EMPLOYER & PRIVATE HEALTH SERVICE PLANS
PROVIDE BENEFITS & SECURITY FOR YOUR EMPLOYEES
WHY CHOOSE A PHSP?
Health, dental, and vision care expenses affect us from both a health & wellness perspective, as well as from a cost perspective. How we pay for health, dental, and vision care makes a huge difference in the total cost of these necessary expenditures.
We have limited options in how we pay our health, dental, and vision care expenses and, upon review, the PHSP quickly becomes the option of choice.
Choice of payment for health expenses are:
- Cash from net income (after income tax dollars increase costs by 20 to 50%).
- Insured Traditional Plans – monthly premiums never seem to equal our paid claims and always seem to be increasing.
- “Pay-per-claim” plans – the PHSP – all costs are tax deductible to your company and all reimbursements are tax-free to participants; the PHSP ‘pay-per-claim’ plan works in concert with insured traditional plans, if desired.
EMPLOYER COST CONTROL
When a PHSP is set up, the employer decides how many credits / dollars will be applied to each employee’s Health Spending Account each year. This determines the budget for health benefits at the beginning of each year. Since a PHSP carries no premiums, you don’t have to worry about premiums increasing year after year. The “pay-as-you-claim” plan dictates that you only pay the administration fees as claims are submitted. If no claims are submitted, you don’t pay anything.
LOWER ADMINISTRATION COSTS
Our PHSP offers the lowest administration fees in the industry. Our “pay-per-claim” plan charges an administration fee on claims, as claims are submitted.
FLEXIBLE PHSP EMPLOYERS INFORMATION
The Private Health Spending Plan is the perfect plan for self-funding employee healthcare expenses. This is a ‘pay-as-you-claim’ plan in which an employer-funded flexible benefits plan is used like a bank account to pay for 100% of all CRA eligible medical expenses, tax-free.
The PHSP participant starts each plan year with a designated number of credits / dollars in an Employee Health Spending Account (EHSA) as determined by the plan sponsor (owner / employer). Premiums are not required – this is a ‘pay-as-you-claim’ plan, so no claims mean no costs unless claims are submitted.
Throughout the year, the participants use the tax-free credits / dollars to pay for medical, dental and vision care expenses and extra plan premiums that are not covered through other plans.
CRA Eligible health expenses include, but are not limited to:
- Prescription Drugs
- Laser Eye Surgery
- Dental Work, Crowns and Orthodontic
- Orthodontics for Adults and Children
If an employee has additional coverage (spouse’s plan), both plans can be used to recover health and dental care expenses to a 100% maximum. Claim first from the traditional plan.
Your employees submit their health receipts to the PHSP claims department, who invoices the amount of the receipts plus the cost of processing and applicable taxes. The company deducts the entire cost. The PHSP then issues a tax-free reimbursement to the employee. Payment for the claims to be reimbursed is not required until the claims are views by the PHSP claims department.
EMPLOYER TAX SAVINGS
The PHSP health and dental claims are tax deductible to the business and are received tax-free by the employee. This results in a savings equivalent to the employees’s personal tax bracket.
EMPLOYER CHOICE & OPTIONS
A PHSP changes how a business manages its benefits plan. The employer designs the limits and self funds the claims. The employer is in control.
EMPLOYER PHSP FAQ'S
What health / dental / vision care expenses are covered?
The CRA requires that all prescription drugs and other health, dental and / or vision care expenses must be “medically necessary” (see IT Bulletin 519) and confirmed in writing (i.e. prescribed) by a recognized medical professional to be eligible. An example of this is the cost of whitening strips, in order to use your EHSA funds for these you need a dentist’s written prescription.
Are PHSP plans legal?
It sounds too good to be true. Yes! The Private Health Services Plan adheres to all provisions of the Income Tax Act. Employers’ Private Health Services Plan costs are business deductions and participants’ health care expenses are paid with tax-free dollars. The Private Health Services Plan is based on 25-year-old federal legislation. Please call your accounting professional for his / her verification.
Why have I not heard of the PHSP concept before?
Unfortunately for small businesses, the profitability needed for large insurance companies to offer PHSPs has not be in place. So, simply put, there has been very limited access.
What is required by the Canada Revenue Agency to establish a Private Health Services Plan?
