After starting a successful business, every entrepreneur begins to wonder about whether they can now afford health and dental coverage.
They may have given up employer benefits in order to pursue their dreams, but now they have a big dental appointment looming and they want them back.
There are several health and dental care coverage solutions designed specifically for the self-employed in Canada that are cost effective, tax deductible and easy to set up, including: individual health and dental plans, small business group insurance plans, and Health Spending Accounts (HSAs).
Individual Health Plans
Individual Health Plans are purchased from an insurer to cover supplementary health and dental expenses such as prescriptions, cleanings, and specialists such as chiropractors and registered massage therapists.
The health and dental coverages are bundled into modular basic, mid-range or enhanced plan designs. Additional coverages can be purchased for items such as vision care or travel insurance. These plans are relatively effective for sole-proprietors or businesses with one or two employees. Premium costs are based on several factors such as the plan design, applicant's age, and how many people will be covered under the policy. For those under age 45, the average spend is between approximately $50 and $100 per month per person and these premiums may be eligible for deduction as a business expense.
Employee Benefit Plan
Employee Benefit Plans allow small employers the opportunity to offer staff coverage at group rates. One of the biggest perks of group coverage is that the benefits are provided to employees without the need to disclose medical evidence or medical history.
Increasingly, benefits are being implemented to retain valued staff and lure key people away from larger businesses. Most insurers now provide offerings to allow small employers to provide customized plan designs.
Some of the most popular benefits include: life and disability insurance, health, dental and vision care, employee wellness programs, and critical illness insurance, which pays a tax-free lump sum benefit in the event of a covered condition such as cancer or heart attack.
A group plan is available for companies with two or more employees; however, feasibility increases when there are at least five; otherwise, costs are relatively prohibitive. There is also ongoing administration required in the form of updating the insurer of new hires, terminations, and changes in earnings, in addition to educating employees about the coverage. All eligible employees are expected to participate, and cannot pick and choose their coverage.
Costs for group benefits can range significantly and will be heavily dependent on the coverage design, employee demographics and employer's industry. It definitely pays to have your advisor shop for the best rates from a variety of insurers. Each year, the plan will renew and the insurer will have an opportunity toadjust your rates based on plan utilization (expect increases each year).
Group plan premiums are deductible as business expenses, and the benefits can often be provided to employees on a tax-free basis.
Health Spending Account (HSA)
A Health Spending Account (HSA) is a plan set up between an employer and a trust company for the tax-free reimbursement of medical and dental expenses. It is not an insured plan, but allows an employer to provide benefits in a tax-effective manner under Section 248(1) of the Income Tax Act.
This is fast becoming one of the most popular and effective methods for entrepreneurs in Canada to manage health costs. Any expenses that qualify for the Medical Tax Credit will qualify under an HSA. This includes an extensive variety of items that range from laser eye surgery, to medical equipment and orthodontics. (Note: cosmetic medical is generally excluded from coverage).
An HSA can be set up for incorporated companies of any size and the amount paid depends on the annual anticipated medical expenses of the owner and their employees. Certain restrictions exist for unincorporated sole proprietors and some HSA providers to not cater to this market.
Some HSA administrators charge a flat annual fee while others bill 10% of paid claims, which are the only costs, which makes them a great option for the budget-conscious. All of the set-up and administrative fees, along with the paid claims are deductible as business expenses.
Interested in learning more about HSAs? Discover how the Olympia Health Spending Account can provide significant tax savings by downloading our free guide: The Beginner's Guide to Health Spending Accounts to learn more.