Private Health Services Plans (PHSPs)

Private Health Services Plans (PHSPs) are similar to the widely recognized employee group benefit plans in that employees are provided with the ability to have their medical and dental expenses paid for on a tax-free basis. PHSPs are gaining attention as employers are looking for ways to control their benefits costs.

Where traditional employee benefit plans are designed and offered by insurance companies, PHSPs are designed and offered by the employer. Insurance company benefit plans define the benefit they are willing to offer on an annual basis and bill the employer accordingly. Employers with PHSPs have a defined cost i.e. the amount of premium the employer is willing to pay on behalf of each employee, and a flexible benefit design as the employees decide what medical and dental expenses they want to spend their benefit dollars on.

Employers choose PHSPs as a way of controlling the costs of their benefit programs. Employees accept the plan because it allows them the flexibility of purchasing medical or dental services that would otherwise be unavailable or limited under a more traditional group benefit plan. Under a PHSP these expenses could be paid as long as the cost did not exceed the defined dollar amount the employer was willing to contribute (for example, $1200/yr per employee).

For small incorporated companies, especially with only one employee (the owner), PHSPs can produce significant tax savings. The single employee/owner of an incorporated company, his spouse and/or children may require a knee brace for sports activity, adult orthodontic procedures, or laser eye surgery. The cost for just these examples could be $10,000. Assume that the business is successful and the owner well paid, being in the 50% tax bracket, he would have to earn $20,000 to pay these $10,000 expenses. On the annual income tax return, the $10,000 medical/dental expenses are listed, and the first $2,237 deducted (Revenue Canada does not consider the lessor of the first $2,237 or 3% of net income as claimable) leaving him $7,763 on which he will be entitled to a non refundable tax credit of 15% or $1,164.

Summarizing the above example: the employee/owner paid $10,000 in expenses, and had to have earnings of at least $20,000 in order to claim on his tax return a credit of $1,164. With a PHSP designed by Gilgunn Benefit Management in place, the business owner can have that $10,000 paid by his Company's PHSP written off as a business expense and given to him as a non taxable benefit.

The optimum environment for a PHSP is an employee group with diverse needs, the situation where traditional benefit plans are unable to address and respond to the individual needs of the group. For example, where one employee may require major dental work, another may need good quality eyeglasses, and yet another needs ongoing high cost prescription drugs, only PHSPs have the flexibility to give employees what they need and when they need it. It is likely that PHSPs will become a more common style of employee benefit compensation in future.