We handle all the contracts and CRA requirements on your behalf. However, it is up to you to choose who has the authority to determine the dollar amount of benefits, to be provided to qualifying participants.
How does GAAR (General Anti-Avoidance Rules) view Private Health Services Plans?
GAAR (General Anti-Avoidance Rules) state that sole proprietors without employees cannot use a “pay-as-you-claim” Private Health Services Plan, as there is no element of risk involved.
One-person corporations qualify within the guidelines of CRA; (with equivalent coverage extended to a participant with the same status as the arm’s-length employer).
Why do you request a Business Identification Number (BIN)?
The CRA, changed some of their tax reporting requirements on October 1, 2002. Insurance companies must now track and report Business Identification Numbers for registered corporations.
BINs provide time and cost efficiencies that serve the business community well.
How does the Private Health Services Plan co-op operate?
Qualified businesses have joined together to provide members with quality products, first-class Internet-based access, & the TRAC on-line system.
Where can I find CRA information on this subject?
For more detailed information on coverage, please visit the Government of Canada Web site at www.cra-adrc.gc.ca and use the search tool to locate the following, or follow the links provided:
- IT519R2 – Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction http://www.cra-adrc.gc.ca/E/pub/tp/i519r2em/it519r2e.htm
- IT85R2 – Health and Welfare Trusts for Employees http://www.cra-adrc.gc.ca/E/pub/tp/i85ret/i85re.txt.html
- IT339R2 – Meaning of “Private Health Services Plan” http://www.cra-adrc.gc.ca/E/pub/tp/i339r2et/i339r2e.txt.html
- IT529 – Flexible Employee Benefit Programs http://www.cra-adrc.gc.ca/E/pub/tp/it529et/it529e.txt
- IT432R2 – Benefits Conferred on Shareholders http://www.cra-adrc.gc.ca/E/pub/tp/i432r2et/i432r2e.txt
- IT470R – Employees’ Fringe Benefits http://www.cra-adrc.gc.ca/E/pub/tp/470re1em/
What is the financial objective of the Private Health Services Plan co-op of business?
As the number of businesses using the Private Health Services Plan increases, our objective is that the cost of delivery to the membership will decrease. We need your help to accomplish this.
Our objective is to reduce the current cost of processing fee per claim. This is possible with the TRAC on-line system providing the newest & most efficient technology available.
Should I get my accounting professional involved?
Yes, your accounting professional needs to be informed to provide appropriate tax preparation.
Will my accounting professional support the PHSP co-op?
Yes! In fact, many accounting professionals are members of the Private Health Services Plan. We have an information package we will e-mail upon request to your accounting professional.
I'm a sole proprietor / partnership. Can I use the PHSP plan?
If you have employees or are incorporated, you can participate in the PHSP.
If you do not have employees, CRA regulations prevent your participation. A sole proprietor and / or a partnership cannot use the Private Health Services Plan as a “pay-as-you-claim” plan.
A sole proprietor and / or a partnership can use the Private Health Services Plan with a conventional insured plan only if fixed monthly premiums are required.
If you hear differently, please contact your legal, accounting and / or financial planning professional before creating a CRA problem for yourself. You have to file a personal tax return, and you will probably be audited.
As a sole proprietor is there any way I can slip though the CRA's regulations to use a Private Health Services Plan?
Unfortunately, there is no way around these regulations.
Please ask your sales personnel to answer the following questions to ensure a clear understanding of the facts:
- Where, on my personal tax return (as a sole proprietor with no employees), do I put the Private Health Services Plan payment? (Private Health Services Plan payments must be itemized separately.)
- How does the CRA requirement of the “element of insurance” come into play? As a sole proprietor with no employees, who can lose money over a benefits year?
- Which CRA government regulation and / or tax ruling applies?
Please contact your accounting professional when your salesperson answers these questions & pass the answers to him/ her for clarification. Your accounting professional will confirm that as a sole proprietor with no employees, your do not qualify for a “pay-as-you-claim” Private Health Services Plan.
Note: Insured plans (Blue Cross & similar plans or our Sub Plan B & C) allow Sole Proprietors with no employees to buy & deduct the monthly premiums as business expenses. Only these types of Private Health Services Plans are eligible for sole proprietors with no employees.
