What Is A Cost Plus Account?
A Cost Plus Account allows for reimbursement of eligible medical and dental expenses which otherwise would have been payable by the individual with after tax dollars. A Cost plus usually replaces a standard medical or dental plan as a Stand Alone program. It also can be offered as a component of a flexible benefit plan or as a complement to a traditional group insurance plan and can be used to offset any expenses that have not been covered under those types of plans.
Premiums for such a plan are deductible for tax purposes and the reimbursement to the employee for those services is considered to be a non-taxable benefit in accordance with Interpretation Bulletin 339R2 dated August 8, 1989, which read as follows:
“Under a Cost-Plus plan an employer contracts with a trusted plan or insurance company for the provision of indemnification of employee’s claims on defined risks under the plan. The employer promises to reimburse the cost of such claims plus an administration fee to the plan or the insurance company…..Provided that the risks to be indemnified are those described in paragraphs
(a) and (b) of the definition of “private health services plan” in subsection 248 (1), such a plan qualifies as a Private Health Services Plan.”
Payment for a Cost Plus Plan
- Pay-as-You-Go: A remittance form along with receipts for services and a company cheque equal to the cost of the service; plus the administration fee and GST. Health Risk will send a tax-free benefit cheque to you personally.
- Pre-Funded Account: Your company funds an account to cover claims as they are submitted. Health Risk processes the claims and pays with funds from the account. This method is efficient in terms of avoiding time delays for processing and issuance of company cheques for proper claim amounts.
A Cost-Plus Account qualifies as a PHSP and any premiums paid to a PHSP by an employer are considered business expenses deductible against business income. These amounts are non-taxable benefits to the employee and must meet the following criteria:
- A formal Private Health Services Plan agreement must be in place with a Third party Administrator or Insurance Company
- Cost Plus Accounts must be 100% funded through your company
- A Cost plus Account cannot be used to purchase additional insurance such as life insurance, long- term disability or Critical Illness Insurance
- Benefits must meet income tax definitions of eligible expenses
Corporations have been granted the right to decide the employee’s annual benefit allotment by class. While they have not been regulated on dollar amounts, CRA has indicated that benefits should be reasonable within relation to the employee’s remuneration package.
Cost Plus Account Advantages
The greatest advantage of a Cost Plus account is that allows you and your family to meet your specific needs for health benefits coverage. You claim what you require based on actual usage and never pay a premium for coverage that will never translate into a claim. You only pay for what you choose and what you use. Claims can be made for extra vision care expenses, massage therapy or orthodontic expenses to whatever amount is required.
The following example merely demonstrates the process of making a claim with a “Cost-Plus” account through Health Risk services Inc. Variances will apply for every account registered and amounts and claim eligibility will vary from one registrant to another. Numbers chosen are made for demonstration purposes only and are simplified to a greater extent than what an actual claim may present.
With a Cost Plus Program
Company is now able to expense the entire cost of $1,105 as a benefit expense. Owner/Employee personally receives the total claim amount of $1,000 tax free from company
Without a Cost Plus Program
Employee has incurred 100% of cost with personal taxed dollars
(If you are in a 37% tax bracket, you will have to earn $1,370 to pay for the expense personally)