423, affirmed on appeal  O.J. No. 2688, Desbiens v Mordini  O.J. No. 4735 and Walker v. Ritchie  O.J. No. 1600.
In Morrison v. Greig  O.J. No. 225 and MacNeil v. Bryan et al.  O.J. No. 2344 the court accepted evidence from a health economist that certain Canadian health expenditures, outside of professional services, are also expected to increase in real terms over time. In Morrison, Justice Glass allowed a lower discount rate to be applied to all future care costs, including prescription drugs and required attendant care.
An allowance for financial management costs is appropriate when a plaintiff requires professional assistance in order to deal with an award. While required assistance could conceivably include the selection of an appropriate investment manager or assistance with the development of a suitable investment plan, financial management and administration costs usually do not include periodic investment management fees. The courts have typically held that investment management fees should be compensated by way of higher investment returns.
In Roberts v. Morana (ibid), Justice O’Brien agreed with a claim for financial management and awarded an additional five per cent of aggregate pecuniary and non-pecuniary damages for these costs. Given her relatively young age and circumstances, in the case of Penny Roberts, financial management and administration costs could, in addition to the selection of an investment manager and development of an appropriate investment plan, have potentially included the following:
- the additional costs associated with the preparation of her annual tax return;
- legal fees associated with the preparation of a co-habitation agreement, marriage contract, abnormal costs associated with the preparation of a will and periodic legal advice;
- professional advice pertaining to the selection and hiring of suitable care providers; and
- assistance with the payment of bills, sundry administrative tasks, maintenance of accounting records, etc.
In Morrison v. Greig, Justice Glass concurred with the judgment in Roberts v. Morana and awarded a similar five per cent of aggregate income losses, care needs and general damages for financial management.
In circumstances where the plaintiff is mentally incapable pursuant to the Substitute Decisions Act, and requires the services of a guardian, guardianship costs may be applicable. In addition to the financial management costs detailed above, guardianship costs would include guardianship fees payable, plus legal and other professional fees associated with guardianship and the periodic passing of accounts.
- While HST is an expense which needs to be included in the costing of a life care plan, the extent to which it is applicable to SABS costs remains to be clarified by FSCO;
- Depending on the circumstances, unpaid past housekeeping services may be claimable, even in situations where replacement costs have not been “incurred”;
- It may be prudent to engage the services of a health economist where there are very significant future health care costs, other than professional services, such as attendant care needs; and
- Depending on plaintiff sophistication, the nature of the disability and the quantum of an award, a plaintiff may be entitled to an allowance for financial management or guardianship costs.
Depending on the circumstances, the financial impact of these issues, both individually and collectively, can have a material impact on the quantum of a future care award.