The Private Health Services Plan (PHSP), also known as Personal Health Spending Account or Health Spending Account (HSA) is a government plan that offers an excellent health care strategy for the self-employed or owners of an incorporated business. PHSP is an alternative to traditional health insurance.
It is established under Canada Revenue Agency rules, that allows a Canadian taxpayer to set aside a portion of his gross total income before tax, and deposit it into an account to be used exclusively for the family’s or employees’ (in case of a business) healthcare spending.
Most employee benefits programs in Canada, have restrictions on their usage and are limited by law. And people without access to such plans, have to pay for health care using their own resources. However, employees covered under this plan receive reimbursement of the medical and dental expenses from their employer, which is 100% tax-free. There are no premium, hidden fees, or complex policies for the employee.
Choosing a PHSP provider can be a crucial decision. Make sure you go with the best PHSP providers such as WEALTHinsurance.com.
Who can operate a PHSP?
Any person who:
- Owns a business
- Pays medical bills
- Pays income tax or receives T4 income.
It is entered as a contract between an employer and an employee. The contract states that the employee’s medical expenses will be reimbursed by the employer. The company contributes on behalf of an employee, into an HSA to be used on medical expenses incurred. The reimbursement is tax-free to the employee and tax-deductible for the employer.
How does it work?
- The employer funds the plan with a set monthly amount of their choice.
- Employees pay for their medical expenses personally.
- Afterward, employees submit the details of the receipt to the PHSP provider and claim the medical expense.
- Next, the employer will make a payment of the amount claimed to the PSHP provider, using funds from the employer’s funding account.
- The service provider will adjudicate the claim, and reimburse by direct deposit the claim amount to the personal bank account of the employee.
- The medical expenses are claimed as a business expense by the employer.
How much can be claimed?
The maximum deduction that can be claimed in a year by an individual is $15,000. This amount includes your dependents. If your spouse is an employee too, an additional amount of $15,000 can be claimed during the year.
Benefits of PHSP:
- It is easy to understand and operate.
- There is no actual expense for the employer until a claim is made by the employee for an eligible medical bill. Unused Health Spending Account money belongs to the account’s owner, i.e. the employer.
- When the employee claims, they get reimbursed directly for their claim, tax-free, up to their benefit allowance
- The contribution made by the employer is deductible from his business income.
- The employer can decide the level of benefits for each employee separately, based on the criteria generated, for example, skill level, years of service, position, etc.
- PHSP is often more viable and cost-effective as compared to a group insurance plan. Since group insurance requires guaranteed premiums regardless of plan use; and reimbursements take place only when expenses are incurred.
- Since it is an added benefit to the employees, PHSP allows you to attract and retain top-skilled and valuable employees in your organization for a longer time.
What expenses are covered under PHSP?
There are a total of 124 medical expenses that can be claimed as deductions under the plan. Some prominent ones are:
- Prescription medicines, including equipment used to treat medical conditions
- Dental expenses: Almost 50% of the PHSP claims relate to dental procedures, including checkups, treatments, implants, etc.
- Vision-related treatments
- Cardiac rehabilitation
- Weight-loss programs (if it is for the treatment of a specified disease diagnosed by the physician)
- Travel expenses that are incurred for the medical treatment
- Cosmetic surgery that is necessary to improve a deformity arising from a congenital abnormality, a personal injury resulting from an accident or trauma
- A health insurance premium paid, and expenses not reimbursed by the health insurance plan are also eligible to be claimed under HSA.
Why should you choose HSA over Health Insurance?
In a health insurance plan, periodical payments have to be made regardless of the planned usage. This amount increases with age and renewal of the policy.
In an HSA, you pay only for the expenses you incur, nothing additional. Besides, you contribute a fixed amount as fees irrespective of your age or usage.
An insurance plan will cover only certain medical expenses. Whereas an HSA is restricted only by the amount of claim, it covers a very wide range of expenses.
Pre-existing health conditions
This influences your insurance costs, and certain coverages may be altered accordingly.
An HSA on the other hand, will not restrict or limit benefits due to a pre-existing medical condition.
Benefits can be restricted by a co-insurance of 50%-80% in health insurance. Besides, there is a limit for the number of visits and treatments one can take.
Under HSA however, there are no deductibles, you are not restricted by co-insurance. Also, there are no limits for the number of visits and treatments.
Health insurance is often rigid when it comes to payment and coverage.
On the other hand, HSA is a flexible plan with customization when it comes to limits, classifications, and payment structure. It’s easy to use because employees can claim on any eligible expense and never worry about the amount of coverage or restriction on certain expenses.
It is thus evident that investment in a PHSP is always better than in a traditional Health Insurance Plan.
We expect that you are now well-versed with the benefits of a PHSP plan and convinced that you need one. However, you have to be cautious while choosing a provider. Compare different providers and choose the one that best suits your needs.