If you are a Canadian incorporated company you essentially have three Heath Care coverage options. This e-report investigates the advantages and disadvantages of each of these options. Some shocking statistics are covered and practical solutions are presented.

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2. Definitions
A Health Spending Account is sometimes referred to as a Private Health Services Plan (PHSP) by some insurance providers. A PHSP is simply a contract or plan
of insurance in respect of hospital care or medical expenses. A health services plan may take any number of forms and still qualify as a PHSP.
A Health Spending Account can be simply defined as a tax free benefit that a corporation (as an employer) provides to employees and their dependents. Company
owners are included if they are also employees (or participating Directors) of the company. A Health Spending Account must meet all the criteria of a Private
Health Services Plan plus some additional criteria. A Health Spending Account is essentially a special form of Private Health Services Plan.
In this report we only use the term Health Spending Account.
A full definition of these terms is located at the end of this report (see Appendix- Definitions: Private Health Services Plan, Health Spending Account)
This report does not address Health & Welfare Trusts. A Health & Welfare Trust is a different instrument - it is a form of a ‘trust’ account and subject to a strict set
of rules governing trusts.
This report is intended for incorporated businesses of any size. In single owner companies there may only be an Owner/Director and immediate family (depend-
ents), whereas in a larger corporation all three categories will exist. The advantages of incorporating are covered in our Free Report entitled “8 Ways to Reduce
Your Taxes 30% or more” (see 1) by owning your own incorporated company.
Your Heath Care Options
When you investigate health care coverage for your business corporation you essentially have three options for providing coverage to Owner, Immediate Family
Members (or dependents), and employees. These options include:
1. The corporation does not provide coverage (coverage is ‘out of pocket’).
2. Subscribing to a traditional health plan with monthly premiums
3. Signing up for a Health Spending Account
A d a p t i v e P r e Ta x H e a l t h w w w. p r e t a x h e a l t h . c o m ! H o w t o G e t U n r e s t r i c t e d H e a l t h C a r e w h i l e S a v i n g Yo u r B u s i n e s s 2 0 %
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3. In this report we will briefly discuss all three options and the advantages and disadvantages of each option.
1) The corporation does not provide coverage.
In this option an employee pays for all health care expenses personally and ‘out of pocket’.
✤ Advantages:
a) no monthly health care premiums
➡ Disadvantages:
a) If expenses are paid personally you are paying for these health care cost out of ‘after tax’ dollars. Depending on your marginal tax rate, for every $1,000
in health care costs you would need to earn between $1,300 and $1,450 (on average) to pay for the $1,000 health care expense.
b) There would be a minimum tax write-off for personally incurred health care expenses. You can only claim health expenses at the lowest personal mar-
ginal tax rate, provided these expenses represent greater than 3% of income. If one qualifies, then typically only 20-25% of the expense can be deducted.
c) Can substantially impact corporate cash-flow, especially if there are large unexpected health care expenses (or catastrophic events), including Accidental
Dental, or sickness that develops later requiring expensive drug treatments, or private care nursing.
d) Opportunity loss by not taking advantage of available Revenue Canada deduction
2) Subscribing to a traditional monthly health plan.
✤ Advantages:
a) Predicable monthly cost that can cover up to 80% of routine health care costs
b) Can cover a large portion of unexpected medical emergencies (should they arise)
c) Viewed by employees as a valuable employment benefit.
d) As a Private Health Services Plan premiums are 100% deductible and tax free in the employees hands
➡ Disadvantages:
a) Substantial monthly expense, especially for extending plans to dependents and employees
b) On average, insurance companies count on the fact that the average subscriber only utilizes a maximum of 65%-70% of the monthly premiums they pay
for. For example, if a company pays $10,000 per year for monthly premiums, on average they would incur a maximum of $7,000 in actual health care
costs. In this example although the $10,000 is deductible, the company would have spent $3,000 more than it needed to.
A d a p t i v e P r e Ta x H e a l t h w w w. p r e t a x h e a l t h . c o m ! H o w t o G e t U n r e s t r i c t e d H e a l t h C a r e w h i l e S a v i n g Yo u r B u s i n e s s 2 0 %
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4. *** FACT: On individuals and smaller businesses Insurance companies will realize a 30 to 35% margin on monthly health care plans and premiums will be increased as
their margins decrease.
c) Virtually all plans offer restricted coverage; they cover a percentage of the actual health care expense and are quite restrictive on the type of heath care
treatments or procedures that can be covered.
d) Since few insurance companies provide useful cost/benefit reports most companies do not know what the actual return is on monthly health plans.
e) Employees or dependents must complete medical questionnaires and qualify to be accepted to a regular health care plan. In many cases, pre-existing
conditions or treatments are not covered.
