Health Spending Account

PHSP vs Group Benefits — Which Is Better for Alberta Small Business Owners?

For most incorporated Alberta small business owners and sole practitioners, a PHSP (Private Health Services Plan) is more cost-effective and more flexible than a traditional group benefits plan. But group benefits still make sense in specific situations. Here's how to make the right call for your business.

The Core Difference

A group benefits plan is an insurance product — you pay a fixed monthly premium to an insurer, and the insurer pays claims up to the limits of your plan. You pay whether you use it or not. The insurer profits on the difference between premiums collected and claims paid.

A PHSP (Private Health Services Plan) is a tax structure — not insurance. There's no insurer. Your corporation reimburses you for actual eligible medical expenses you've already paid. A third-party administrator handles the mechanics. You pay for claims you actually make, plus a small admin fee. Nothing is lost if you don't claim.

Side-by-Side Comparison

When a PHSP Is the Better Choice

• Solo or dual incorporated professionals — dentists, engineers, consultants, lawyers with no employees. A group plan premium of $500+/month is almost always more expensive than the actual medical claims, especially when the PHSP can cover everything a group plan would.
• Variable medical spending — if your health and dental spending varies significantly year to year (some years heavy, others light), PHSP is more efficient because you pay only for what you claim.
• Flexibility priority — PHSP covers any CRA-eligible expense without plan limits on specific categories. Group plans often cap dental at $1,500/year or paramedical at $500/year.
• New businesses — no minimum group size, no medical underwriting, no contract term commitment. Start immediately.

When a Group Benefits Plan Still Makes Sense

• Businesses with 3+ employees — group plans are designed for groups. They offer simplified enrolment, standardized coverage, and some risk pooling that benefits larger employee populations.
• Disability and life insurance bundled — if you need group disability coverage for employees, a group benefits plan may be more efficient than purchasing individual policies for each staff member.
• Employee retention and recruitment — group benefits are a recognized employee benefit. If attracting and retaining staff is a priority, a visible group plan has marketing value that a PHSP doesn't replicate directly.

The Hybrid Approach

The most common structure Frank sees for growing Alberta small businesses: a PHSP for the incorporated owner (and their family), combined with individual disability and life insurance for the owner, plus a streamlined group plan (or individual coverage) for key employees.

This structure gives the owner the most tax-efficient health coverage while addressing the employee benefit expectations of a growing team. The PHSP and individual insurance don't interfere with each other.

Frequently Asked Questions