Private Health Services Plans (PHSP) for Small Business Owners
A Private Health Services Plan enables you to effectively move personal health and dental expenses into your business to be used as a deduction. Private Health Services Plans (PHSPs) are based on regulations stated within the Income Tax Act. These regulations state that employers may reimburse medical and dental expenses incurred by employees as a non-taxable employee benefit so long as the benefits are paid out through a properly structured benefits plan (which may come in more than one form). Group health and dental insurance plans are based on the same regulations. When health and dental premiums are paid by an employer on behalf of their staff members, those premiums become a non-taxable benefit to the employees and a deduction for the business. The same is true with a Private Health Services Plan, even for a one person company.
The most noticeable difference between an Olympia Private Health Services Plan (referred to as the Olympia Health & Dental Plan) and a traditional insurance plan is that the Olympia Health & Dental Plan has no premiums! So while you will receive the same tax benefits as the larger companies offering benefits to their employees, you can do so without the normal monthly costs involved. The Olympia Health & Dental Plan (PHSP) simply has a small administration fee when claims are submitted. In years that you don’t incur any medical costs, you simply don’t pay any fees. This is a pay-as-you-go system!
What is a Private Health Services Plan?
Private Health Services Plans are often referred to by different names. The term “PHSP” is also commonly called a:
- Health Trust
- Health &Welfare Trust
- Health Spending Account (HSA)
Regardless of which name is used, these types of benefits plans are regulated by the Income Tax Act and as a result must be structured properly. It is important when choosing a provider for these services to ask the right questions and be sure that the provider has been set up within the requirements of the Income Tax Act. The deductions made available through this plan are only valid with Canada Customs and Revenue Agency if all compliance regulations are met. Olympia meets all of these requirements.
For detailed information on how to choose a PHSP provider, please click here.
How does a PHSP work?
Private Health Services Plans (PHSPs) are very simple to use regardless of the size of your business. Many small business owners, including sole owner/operators will choose to use a PHSP simply because it is more cost-effective for covering health and dental costs than any other option available and it is easier to understand than an insurance plan.
A PHSP simply provides the opportunity for your business to reimburse you for your family’s health and dental costs without the requirement of paying monthly premiums. Your business will simply act as the “insurer” and reimburse you for dental bills, vision care expenses, chiropractic treatments, etc. Using Olympia Benefits as the administrator for this type of health plan you create the ability to fully deduct all of these costs and receive all benefits paid out as a non-taxable benefit to you as an employee of your business.
For example, if you have a $500.00 dental bill for one of your family members you will simply submit the receipt for the expense to your company for reimbursement. To ensure the deductibility of the expense, your company will send the receipt along with funding for the claim (in this case $500.00 plus a small administration fee) to Olympia Benefits. Olympia Benefits will then send a reimbursement cheque ($500.00) to you directly as the employee of your business and the benefits will be received completely tax-free.
While this process is certainly simple in concept, there are still numerous regulations that must be followed in order for the deduction and the non-taxable benefits to qualify. It is important that you carefully choose your administrator to avoid the potential of disallowed deductions and complications with CRA (Canada Customs and Revenue Agency). You are encouraged to do your research on any service provider that may offer to provide these services. Olympia has been offering these services since 1996 and currently administers this plan for more than 25,000 small businesses in Western Canada.
For important questions that you should ask any PHSP provider, please click here.
Private Health Services Plan Examples:
PHSPs, including the Olympia Health & Dental Plan, can be designed in a variety of ways depending on the structure of your business. Please see the following example to get an idea of how an Olympia Health & Dental Plan may be structured for your situation. If you have any questions or you would like to speak to a representative to inquire about using this plan for your business, please Contact Us and we will have the nearest PHSP representative get in touch with you as soon as possible. You can also reach us toll-free at 1-888-668-8384.
PHSP Example – Incorporated Engineering Consultant (sole employee of business)
Olympia Benefits commonly sets up PHSPs for businesses with only one or two employees. In this case, a professional engineering consultant is currently paying for his family’s health and dental expenses directly out of his own, personal pocket. Every dollar that is being spent on the dentist, glasses, and prescription drugs is coming straight out of his wallet and being paid with after-tax dollars. This engineer’s spouse does not have a health and dental plan of her own and the family spends approximately $2,000 annually on health and dental expenses.
Prior to setting up an Olympia Health & Dental Plan, this $2,000 of health and dental expenses is actually costing the family approximately $3,000 based on the engineer’s tax bracket. (Calculated as $3,000 of income minus 33% income tax – leaving $2,000 to pay the dentist, etc.)
After setting up an Olympia Health & Dental Plan, this engineer is now only spending $2,200 per year to cover these same costs. By using Olympia Benefits to administer his health plan, it has simply cost him the real cost of his expenses ($2,000) plus a 10% administration fee.
The savings using this plan can be significant. In this simple example, the engineer will save $800 annually that would normally be paid in unnecessary tax dollars.
