Group Health Benefits vs. Private Health Services Plans: Which Actually Costs Less

A Private Health Services Plan is one of the more underused tools available to small Canadian corporations, largely because group insurance is simply the more familiar, more heavily marketed option, not because it is actually the better fit for every business.

The Two Structures, Compared

A traditional group insurance plan pools risk across many employers and employees, charging a fixed monthly premium per employee regardless of whether that specific employee incurs any medical expenses in a given period. A Private Health Services Plan instead allows the corporation to reimburse actual, substantiated medical and dental expenses an employee incurs, up to whatever limit the corporation chooses to set, without pooling risk across unrelated employers at all.

The Tax Treatment Of Each

Both structures generally allow the corporation to deduct the cost as a business expense, and both generally provide the benefit to the employee tax-free, the difference lies almost entirely in the mechanics and cost structure rather than the fundamental tax treatment. Group insurance premiums are paid whether or not employees use the coverage; PHSP reimbursements are paid only when an employee actually incurs and submits an eligible expense.

Where A PHSP Actually Wins

For a very small corporation, particularly one with only an owner-manager and perhaps one or two employees, a PHSP frequently costs meaningfully less than group insurance premiums would, since the corporation only pays out when an actual eligible expense is incurred, rather than a fixed premium regardless of usage. A PHSP also avoids medical underwriting, group insurance can be difficult or expensive to obtain for a very small group, particularly if an owner or employee has a pre-existing health condition that would affect group insurance pricing or availability.

Where Group Insurance Still Wins

Group insurance tends to make more sense once a business has enough employees to benefit from pooled risk pricing, and where predictable, budgeted monthly costs are preferable to variable reimbursement amounts that could spike unpredictably in a year with significant employee medical expenses. Group plans also typically include benefits, like life insurance or long-term disability coverage, that are considerably harder to replicate through a PHSP structure alone.

Choosing Between Them

The right structure depends heavily on employee count, the specific benefits desired beyond basic medical and dental reimbursement, and the business's tolerance for variable versus fixed monthly costs. Many mid-sized businesses ultimately combine both, a modest group plan covering core benefits like disability and life insurance, supplemented by a PHSP to reimburse medical and dental expenses beyond what the group plan covers.