Private Health Services Plans in Canada: What’s To Expect?

Are you tired of high health benefit costs? Do you wish you could offer your staff more than cramped provincial healthcare coverage or demanding insurance plans? Then, let me tell you about a unique option with some slick tax advantages — Private Health Services Plans. 

A Private Health Services Plan (PHSP) in Canada provides health and/or dental coverage through an insured group health insurance.

With the tax and savings upside for businesses AND employees, now is the time to prepare. In this guide, we will explore PHSPs in-depth, covering what they are, who can use them, how they work, key benefits, and how they compare to regular health insurance.

Whether you are new to PHSPs or want a complete reference, this guide will equip you with everything you need to know to leverage Private Health Services Plans for your business.

What Are Private Health Services Plans (PHSPs)?

A Private Health Services Plan (PHSP) in Canada acts as an alternative to traditional health insurance for small businesses and their employees. These employer-funded accounts reimburse tax-free medical expenses insurance doesn’t fully cover — like dental work, vision care, physio, prescription meds, and more.

Now, how do they work at a basic level? Essentially, employers contribute pre-tax dollars to personalized health accounts set up for each worker. Employees then submit receipts and forms when they pay medical expenses out of pocket. They get reimbursed tax-free directly from their account up to the amount funded.

In 2023, Canadians will spend about $8,740 per person on healthcare when you add up what the government covers plus all out-of-pocket costs for things insurance doesn’t handle well — namely, medications, dental, therapy, etc. (Source)

Private Health Services Plans fill in these gaps with first-class benefits. Rather than restrictive networks, they let people freely choose their providers and treatments. There are no deductibles, no claiming headaches, and just excellent coverage complementing provincial plans.

And again, companies deduct contributions from their earnings 100%. They also reclaim partial payroll taxes through reduced remittances each period when funding employee accounts. 

That means more benefit value at lower overall costs. With premiums and taxes continually rising, those forced to cut healthcare contributions face serious retention issues.

Who Can Use a Private Health Services Plan?

PHSPs are available to both incorporated and unincorporated businesses in Canada. However, some key differences exist between the coverage limits and qualifying criteria for each structure.

Incorporated Businesses

For incorporated businesses, including corporations, PHSPs provide coverage for:

• Business owners
• Employees
• Spouses
• Dependents

There are no pre-set limits on the amount of coverage or benefits that an incorporated business can offer through a PHSP. The employer has full flexibility in determining the coverage amounts they choose to make available.

Unincorporated Businesses

For unincorporated businesses, including partnerships and sole proprietorships, annual CRA limits apply on the amount of tax-free benefits that can be provided through a PHSP:

• $1,500 per proprietor, spouse, or dependent over 18
• $750 per dependent under 18

In addition, sole proprietorships require the individual to be actively engaged in the business for a minimum of 20 hours per week to qualify for the PHSP tax benefits.

The table below summarizes the key differences in PHSP guidelines based on business structure:

Guidelines	Incorporated Business	Unincorporated Business
Coverage Limits	None	$1,500 per proprietor, spouse, or dependent over $750 per dependent under 18
Qualifying Criteria	No specific requirements	Must be actively engaged Minimum 20 hours per week (sole proprietorship)

How Do Private Health Services Plans Work?

Let’s break down step-by-step how companies set up and run these plans while staff leverages the accounts for healthcare expenses.

For Businesses

Setting up a Private Health Services Plan (PHSP) allows businesses to offer tax-efficient health benefits to employees while reducing taxable income. Here’s how companies can implement and manage these plans effectively:

Document Eligible Workforce

• Compile a list of permanent and contract employees receiving T4 income tax slips
• Include yourself as a business owner along with any immediate family members

Set Up Health Accounts

• Partner with a licensed administrator to establish tax-advantaged health accounts
• Account in each employee’s name tracks contributions and processes reimbursements

Make Monthly Contributions

• Set period contribution amount per account tied to the payroll schedule
• Example: $100 monthly per account, contributed with regular pay cycles

Deduct Contributions As Expenses

• Contributions count 100% as tax-deductible business expenses
• Deductions made off gross revenue lowering net taxable income

For Employees

A Private Health Services Plan (PHSP) gives employees a flexible and tax-free way to cover healthcare costs. Here’s how you can make the most of your health account.

