Personal Health Spending Account
A Personal Health Spending Account or PHSA is a great way to write off medical expenses through your business. No matter how good a health and dental plan is, there are always certain costs that are not covered. With a PHSP you will be able to transfer all eligible medical expenses to the company and have this benefit TAX FREE! The structure of many PHSP’s is very low cost, with only a one time start up fee and minimal administrative fees, but no monthly premiums. This means a small business can deduct health expenses without an elaborate and expensive health insurance plan.
The difference between Health Insurance and a PHSP:
A PHSP is a method of covering health expenses as a business expense to a predetermined dollar amount each year. You can forecast and budget your health expenses into the future with certainty.
Health insurance, on the other hand, distributes the risk of events over all plan holders, so monthly premiums must be charged to all plan holders whether a claim is made or not. Insurance plans also vary significantly in the level of coverage you receive. More comprehensive plans have more coverage and have fewer restrictions, but are also more expensive. The more risk that is covered by the insurance companies, the higher the cost. In addition to claims costs, insurance companies also charge for assuming plan “risk”, administration fees, sales fees and profits. These are built into the insurance premiums you pay. The insurance company determines your health premiums each year. The only way you can reduce costs is to reduce your employee coverage.
A PHSP generally only charges an administration fee when a claim is made. The coverage is very comprehensive and allows more choices of eligible services. Furthermore, you pay for only what you use when you use it, so there are no monthly premiums!