Private Health Services Plan

What is a private health services plan (PHSP)?

As of January 1, 2015, the Canada Revenue Agency (CRA) considers a plan to be a private health services plan (PHSP), where all of the following conditions are met:

To find out if a particular medical expense is eligible for the METC, go to Eligible medical expenses you can claim on your tax return and select "Which medical expenses can you claim?"

The following example demonstrates what may be considered connected expenses.

Example 1 - Connected expenses 

The employee group medical insurance plan for Company ABC covers the cost of transporting an employee and their vehicle home if the employee becomes ill while out of the country, and they must return to Canada for medical treatment but cannot drive because of their illness.   

In this situation, the cost of transporting the vehicle to the employee’s home is not a medical expense. However, as long as it is incurred within a reasonable time after the medical expense, it is considered a connected expense because the employee could not drive back to Canada to get medical treatment (which is a medical expense).

How to determine if a plan meets the “all or substantially all” requirement

Insured plan (plan is backed by a contract of insurance)

An insured plan meets the “all or substantially all” (generally 90% or more) requirement if all or substantially all of the premiums paid in the calendar year relate to medical expenses that are eligible for the METC.

The benefits paid to employees in the calendar year are not considered in determining whether the plan meets the “all or substantially all” requirement.

The following example explains when the "all or substantially all" requirement will be met for an insured plan.

Example 2 - Insured plan

The group employee insurance plan for Company XYZ covers the following four types of expenses:

Insured plan meeting the Private Health Services Plan requirements
Type of expense Eligible for the METC Percentage of premiums paid in the calendar year that relates to the expense Benefits paid in the calendar year
Prescription drugs Yes 70% 69%
Dental expenses Yes 10% 11%
Hospital expenses Yes 12% 7%
Medical expenses that are not eligible
for the METC
No 8% 13%

This plan meets the “all or substantially all” requirement because 92% (70% + 10% + 12%) of the premiums paid relate to medical expenses that are eligible for the METC, while 8% of the premiums relate to other medical expenses. The fact that only 87% (69% + 11% + 7%) of the total benefits paid relate to medical expenses that are eligible for the METC is not relevant in determining whether the plan qualifies as a PHSP.

Self-insured plan (plan is not backed by a contract of insurance)

When a plan is not backed by a contract of insurance, the CRA considers it to be a self-insured plan.

A self-insured plan meets the “all or substantially all” (generally 90% or more) requirement for a calendar year if all or substantially all of the benefits paid to all employees that year are for medical expenses that are eligible for the METC.

The following example explains when the “all or substantially all” requirement will be met for a self-insured plan.

Example 3 - Self-insured plan

Company AAA pays the following benefits to its employees in a calendar year under its self-insured group employee insurance plan.

Self-nsured plan meeting the Private Health Services Plan requirements
- Prescription drugs eligible for METC Dental expenses eligible for the METC Hospital expenses eligible for the METC Medical expenses not eligible for the METC Total benefits paid per employee
Kim $3,000 $1,000 Nil $500 $4,500
Mohammed $2,000 $1,500 $800 Nil $4,300
Simon $4,000 $500 Nil $500 $5,000
Total medical expenses $9,000 $3,000 $800 $1,000 $13,800

This plan meets the “all or substantially all” requirement because the benefits paid to all employees in the year for medical expenses that are eligible for the METC represent 93% ($9,000 + $3,000 + $800) of the total benefits ($13,800) paid.

If you provide benefits through a self-insured plan that consists of health care spending accounts (HCSAs), the method for determining whether the plan satisfies the “all or substantially all” requirement for a particular calendar year is the same as for self-insured plans that do not consist of a HCSA. The employees’ allocation of the ceiling amount to the various types of expense in an HCSA is not considered.

Most employers that offer HCSAs do so under one group plan. However, in rare circumstances, each HCSA can be considered a separate insurance plan. The determination of whether one group plan or several individual plans exist must be based on the law and the facts of the case. For more information on HCSAs, see paragraphs 14 to 18 of Interpretation Bulletin IT-529, Flexible Employee Benefit Programs.

The following example explains when self-insured HCSAs would meet the “all or substantially all” requirement.

Example 4 - Health care spending accounts

Company BBB provides one self-insured group plan that consists of three HCSAs, each with a $5,000 ceiling amount.  At the start of the calendar year, each employee allocates the $5,000 ceiling, as shown in the table below.

Health care spending accounts
- Allocation of ceiling amount to medical expenses Benefits paid in the calendar year
Eligible for the METC Not eligible for the METC Total ceiling per employee Expenses eligible for the METC Expenses not eligible for the METC Total benefits paid per employee
Ann $4,000 $1,000 $5,000 $4,000 $200 $4,200
Sue $3,500 $1,500 $5,000 $3,250 $650 $3,900
Jim $4,500 $500 $5,000 $4,250 $175 $4,425
Total ceiling $12,000 $3,000 $15,000 - - -
Total benefits - - - $11,500 $1,025 $12,525

The plan shown above meets the "all or substantially all" requirement. The total benefits paid to all employees that year for expenses that are eligible for the METC are 92% ($11,500) of the total benefits paid ($12,525). The fact that the total ceiling amounts allocated for expenses that are eligible for the METC ($12,000) are only 80% of the total ceiling amount, eligible and non-eligible ($15,000), is not relevant in determining whether the plan meets the all or substantially all requirement.

However, if each HCSA is determined to be a separate plan:

  • Ann’s plan satisfies the all or substantially all requirement because the benefits she received for expenses that are eligible for the METC are 95% ($4,000) of the total benefits ($4,200) that she received in the year.
  • Sue’s plan does not satisfy the all or substantially all requirement because the benefits she received for expenses that are eligible for the METC are only 83% ($3,250) of the total benefits ($3,900) she received in the year.
  • Jim’s plan satisfies the all or substantially all requirement because the benefits he received for expenses that are eligible for the METC are 96% ($4,250) of the total benefits ($4,425) he received in the year.

Multiple plans

Whether one or multiple plans exist is a question of fact and law. Multiple plans cannot be combined in determining if the "all or substantially all" requirement has been satisfied.

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