Personal Service Health Plans Can Help a Small Business Save Money

Is there a way for a small business owner to save money on taxes and also provide health insurance for themselves and their employees? Yes, if you use this best kept tax secret for small business: Private Health Services Plan. While PHSP is not well known in America, for 20 years Canadian small businesses have used this alternative benefit option to provide affordable insurance coverage that is 100% deductable.

Alternative to Group Insurance

As a small business owner, you know that group insurance can be expensive and that you need to keep costs under control. One benefit of PHSP is that you don't have to pay taxes on the money you put aside for your employee's PHSP accounts.
PHSP works by allowing businesses to set aside a specific amount of money for each employee to be used for medical services. The amount may be any amount chosen by the employer, and different employees can have different amounts, but employees at the same level must have the same benefit. Whatever the amount decided on by the employer, that money acts as a tax secret for small business because the benefit amount is never taxed. Moreover, the benefit is a tax secret for small business because you not only won't have to pay taxes, but you will also get to deduct the full cost of this employee benefit on your business tax returns.

Other Benefits of Personal Service Health Plans

However, it is not only employers who gain under this program. Employees are free from deductables and co-payments and allowed to use the benefit in any way they wish, as long as the medical expense fits under the PHSP rules. They can go to the doctor for a check-up, have their teeth veneered, or get eyeglasses for their daughter. They also don't have to worry about deductables, co-pays or whether the doctor they want to go to takes their insurance. For an employee that only needs basic routine medical care, this plan may allow them to have that care for much less than an insurance plan.

Even though there is a limit to the amount they will receive under this benefit, the employee has much more freedom in deciding how their medical benefit is spent than in traditional insurance plans. Under some plans, this benefit can be used for things that ordinary insurance may not cover, such as massage therapy or medical equipment like orthopedic inserts. Generally, the plans allow employees to carry over a benefit for one year in order to take care of any more expensive medical situation.

Plans Promote Better Heath of Employees

For some employees, a PHSP may actually encourage better health care decisions. Because the PHSP money is designated for a specific purpose, and doesn't require the employees to pay any co-pays, that may motivate some employees to seek treatment they might otherwise not get. Regular physicals and dental check-ups can prevent many other more serious health problems. With a PHSP, an employee can go to get such routine care for free. Especially if a small business which has previously not offered any health benefit puts a PHSP plan in place, they can often expect that their employees may be healthier than before.

Insurance Benefits for Employer under PHSP
Another way that PHSP is a tax secret for small business is that it allows you to cover your own family medical expenses under the same tax-free umbrella. Of course, you also get the peace of mind of knowing you can provide health care for yourself and your family more affordably.
What about the costs of running the program? An employer can run this themselves, but this can cause privacy concerns as employees turn in receipts, so most small businesses choose a third party PHSP provider. Another tax secret for small business is that the cost of the third party services, which ranges from 10-15%, is also a tax deduction.

What about a Self-Employed Sole Proprietor of a Small Business?
What if you are a sole proprietor? Luckily, the rules of PHSP also allow self-employed sole proprietors to participate in this tax secret for small business. If you are a sole proprietor, you can have your out of pocket medical costs paid for by your business under this program. Of course this allows you to save money over paying those expenses with after tax money.

Helps Employers Keep in Control of Benefit Costs
One thing which makes adding benefits for employees difficult is knowing the cost of those benefits. That is one of the best parts of PHSP. The employer can know up front the cost for each employee. You can also increase or decrease the benefit and costs by making the amount of the PHSP account smaller or larger for each level of employee.

Are there disadvantages?

Just like all benefit plans, PHSP has some disadvantages. PHSP works well for routine medical expenses; however, it is not an insurance. You don't have catastrophic coverage. Your employees will need to either get that on their own, or you may decide to provide that in addition to PHSP.
Will Canada's best kept tax secret for small business work for your company? Certainly this cost saving alternative to medical insurance deserves careful consideration since it can not only help you save on taxes but also provide better employee benefits.