3) Signing up for a Health Spending Account
✤ Advantages:
a) No monthly premiums; health care costs are only for actual expenses incurred.
b) Unrestricted comprehensive coverage - covers 100% of a broad range of health care treatments and procedures (any health care treatment, procedure or
service outlined in CRA tax rules). Not only is the health care treatment fully deductible, so are any administration fees charged by the 3rd party who
administers and adjudicates claims.
c) Viewed by employees as a valuable employment benefit.
d) 100% tax write-off by the corporation; comes directly off pretax earnings.
e) Benefits are tax free in the employees’ hands.
f) If a regular monthly health plan is in place, a health spending account can be utilized to fully cover any employee-paid premiums or the uncovered ex-
penses for the traditional health plan.
g) No medical or health qualification required - the only requirement is that you are an employee of the company, or a direct dependent.
h) Easy to sign-up (note: with PreTax Health you can sign-up from our Web site and be up and running in a few minutes).
A d a p t i v e P r e Ta x H e a l t h w w w. p r e t a x h e a l t h . c o m ! H o w t o G e t U n r e s t r i c t e d H e a l t h C a r e w h i l e S a v i n g Yo u r B u s i n e s s 2 0 %
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5. i) *** Save at least 20%: A monthly health care plan utilization is 70% or less -- this means it costs your business 30% or more. In contrast, most Health
Spending Accounts (like PreTax Health - www.pretaxhealth.com) carry a 10% admin. fee - a savings of at least 20%!
➡ Disadvantages:
a) Need to pay for the health care expenditure first and then claim the expense with the 3rd party provider of the Health Spending Account.
b) If one were to incur large unexpected health care expenditures this can impact the financials of a corporation, unless agreed-upon health care expense
limits are set and enforced.
Summary: As you can see a Health Spending Account really makes a great deal of sense for any incorporated company, even if that company already has a
regular monthly health plan that they wish to retain. A Health Spending Account provides unrestricted health care coverage, and your business can save 20%
on the costs of a regular monthly health care plan (option 2). Also, as indicated in (3 f), if you already have a regular monthly health care plan in place, a Health
Spending Account is also very beneficial. It can be used to cover monthly employee-paid premiums and ‘out of pocket’ costs not covered completely by the
monthly health care plan.
The final section of this report provides a list of health care services that are covered 100% by a Health Spending Account.
If you have an existing monthly health care plan in place (either individual or group coverage), compare the services that are covered with a Health Spending Ac-
count. You will find that the services covered by a regular health plan will be only a small subset of what is covered by a Health Spending Account. In addition,
check the percentage or dollar limit covered by a regular health plan - a Health Spending Account is unrestricted, whereas a regular monthly health plan typically
provides 50% to 80% coverage, up to a certain annual dollar limit, depending on the service in question.
What is 100% covered by a Health Spending Account?
GENERAL SERVICES
Any service performed by a qualified medical/dental practitioner, including but not limited to the following:
Acupuncturist, Chiropractor, Cosmetic Surgeon (some conditions apply *), Dermatologist, Naturopath, Obstetrician, Ophthalmologist, Optician, Orthodontist,
Osteopath, Physician, Plastic Surgeon (some conditions apply *), Practical Nurse (for medical services), Psychoanalyst, Registered Nurse, Surgeon, Chiropodist,
Christian Science Practitioner, Dentist, Gynecologist, Neurologist, Oculist, Optical (all services), Optometrist, Orthopedist, Pediatrician, Physiotherapist, Podiatrist,
Psychiatrist, Psychologist, Speech Therapist, Therapist
A d a p t i v e P r e Ta x H e a l t h w w w. p r e t a x h e a l t h . c o m ! H o w t o G e t U n r e s t r i c t e d H e a l t h C a r e w h i l e S a v i n g Yo u r B u s i n e s s 2 0 %
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6. Note: A qualified medical practitioner means a person who is authorized to practice in accordance to the laws of the province and certified according to the practi-
tioner’s governing body.
* As of March 4, 2010, expenses for purely cosmetic procedures and/or surgery are no longer eligible. If the procedure / surgery is medically necessary due to in-
jury, deformity, accident or trauma (including psychological) a letter from a medical practitioner stating the medical reason for the procedure is required.
