Table of Contents
- 💼 Employee Health Trusts (EHTs)
- 🧾 Personal Health Spending Plans (PHSPs)
- 👥 Grouped Disability & Critical Illness Plans
- 🧠 Why These Plans Matter
- 🎯 Final Takeaway
When people think of business insurance, they usually think of protecting profits, owners, or key employees.
But there are other important insurance-related tools that don’t directly insure the business itself—yet still play a major role in employee health, tax efficiency, and financial planning.
These options are often grouped under the term:
👉 Health Spending Accounts
Let’s break them down in plain English.
💼 Employee Health Trusts (EHTs)
Employee Health Trusts (EHTs) are formal trust arrangements used by employers to fund employee health benefits in a tax-efficient way.
📅 A Quick Background
- Introduced in 2010
- Replaced older Health & Welfare Trusts (HWTs)
- All HWTs were required to convert to EHTs by January 1, 2022
🏢 Who Uses EHTs?
- Mostly medium to large employers
- Administration is complex and costly, so they’re less common for small businesses
- The trust must be resident in Canada
💰 How EHTs Work
Employers contribute money to a trust that:
✔ Pays group health and accident insurance premiums
✔ Funds private health plans
✔ Pays group term life insurance premiums
📊 Tax Advantages
- Employer contributions are tax-deductible
- Contributions are not taxable to employees
- Funds cannot be refunded to the employer
- Money must be used for employee or former employee benefits
📘 EHTs are governed by Section 144.1 of the Income Tax Act.
🧾 Personal Health Spending Plans (PHSPs)
Personal Health Spending Plans (PHSPs)—also called Private Health Services Plans—are ideal for:
✔ Sole proprietors
✔ Business partners
✔ Family-run businesses
They allow business owners to turn medical expenses into tax-deductible business costs.
🔍 What Can PHSPs Pay For?
PHSP funds can be used for any expense that qualifies for the Medical Expense Tax Credit, including:
🩺 Prescription drugs
🦷 Dental care
👓 Vision care
✈️ Travel medical insurance
🏥 Semi-private hospital rooms
💸 Contribution Limits
- $1,500 per year for sole proprietors and adult family members
- $750 per year for children under 18
Funds are managed by a third-party administrator (for a fee).
⚠️ Important rule:
👉 Contributions must be used within 2 years, or the unused amount is forfeited.
📊 Tax Treatment
✔ Employer contributions are 100% tax-deductible (within limits)
✔ Benefits are tax-free to employees and family members
PHSPs make sense only if the tax savings outweigh the admin costs.
👥 Grouped Disability & Critical Illness Plans
A grouped plan is a creative alternative to traditional group insurance.
Instead of buying one large group policy, the employer:
✔ Purchases individual disability (DI) or critical illness (CI) policies
✔ Holds and pays for them
✔ Provides coverage to two or more employees
🧩 Key Rules to Know
- The group must be a defined class of employees
- Employees cannot be selected at random
- All members of the class must be offered similar benefits (if insurable)
- The group cannot consist solely of shareholders
💡 Shareholders can be included—as long as they are also employees.
💰 Tax Advantages
✔ Employer-paid premiums may be tax-deductible
✔ Premiums are not taxable to employees
✔ Benefits paid to employees are taxable when received
These plans work best for executive teams or specialized employee groups.
🧠 Why These Plans Matter
These arrangements may not look like traditional “business insurance,” but they play a powerful role in:
✅ Employee attraction & retention
✅ Tax efficiency
✅ Health cost management
✅ Custom benefit design
✅ Filling gaps left by standard group plans
🎯 Final Takeaway
Not every insurance solution needs to directly insure the business itself.
Health spending accounts and grouped plans give business owners flexible, tax-efficient ways to support employee health while controlling costs.
Used correctly, they can:
✔ Reduce taxes
✔ Improve employee satisfaction
✔ Strengthen overall financial planning
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