Self Directed vs. Insured Plan

Make no mistake! The Self-Directed Benefit Plan TM   does NOT involve any insurance company! Therefore if you or your employees and/or family members become ill or require a large amount of medical or dental treatments then your business is liable to provide funding for those expenditures. See Contractual Arrangements for more details.


However, if you currently do not have any benefit plan, then already you and perhaps your employees are taking the risk of large medical expenditures. With the Self-Directed Benefit Plan TM   at least the the cost of the Plan is deductible to your business. Also if your expenditures are low then you will benefit from a low cost for the plan.


But buying a benefit plan from an insurance company is certainly a sensible strategy too. An insurance company plan also generates the tax benefits the Self-Directed Benefit Plan TM   does. Hopefully your premiums are pooled with a number of other customers of the insurance company so your premiums will not rise just because you or your employees have become ill (but check this point with the insurer).


On the other hand, it is this pooling concept that often makes a benefit plan with an insurance company seem expensive for those in good or average health, or those who try to minimize their discretionary medical expenditures. If you are pooled with a number of other small businesses or individuals then the average claim levels of the entire pool will be used to determine your premiums. Your efforts to minimize your claims will likely go unnoticed by the insurer. Also the insurer will have to introduce stringent controls on the eligible claims to avoid high claiming individuals from spoiling the pool. For example, expensive dental procedures such as crowns or braces will only be partially covered or not at all .  Maximums and coinsurance percentage will apply to most claims, etcetera. Often a medical questionnaire will be required before joining the insured plan, with the result that an existing medical condition may have little or no coverage. All these excluded or limited benefits will mean you lose the substantial tax benefit of having them paid from a PHSP.


So it all depends upon your outlook of the risk of having to fund a large claim versus the savings and flexibility offered by a Self-Directed Benefit Plan TM . The one thing that does not seem sensible is to do nothing! If you do nothing you will still have the risk of paying for large medical expenditures, but will receive none of the favourable tax treatment of a PHSP.


So either arrange for a PHSP through an insurance company or through Bene-D-Duct 's Self-Directed Benefit Plan TM . Doing neither does not make sense.


One of the owners and founders of Bene-D-Duct , Tom Gillett, is both an actuary and an independent licensed life and health insurance agent in Ontario and has worked in this marketplace for 17 years. He will be able to personally help you to review the insurance company marketplace, if you wish. Send him an email or call him at our office number.


A Mixture of Self-Directed and Insurance Company PHSPs?
A premium paid to one PHSP is an eligible expenditure for another PHSP provided the benefit plan text allows it. So it is up to you to make the premium for insurance coverage for large medical expenditures eligible under your own Self-Directed Benefit Plan TM .

We highly recommend that an insurance company be used for Out of Country Medical coverage, since a medical claim can easily surpass $25,000 and 6 digit amounts are not uncommon.


Minimize the Risks of Self-Directed Benefit Plan TM.  
If you go the Self-Directed route it is prudent to try to minimize the risk of your business having to fund a large medical expense. These include:
insurance Use an overall annual maximum benefit under your own Self-Directed Benefit Plan TM.
This limits the maximum liability you can possibly incur. Suggested maximums might be $4,000 for single employees, $6,000 for employees with one dependent, and $8,000 for employees with two or more dependents. It is up to you to pick the precise amounts. Perhaps you will just want $2,000 for all employees.
insurance When announcing the new PHSP to your employees, make it clear to your employees that you are retaining the right to terminate the PHSP upon 30 days written notice.
This allows you to limit your liability when an ongoing medical situation threatens your solvency. It is best to announce it in writing, so that there is no misunderstanding. New employees should also be made aware of the possibility of plan termination.
insurance Do not provide worldwide coverage, since this exposes you to some very expensive hospital and medical bills.
Therefore only medical expenditures incurred in Canada should be covered in order to reduce your risk. It is optional if you wish to cover the premiums for Out of Country Medical Insurance.
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