Self-Administered Health PlanS

Featuring Lauren’s Story

While corporate sponsored health plans provide employees protection from the expense of drugs, dental, vision and other healthcare, they also provide a tax-efficient form of compensation. Health plans in Canada, also called Private Health Service Plans (PHSPs), are a deductible expense to the corporation and a nontaxable benefit to employees. This means that employees can arrange, through a PHSP, to have medical bills paid on their behalf, without attracting income tax.

Qube offers a simple and cost-effective PHSP Self-Administration Kit for small businesses. In contrast to similar plans that charge ongoing fees, our tax-compliant program only requires a one-time flat fee to define and arrange a comprehensive health program with all the necessary training and support to be self-administered.

Who Are We?

What we now call “Qube” was founded in 2000 and became a registered portfolio management firm in the Provinces of Alberta and British Columbia on June 25, 2012. We are one of the few Canadian Portfolio Managers that are independently owned and operated.

Our team members are passionate about investment research and the development of new financial planning strategies for our clients. Health plans are a great example of the opportunity for creative planning in the current Canadian tax landscape.

Benefits from PHSPs can be significant. Take Lauren, for example.

Lauren has operated her professional practice for five years and is proud of what she has accomplished. She has a profitable client base, a good work-life balance, and a vision for retirement down the road. She is satisfied with her choice to incorporate her business but often finds herself reconsidering her decision following family gatherings with the in-laws.

Lauren has two brothers-in-law, whom she normally finds tolerable, until they start talking about work. One is an advisor at a large Canadian bank. The other is a school teacher. At their last family event, the two in-laws began comparing their benefit plans.

How much massage therapy is allowed? Are surrogacy and fertility-related procedures covered? Who has the better dental coverage for bridges and crowns? Whose plan covers braces for the kids?

This is a sensitive topic for Lauren. Even after five years in business, she has yet to figure out an appropriate benefit plan. She’s paid out-of-pocket for everything —even her eyeglasses.

Lauren might need help sorting out health care opportunities for her small business, and would likely benefit from some creative financial planning.

Why Have Corporate-Sponsored Healthcare?

Employer sponsored healthcare has traditionally been the domain of unionized and national firms. Through these plans, employees receive booklets and pay-direct cards that allow them to access various healthcare products and services, which normally include: dental work, pharmaceuticals, massage, chiropractic care, acupuncture, physiotherapy and eye glasses.

In addition to getting these healthcare products, the employee is not taxed. This is an important consideration, as tax rates can reach upwards of 50% in many Canadian Provinces.

Without a health plan, an uncovered healthcare expense of $2,000 could cost a company like Lauren’s $4,000 after taxes are considered.

No Health Care Plan

The company would need to pay $4,000 to the employee to cover this health expense; the employee would need to pay $2,000 in taxes and would have $2,000 left to pay their healthcare bill.

With a Private Health Service Plan (Health Plan)

The company-funded plan can cover the $2,000 bill directly. By being funded by the corporation, the tax cost is excluded, leading to net savings of $2,000. This would also be a tax-deductible expense for the company.

Background on Private Health Service Plans

Historically, insurance companies have primarily managed private Canadian health care. Insurance providers first simplified the arrangement for employers by offering a “health plan” that included the products and services deemed appropriate for a working, middle-class Canadian.

Typically, these health plans included health care services such as basic dental coverage, limited access to health care products and rehabilitation specialists (e.g., basic drug coverage and massage therapy), and eyeglasses & vision care. Insurance companies insured these plans; they charged the employer a premium and, in return, covered all the eligible claims in the plan. This meant the employer had cost certainty and simplicity.

During the high inflation cycle of the 1980s, many employers found the escalation of cost and insurance fees unpalatable. This paved the way for creative health planning. In 1986, the Canada Revenue Agency was asked to comment on health plans managed directly by the employer without the assistance of an insurance company. This advanced tax ruling was called ATR23.

The CRA soon followed up with a definition of a “health plan” in another document called IT-339, which was recently updated into Income Tax Folio S2-F1-C1. Employers now have the option to use an insurance company, a third-party administrator, a trustee, or manage their own plan internally. In all cases though, the health plan had to follow a set number of insurance principles. But what do these options mean for Lauren?