Are you PHSP-ing?
By Tom McFeat, CBC News
Fiona Law looked at a raft of traditional group insurance plans while looking to provide health and dental benefits for her staff at Calgary-based CompuTouch.
Her business, which uses technology to support interactive meetings and conferences, has just three full-time employees. So she wanted something that was easy to set up and understand, a plan that would cover a wide range of medical expenses and offered the firm certainty of costs.
What she ended up choosing was not an insurance plan at all, but a private health services plan (PHSP).
“This was an alternative way of providing a benefit that was very straightforward and very transparent,” she says. “It’s a good compromise with a minimum of hassle.”
PHSPs — sometimes called health spending accounts — have been around for more than 20 years and have grown to become popular benefit programs at thousands of small businesses in Canada.
But there are still many entrepreneurs — including sole proprietors — who mistakenly think group insurance is their only option to pay the medical bills that medicare doesn’t cover.
What is a PHSP?
Private health services plans are a type of health and welfare trust governed by the Income Tax Act.
At their heart, they provide a way for a business to pay for all the medical expenses of employees and their families — and that includes the business owner — on a tax-free basis.
In the case of an unincorporated sole proprietor, a PHSP can let the entrepreneur have his or her out-of-pocket medical costs paid for by the business, with significant tax savings over paying for them with after-tax dollars.
With PHSPs, business owners can deduct all their eligible medical and dental expenses from their gross business income, instead of making them a personal expense.
“A PHSP … transfers an out-of-pocket expense to a business deduction,” says Rachel von Sturmer, who offers independent insurance advice to small businesses through her Vancouver-based firm, True Benefits Inc.
“[PHSPs are] a great option,” she says. “I have one for myself.”
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