ALL DENTAL SERVICES
Dental X-Rays, Examinations, Filling teeth, Oral surgery, Replacement filling, Denture repairs and replacement, Extracting teeth, Gum treatment, Orthodontist,
Straightening teeth
HOSPITAL SERVICES
Anesthetist, Oxygen Masks/Tents, Vaccines, Hospital bills, Use of operating room, X-Ray Technician
PRESCRIBED MEDICAL TREATMENTS
Audiology, Bone Marrow Transplant, Electric shock treatments, Hydrotherapy, Insulin treatments, Physiotherapy, Radium Therapy, Speech Pathology, Whirlpool
baths, Blood transfusion, Diathermy Nursing, Healing services, Injections, Organ Transplant, Pre-natal/post-natal treatments, Registered Nurse, Ultra-violet ray
treatments, X-Ray treatments
MATERIALS AND APPARATUS, WHICH ARE PRESCRIBED BY A RECOGNIZED MEDICAL PRACTITIONER
Contact Lenses, Eyeglasses, Hospital beds if required in home, Infusion pumps for diabetics, including peripherals,
External Breast prosthesis, Heart monitors or pace makers, Inductive coupling, Monitors attached to babies identified as being prone
to Sudden Infant Death Syndrome, Optical scanners or similar devices to enable a blind individual to read print, Osteogenesis stimulator, Prescription medica-
tions, Television closed captioning decoders, Orthopedic shoes or boots, Oxygen tent Syringes, Wigs, if required as a result of disease, accident or medical treat-
ment
DEVICES DESIGNED AND/OR USED FOR THE FOLLOWING:
• Assist walking where the individual has mobility impairment
• Enable individuals with a mobility impairment to operate a vehicle
• Assist a person to use bathtubs/showers/toilets
• Extremity pumps or elastic support hose to reduce lymph edema swelling
• Enable deaf or mute persons to make and receive telephone calls including visual ringing indicators, acoustic coupler or teletypes
• Used by individuals suffering from a chronic respiratory ailment or chronic immune system deregulation
• Synthetic speech systems
• Braille printers and large print-onscreen devices that enable the blind to utilize computers
• Electronic or computerized environmental control systems for individuals with severe and prolonged mobility restrictions
• Electronic speech synthesizers for mute individuals
• Power operated guided chair installation for stairways
• Power operated guided lifts and transportation equipment allowing access to buildings, vehicles or to allow wheelchair access to a vehicle
A d a p t i v e P r e Ta x H e a l t h w w w. p r e t a x h e a l t h . c o m ! H o w t o G e t U n r e s t r i c t e d H e a l t h C a r e w h i l e S a v i n g Yo u r B u s i n e s s 2 0 %
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7. OTHER MATERIALS AND APPARATUS, WHICH DON’T REQUIRE A PRESCRIPTION
• Artificial eyes
• Artificial limbs
• Blood sugar level measuring devices for diabetics
• Catheters, catheter trays, tubing , diapers, disposable briefs required by incontinent persons
• Hernia truss
• Iron lung
• Spinal brace
• Artificial kidney machine, including installation, operating costs
• Brace for a limb
• Colostomy pads
• Crutches
• Ileostomy pads
• Laryngeal speaking aid
• Wheelchair
• Any apparatus or material, paid to a doctor, nurse or hospital
• Any device to aid the hearing of a deaf person including bone conduction, telephone receivers, extra loud audible signals and devices to permit volume
adjustment of telephone equipment above normal levels
OTHER EXPENDITURES
• Specially trained animals to assist blind, deaf or severely impaired persons, including the cost of its care and maintenance
• Transportation costs to hospital, clinic or doctor’s office to obtain services not otherwise available
• Homemaker service
• Home care (attendant must be a non-relative)
• Reasonable costs for adapting a residence to accommodate a disabled person (ex. Wheelchair ramp, lifts, bath facilities)
• Prescription Birth Control pills
• Ambulance charges
• Rehabilitative therapy
• Lip reading
• Sign language training
• Transportation, meals and accommodations (reasonable expenses for meals, accommodation and travel costs for a patient and an accompanying atten-
dant may be deductible if: equivalent medical services are not available locally, the route traveled is reasonably direct and medical treatment is reason-
able and distance traveled is at least 80 kilometers)
A d a p t i v e P r e Ta x H e a l t h w w w. p r e t a x h e a l t h . c o m ! H o w t o G e t U n r e s t r i c t e d H e a l t h C a r e w h i l e S a v i n g Yo u r B u s i n e s s 2 0 %
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8. Appendix Section
- Definitions: Private Health Services Plan, Health Spending Account
The Income Tax Act (subsection 248 (1) simply defines a PHSP as a contract or plan of insurance in respect of hospital care or medical expenses. In fact it makes it
clear that a health services plan may take any number of forms and still qualify as a PHSP.
A PHSP must meet the following three criteria:
1) It must be a contract or plan of insurance for hospital or medical expenses;
2) The plan must only cover medical expenses covered under subsection 118.2(2) of the Act for medical expense credit;
3) It must only cover eligible expenses of an employee, spouse, or partner, or dependent of an employee.
Under Interpretation Bulletin IT-339R2 - The Meaning of Private Health Insurance to be a contract of insurance five elements must exist: a) it is an undertaking by
one person b) to indemnify another person, c) for an agreed consideration, d) from a loss or liability for an event e) where the happening is considered uncertain.
A Health Spending Account must meet all of the above obligation plus three additional criteria. It must be:
1) A contractual obligation between an employer and an administrator to cover an employee’s eligible claims under the plan
2) A contractual obligation between the employee and an administrator to also cover eligible claims under the plan.
3) A contractual obligation between the employee and the employer to also cover eligible claims under the plan.
A Health Services Plan does not need to operate as a Health & Welfare Trust to be considered a PHSP. A Health & Welfare Trust is a different instrument - it is a
form of a ‘trust’ account and subject to a strict set of rules governing trusts.
A d a p t i v e P r e Ta x H e a l t h w w w. p r e t a x h e a l t h . c o m ! H o w t o G e t U n r e s t r i c t e d H e a l t h C a r e w h i l e S a v i n g Yo u r B u s i n e s s 2 0 %
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