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Health Insurance for the Independent Contractor - What are your options?

When you make the switch from being a full-time IT employee with a great company to being an independent contractor with your own company, one of the stressful changes you’ll encounter is the loss of health coverage. Especially if you don’t have a spouse with sufficient coverage through their job or if your household medical expenses are relatively high, you want to find a new solution quickly. There are several great health insurance providers available to IT contractors across Canada and we are not providing one specific recommendation, but here are a couple options to help you start your research.

Insurance Plans

Standard health insurance plans, similar to those you received through your employer, are available through suppliers such as Blue Cross, Desjardins and PROLINK. As an incorporated contractor, your business pays a premium and selects a package that covers specific items, suitable for the needs of your employees (you and your family). When an employee needs to make a claim after paying for an appointment or purchasing prescription drugs, they (you) submit it to the insurance company and then get reimbursed.

While the process is easy and familiar, it’s recommended to do the math and research whether an insurance plan makes sense for your IT contracting company. Whether it’s an individual or group insurance plan, like any insurance, premiums can add up quickly depending how much is being claimed. In addition, there’s a good chance that the cost of those premiums include benefits that you are not ever going to use, but because they’re part of the package, you’re paying for them.

Private Health Services Plan (PHSP)

An alterative to regular insurance plans are Private Health Services Plans (PHSPs). These are CRA-approved solutions that allow your business to provide a non-taxable reimbursement for health expenses and claim a 100% tax deduction for the business. Compared to monthly premium plans, PHSPs can be a smart choice. In addition to the tax savings for both you as an individual and your business, they offer more flexibility in benefits. There is a wider range of choices in what you can claim and you only pay for what you use. This gives you more control over costs and ultimately can lead to significant savings.

While PHSPs can be managed on your own, they require significant reporting and have some detailed rules to them, mandated by the CRA. As such, it is recommended to work through a middle-company, or an administrator, for example Brock Health, Trusted Advisor or Integrated Benefits Solutions. These organizations will help you set-up and manage the right program for your small company and provide you with the proper reports for your accountant at the end of the year. There is an administration fee — sometimes fixed and sometimes a percentage (which is also charged HST) but this fee is usually much smaller than the premiums you’d pay with health insurance.

The options described above are a couple routes to explore when searching for the right health coverage solution for you and your IT contracting business; however, Eagle does not endorse any specific type or organization. We do strongly encourage you to discuss this further with your accountant and financial advisors.