Receive Annual Tax Slip

• Tax slips document annual contributions like T4 earning summaries
• Slips validate eligible medical expenses come tax time

Incur Medical Expenses

• Pay out-of-pocket for health services like dental, prescriptions, therapy, etc.
• Save all invoices and proof of payment.

Submit Claims for Reimbursement

• File claim forms and documentation to the account administrator
• Required info: medical receipts/bills, proof of payment for services

Receive Tax-Free Reimbursements

• Reimbursement payments are processed directly into a personal bank account
• Payouts come tax-free up a contributed account balance amount

Third-party administrators handle everything from account setup to verification and reimbursement processing. Firms fund the plans, and then employees manage funds seeking care as health needs arise.

Why Private Health Services Plans Are Gaining Traction?

There are compelling financial and practical reasons driving increased adoption from both sponsoring employers and participating staff.

Key Advantages Driving Employer Adoption

Here are 5 key benefits that make employers choose Private Health Services Plans:

100% Tax Deductions On Contributions

Contributions qualify as total business expense deductions, providing significant tax savings. For the average small company taxed at 15%, every $200 contributed creates $30 tax savings.

Lower Benefit Costs

With expanded tax deductions, employers see more reductions in net health benefit costs compared to alternatives. More significant savings mean increased funding potential.

Recruiting & Retention Leverage

With labour tight, quality benefits boost hiring and retention. The majority of job seekers rate health plans as very or extremely important. Private Health Services Plans provide leverage to attract top talent.

Reduced Liabilities

Proactive benefits include alleviating healthcare costs and lowering future staff health events that lead to missed work and lost productivity.

Source: https://suncentral.sunlife.ca/content/dam/sunlife/regional/canada/documents/insurance-solutions/private-health-ser-plans-en-final.pdf

Upsides Driving Employee Participation

These advantages show why employees are eager to use Private Health Services Plans:

Tax-Free Claim Payouts

Unlike taxable income, claim reimbursements come 100% tax-free, increasing functional take-home pay. A $500 claim represents $150+ savings for the average middle-class employee.

Provider Choice & Coverage Flexibility

Rather than restrictive networks, employees access preferred providers and service choices—broader qualified expenses than provincial healthcare plans.

Administrative Ease

Straightforward claim submission directly to the plan administrator avoids insurance claim delays or denials. Employees fill out forms and receipts for fast reimbursement.

The mounting advantages make Private Health Services Plans a win-win for employers seeking to manage budgets and talent looking to bridge healthcare gaps. Rising costs and coverage limitations explain projected growth through 2024 and beyond as this solution gains traction.

Private Health Services Plans create savings and simplicity for sponsoring employers and covered employees. Too often, company leaders assume better benefits mean higher costs, and workers feel trapped choosing between lousy provincial coverage or pricey add-on insurance.

These accounts present a legit third way — central medical value at sustainable prices through tax advantage.

So, with healthcare taking up more wallet share across Canada, it is no wonder forward-thinking firms already offer Private Health Services Plans, and adoption is projected to soar through 2025.

When To Consider Private Health Services Plans

Any incorporated business can explore sponsoring these health accounts. But the best-fit industries are:

• Professional services: consulting, accounting, legal, architects etc.
• Tech: software, app dev, robotics, AI programmers etc.  
• Marketing agencies and creative shops
• Startups and small business under 100 staff

These fields tend to have younger workforces. Tech-savvy employees abhor benefits gaps with costly impacts. Firms fighting for top talent offer the gold standard in coverage. Private Health Services Plans uniquely check all the boxes on extra health advantages.

The icing is account funds unclaimed by employees don’t just disappear like insurance premiums. They remain available for future medical needs that inevitably pop up.

While any incorporated business can offer them, the benefits sync exceptionally well for the segments above.

