Supplement insured benefits
Cost Plus can reimburse eligible expenses that exceed an insured plan's reimbursement level, annual maximum or other contractual limit, subject to the Cost Plus plan terms.
Cost Plus
A flexible way to cover eligible health and dental expenses.
A Cost Plus arrangement can allow an employer to reimburse eligible medical and dental expenses through a properly structured Private Health Services Plan (PHSP). The employer generally funds approved claims as they arise, together with the administrator's fee and applicable taxes.
PHSP structure · Claim-by-claim funding · Flexible plan designPHSP · Claim funding · Flexible design
Cost Plus at a glance
A simple concept that needs the right structure.
Employer fundedThe employer typically pays approved claims when they are submitted rather than pre-funding a fixed account balance.
Third-party administeredAn administrator reviews claims against the plan terms and applicable eligibility requirements.
Employee submits an eligible expense
Administrator adjudicates the claim
Employer funds the approved amount
Employee receives reimbursement
Flexible reimbursementUse plan rules to address eligible expenses that may not fit neatly within insured coverage.
Pay as claims occurEmployer funding reflects eligible reimbursements while remaining within established plan limits.
Works with existing benefitsCost Plus can sit alongside insured health and dental benefits rather than replacing them.
Formal adjudicationA third-party administrator can help apply plan terms consistently and document claims.
What Is Cost Plus?
More than reimbursement. A properly structured benefits arrangement.
Cost Plus provides a defined process for handling eligible medical and dental expenses. An administrator reviews each claim under the plan terms, and the employer funds the approved reimbursement together with the related administration charges and taxes.
The structure matters. A direct employer reimbursement of an employee's medical expense is not automatically tax-free. Where the arrangement qualifies as a PHSP and the expense is paid under the terms of that plan, different tax treatment can apply.
Plan structure and documentation are important.Eligibility, covered expenses, limits, employee classes and the administrator's role should be clearly defined. Tax treatment depends on the arrangement meeting applicable PHSP requirements.
Where Cost Plus Can Fit
Targeted flexibility within a broader benefits strategy.
Cost Plus is often most useful when an employer wants to address specific eligible expenses without redesigning the entire insured plan.
Eligible expenses not otherwise covered
A properly structured arrangement may cover qualifying medical or dental expenses that are not included in the employer's insured plan, provided they satisfy the Cost Plus plan and PHSP requirements.
Defined employee classes
Employers can provide different levels of support to defined groups when the basis for those differences is clear and consistently applied.
Executive benefit design
Cost Plus can be incorporated into a broader compensation approach for designated senior employees.
Employer-set limits
The employer can establish reimbursement ceilings or other plan parameters to balance flexibility with budget control.
Employee & family expenses
The plan may extend beyond the employee to qualifying expenses for a spouse or dependants, based on the coverage established by the employer.
Plan Design
Flexibility works best when the rules are clear.
Cost Plus should be designed as a benefit program—not as an informal promise to repay whatever medical expenses arise.
01
Define eligibility
Identify which employee classes are covered and whether spouses or dependants are included.
02
Set appropriate limits
Establish annual, family, employee-class or other reimbursement limits that reflect the employer's compensation and benefits objectives.
03
Coordinate with existing coverage
Determine whether insured health or dental benefits should pay first and how Cost Plus will apply to any remaining eligible expenses.
04
Use consistent administration
A clear claims process and third-party adjudication can help document eligibility and apply the plan consistently.
Cost Plus vs. Health Spending Account
Related concepts, but different ways to manage flexibility.
Both Cost Plus and a Health Spending Account can be structured within a PHSP framework. The better fit depends on whether the employer prefers a defined annual allocation or a claim-by-claim reimbursement approach.
Questions worth asking
- Do employees need a predictable annual allowance?
- Should the employer fund claims only when they occur?
- Is the arrangement intended for all employees or a defined class?
- How important is a fixed annual employer maximum?
- Should unused amounts carry forward?
- How will insured benefits coordinate with the arrangement?
Cost Plus
Generally funded as eligible claims are approved.
- No employee account balance is necessarily created
- Employer can establish plan limits and eligible classes
- Useful for variable or targeted reimbursement needs
- Employer cost can fluctuate with claims
- Administration fee is generally applied to claims
Health Spending Account
Usually starts with a defined annual allocation for each eligible employee.
- Employees know the amount available to them
- Employer has a clearer annual maximum per employee
- Employees choose among eligible expenses
- Carry-forward rules may be available depending on plan design
- Often easier to communicate as a flexible benefit allowance
PHSP & Tax Considerations
Tax treatment depends on qualifying as a PHSP.
The tax implications depend on the substance of the plan and how it operates, not simply on the Cost Plus name.
Important PHSP considerations
CRA guidance distinguishes between ordinary employer reimbursement of medical expenses and payments made under a qualifying PHSP.
Eligible medical expensesDefined plan termsProper adjudicationEmployee eligibilityPHSP requirements
What drives employer cost?
The financial responsibility for approved Cost Plus claims typically rests with the employer. Total expense can therefore vary based on actual claims and the chosen limits.
Approved claimsAnnual limitsAdministration feeApplicable taxesEmployee class
Tax advice may be appropriate.Tax considerations can vary with the employer’s circumstances, particularly where shareholder-employees are involved. Complex situations may warrant professional review.
Frequently Asked Questions
Cost Plus, explained.
The details should always be confirmed against the employer's plan documents and administrator rules.
What is a Cost Plus plan?
A Cost Plus plan is an arrangement under which eligible medical or dental claims are adjudicated by an administrator and funded by the employer, generally together with an administration fee and applicable taxes. When properly structured and qualifying as a PHSP, it can provide tax-effective reimbursement of eligible expenses.
Is Cost Plus the same as a Health Spending Account?
No. Both can operate within a PHSP framework, but an HSA typically gives an employee a defined annual allocation. Cost Plus is more often funded claim by claim, subject to the employer's stated limits and eligibility rules.
Are Cost Plus reimbursements taxable to employees?
Medical expenses paid under the terms of a qualifying PHSP are generally not treated as a taxable employee benefit. A direct reimbursement outside a qualifying PHSP can have different tax treatment, so proper structure matters.
What expenses can be reimbursed?
The plan can generally be designed around medical and dental expenses that meet the applicable PHSP and medical-expense eligibility requirements, subject to the employer's plan terms. Examples may include prescription drugs, dental treatment, vision care and eligible practitioner or medical-service expenses.
Can Cost Plus supplement our insured health and dental plan?
Yes. Cost Plus can complement an insured plan by addressing qualifying expenses that remain outside or beyond the insured coverage, subject to the Cost Plus terms.
Can spouse and dependant expenses be covered?
They can be, depending on the plan design and definition of eligible family members. The employer should specify who qualifies and how claims are submitted.
Can Cost Plus be offered only to certain employees?
Yes. Cost Plus does not necessarily need to be offered on identical terms across the workforce. Any differences should have a clear basis and be reflected in the plan, with additional review where employees also hold an ownership interest.
Does Cost Plus require an annual limit?
An annual limit is not inherent in the concept, but employers commonly establish limits to manage cost and define the benefit clearly. The appropriate structure depends on the employer's objectives and the administrator's plan design.
Could Cost Plus add flexibility to your benefits plan?
We can help you determine whether Cost Plus, a Health Spending Account or another plan design is the better fit—and how it should coordinate with your existing benefits.