Plans involving contracts of health care insurance contain the basic elements outlined below.
a. an undertaking by one person,
b. to indemnify another person,
c. for an agreed consideration
d. from a loss or liability in respect to an event,
e. the happening of which is uncertain.
What if I have an incorporated company with no employees?
No problem – you qualify, as you are an employee.
With all Private Health Services Plans, the corporate employer is entitled to a deduction in respect of the contributions made and the shareholder (employee) receives the benefit tax-free.
When equivalent coverage under a Private Health Services Plan is extended to all employees, including the employees who are shareholders, the benefits provided to the employee shareholders from such coverage is normally considered to be an employment benefit rather than a shareholder benefit.
Similarly, when all employees of a corporation are shareholders and it is reasonable to conclude, based on the particular facts of the situation, that the Private Health Services Plan coverage has been provided as part of a reasonable remuneration package, the benefit from such coverage is also considered to be an employment benefit rather than a shareholder benefit.
We conclude that for incorporated businesses in which the persons covered in the plan receive T4, T4A, or dividend income, and they perform substantially all the normal duties of an employee, then utilization of the Private Health Services Plan allows these persons to receive a non-taxable employment benefit provided they receive the benefit by virtue of the employment.
Always seek the counsel of your legal & accounting professionals.
Can my corporation set up & use a Private Health Services Plan as a "pay-as-you-claim" plan if only provided to shareholders?
Yes, providing if there are just shareholders and no other “arm’s-length” employees, T4 Income was received.
IT Bulletin 529 (page 7 #26) outlines the official rules regarding “Top Hat” shareholder benefits regulations.
One “arm’s-length” employee or an employee you can lay off (and he / she can claim EI) is necessary for the shareholder with “arm’s-length” employees to legally use a “pay-as-you-claim” Private Health Services Plan.
The penalty for using a “pay-as-you-claim” ownership-only Private Health Services Plan (when you have employees), is a non-deduction to your company for the total accumulated amount & a personally taxable benefit to the shareholder (IT529 page 7 # 26)
For PHSP eligibility, what type of income qualifies an owner to be considered an employee?
A shareholder must be engaged as an actual employee of the Company, which means that an owner must earn T4 income in order to enjoy the tax advantages of the PHSP. Investment income does not qualify. An owner’s income must be the result of time invested, not the product of money invested.
What is the #1 financial consideration when choosing a group health & dental plan?
The cost of financing & processing is the #1 financial consideration. The main difference between plans is what is costs you to receive your expense reimbursement.
The percentage difference between separate plans can be 100% or more on the cost to deliver your health, dental & vision care coverage.
Remember: Health, dental & vision care plans provide no product, they simply exchange cheques with you and attach financing and processing fee.
The questions then are:
- What are you getting for the higher delivery costs?
- How do the higher delivery costs benefit your company?
- What are you really getting for your money?
How do I choose one Private Health Services Plan over another? how reliable is the organization?
In recent months, we have become aware of a marked increase in the number of self-funding plans entering the marketplace. To protect our clients, we have compiled a list of questions that should be addressed ( and satisfactorily answered) in order to validate the reliability and stability of these apparent outcomes.
The Plan Design
- Do they offer optional Sub Plans to cover catastrophic claims?
- Do they provide a contract that follows government regulations?
- Do they have standardized forms? (indicates size)
- Do they add, process, adjudicate, track & report claims?
- What is their cost of financing & processing?
- Do they ask for money up front? (Not a good sign.)
- Do they pay a commissions? How much?
- Do they provide an electronic payment option? (Convenience & speed.)
- Do they offer access through a Web site? (Client access to information.)
The Marketing Organization
- What kind of self-funding experience do they have?
- Do they provide references from companies of your size?
- Do they belong to any accredited professional associations?
- Do they carry liability (E&O) insurance?
- Do they belong to the Better Business Bureau?
- Are they a local or a national organization?
The Private Health Services Plan – a co-op of businesses proudly and competently meets and is expanding on all the above criteria. We have many years of successful self-funding experience and provide excellent products and value added services.
I would like to switch to your plan. However, I was charged started-up fees. Do I have to pay you start-up fees as well?
First of all, thank-you very much, your trust in our plan will be confirmed.
Now, the answer to your question is NO, the co-op absorbs your one-time registration fee.