Who Can Access Private Health Services Plans?

On the sponsor side, account eligibility requires:  

• Incorporated business status
• Employee documentation via T4 tax slips 

For workers, access depends on their income sources:

• Full-time permanent staff qualify
• Part-time and seasonal also qualify
• Contract workers paid T4 income qualify 

Those receiving tax slips for employment earnings can leverage account contributions from an incorporated business. This covers most typical workers outside sole proprietors or gig labourers who need to incorporate first formally.

And for company leadership or owners? Good news – you can enroll yourself along with immediate family members. Essentially, personnel on official payroll paperwork get access to tax-free medical reimbursements.

What Medical Expenses Do These Health Accounts Cover?

A significant advantage is the 100+ qualified expenses covered:

Standard Claim Categories	Dental – cleanings, fillings, x-rays, braces Vision – eye exams, glasses/contacts  Prescription medications Medical devices – braces, crutches etc. Paramedical – chiro, physiotherapy, massage
Case-By-Case Expenses	Laser eye surgery  Long-term care Specialist treatments Fertility assistance Travel Medical insurance cost

Company sponsors can tailor expense eligibility to how they see fit. Want to nix massage or psychotherapy reimbursement from the plan? No problem. That flexibility keeps costs controlled.

Conversely, some pregnancy vitamin supplements or customized orthotics require doctor authorization confirming medical necessity first before qualifying for reimbursement. But owners get leeway over standard plan coverage.

That wider berth for prescribers, employees, and sponsors makes Private Health Services Accounts far more amenable than one-size-fits-all insurance packages.

Private Health Services Plan Case Study 

Pretend you operate a digital marketing firm with 35 employees, mostly under 40. You offer a basic health/dental policy, but premiums spike each renewal. High talent turnover as folks get frustrated with plan caps or change jobs lured by better coverage elsewhere.  

You start contributions of $125 monthly to Personal Health Accounts for each worker — $52500 total per year. Employees now submit routine dental invoices plus medication and therapy costs exceeding insurance limits for fast 100% reimbursement. 

New Costs To Company: $52,500 in annual health account contributions 

Company Tax Savings include:

• $21,000 tax deduction on contributions @ 40% rate 
• $4,000 payroll tax reduction from lower premium expense 
• $25,000 total tax savings = 48% of new costs

Employee Benefits:

• $40,000 estimated medical claims paid tax-free 
• $12,000 workers save annually (@ 30% tax rate)

So, after tax math:

• The company spends a net $27,500 more on improved benefits
• Saves an estimated $15,000 on turnover costs  
• Workers save collective $12,000 in taxes and medical costs

With projected 20% yearly healthcare inflation, traditional coverage options would otherwise increase dramatically while covering less. Instead, you control costs with advantageous accounts that do not lose value to premium leakage.  

What’s The Future of Private Health Services Plans In 2025 & Beyond?  

Rising premiums, shrinking coverage, and constant administrative hassles- traditional health insurance keeps getting pricier as policies grow more restrictive.  

Then, steadily climbing out-of-pocket medical expenses take a giant bite out of stagnant paychecks. Private Health Services Accounts provide possible relief for both companies and working folks feeling the squeeze. Savvy leaders view this option as a strategic advantage in protecting their workforce and bottom line.

But hefty taxes and legal implications mean private health services plans are only ideal for some organizations. Carefully assess unique aspects like:

• Company incorporation structure 
• Number of documented employees
• Existing benefits landscape
• Payroll withholding requirements
• Workforce demographics and health risks  

Navigating compliance and legal considerations requires financial acumen and expert support. However, the heavy lifting can result in major savings for years as healthcare charges spiral upward.

Frequently Asked Questions about Private Health Services Plans in Canada

Article Sources

Private Health Services Plan (PHSP) Concepts – brockhealth.ca
Private Health Services Plan or Health Spending Account – Tax-Free Benefit for Employees – taxtips.ca
Private Health Services Plan (PHSP) in Canada – lifeaccount.ca