Health Spending Accounts

Flexible Benefits

Think of a Health Care Spending Account (HCSA) as a special savings account for each employee. They use it for approved health and dental costs. The employer decides how much goes into it yearly. This lets companies know their exact expenses for benefits. Many employers are using health spending accounts to top-up traditional benefit plans, carve out certain items within traditional plans, or use them on a stand-alone basis. Providing ultimate flexibility to meet the different needs of employees is a great tool to attract and retain top talent.

HSA

Fully Digital Solution

Adding a health spending account has never been easier. You simply provide some basic information, and we do the rest. There is no set up cost, no monthly cost, & rarely any administrative tasks. With our fully digital solution employees can access their health spending account 24/7, and get questions answered within seconds.

FAQ

What health and dental expenses are covered under an HSA?
The list of covered health and dental items under an HSA is typically much more exhaustive than what a traditional benefits plan covers. Here is a list of eligible items, as determined by CRA (Canada Revenue Agency)

Here are some examples of expenses that can be claimed through an HSA:
  • Co-insurances. deductibles, or any amounts not covered, or not covered in their entirety by a traditional benefits plan.
  • Prescription Drugs
  • Vision coverage (glasses, contacts, laser eye surgery, exam)
  • Paramedical services (massage therapists, chiropractors, physiotherapists, speech therapy, marriage and family therapist, midwife, etc..) – see eligible practitioners
  • Dental care (orthodontics, crowns, bridges, etc..)
  • Full-time home care
  • Prescribed medical supplies, devices and equipment (see eligible supplies)
  • Diagnostic and rehabilitation services
  • Certain medical expenses incurred out of the country
What does an HSA cost and Why do employees love them so much?
Cost – since the basic cost can be easily calculated (# of employees x annual allocation per employee), having a fixed expense can be very attractive to employers. Further, if employees don’t use their full annual allocation amount, the employer is only responsible for paying the cost associated with what is actual used.

Flexibility – offers choice for employees to spend their benefit dollars where it best meets their own needs. Employees value choice. If a spouse of an employee already has a benefits plan, using the HSA can be a great way to top-up coverage.
Are shareholders eligible under a Health Spending Account?

PHSP/HSA can only be provided to an active employee of an operating company. This does not include passive income or holding companies.

An unincorporated sole proprietor (with no arms length employees) cannot have a PHSP/HSA. Unfortunately, even with arm length employees, our firm does not work with unincorporated sole proprietors with respect to HSA’s.

Single shareholder/employees can have a PHSP/HSA, if the employee can display that the plan was given as a fair compensation (including a reasonable annual maximum) in their capacity as an employee (not a shareholder).

It’s important to set up an HSA with a proper maximum to ensure there is an element of risk, and to ensure that for shareholders, the amount provided aligns with what would be considered as fair compensation to an employee in the same or similar role at another company.
Once a plan maximum is established, its important to avoid increasing the limit simply to accommodate the employee’s (shareholder) increased need beyond that current limit. Increasing the limit could put the plan offside as it would remove the “element of risk/insurance”, that CRA specifically outlines as a requirement.

We recommend a shareholder ideally have T4 income. If they are solely taking dividend income, then we recommend getting the approval of the corporate accountant verifying that they are receiving the benefit as a result of their employee status and not shareholder status.

We do not provide tax advice and encourage clients to seek their own tax advice to confirm their eligibility before using an HSA.

What is the difference between a Health Spending Account (HSA) and a Wellness Spending Account (WSA)?

A Health Spending Account (HSA) is specifically for medical expense items. The eligible expense list is defined by the Canada Revenue Agency (CRA) and includes things like dental, vison, prescription drugs, physiotherapy and much more. This is a tax-free benefit to employees.

SEE COVERED ITEMS

A Wellness Spending Account (WSA) is a plan to cover items that are outside the scope of a traditional health plan. Given that the employer decides what is covered, not the CRA, it is taxable to the employee. Typical items include daycare, gym memberships, kids sporting fees, workout equipment, reimbursement of personal RRSP contributions, home office equipment, and so much more. This spending account can be as creative or as rigid as the employer wants, to suit their business needs and values.

SEE COVERED ITEMS

Depending on the needs of the client, these two spending accounts can be offered individually or together.

What happens if an employee doesn't spend their full annual allocation?

At the discretion of the employer, a health spending account can be set up to allow for unused funds in the current year, to be used in the following year. In other words, the unused balance from the current year, would get added to the new balance next year. 

Without the carry forward provision, unused amounts, translate to savings for the employer who only pays for the utilized portion.

Which is better, a traditional benefits plan or a health spending account?
Choosing between a traditional group benefits plan and a health spending account depends on your organization’s specific needs and circumstances.

A traditional benefits plan often provides more cumulative coverage compared to a health spending account, due to its comprehensive array of predetermined services. They can, however, be less flexible and might cover some services that not all your employees necessarily need or want.

On the other hand, health spending accounts offer flexibility, allowing employees to allocate funds towards health and dental needs they personally value. However, they may not provide the same breadth of coverage as a traditional benefits plan.

Ultimately, the best choice often lies in a combination of both, providing comprehensive coverage with the added flexibility for personalized choice.

Different Types

Covered Items

Co-Insurances and Deductibles

Annual Maximums

Monthly Premium Costs

Cost Share with Employees

Tax Status

Flexibility

Renewal

Eligibility

Catastrophic Coverage

Traditional Benefits Plan

Typically provides coverage for extended health items, prescription drugs, paramedical practitioners (massage, chiropractor, physiotherapy, psychologist, etc..), vision, dental, life insurance, disability insurance, emergency travel coverage, second medical opinion, among other items.

Co-insurances and deductibles can apply depending on the selected coverages.

Each category (i.e.: dental) has its own separate maximum per year. Coverage maximums for each category are usually per family member, per year.

For a fully insured plan, employer pays a set cost per month, based on the number of enrolled employees.

Employers can share a portion of the total cost with their employees through payroll deductions.

100% tax deductible as a business expense. 100% tax-free to employees (certain exceptions apply).

Employees receive coverage for each category of benefit, as outlined in their benefits booklet.

Annual renewal rates are generally set based on health and dental premiums paid, relative to the employee’s actual total claims.

Must meet the eligibility as per the policy (i.e.: number of work hours required per week, residency requirements, dependent eligibility restrictions).

Most plans include built-in emergency travel coverage, basic life insurance coverages, and can include coverage for high costing drugs, long term disability insurance, among others.

Health Spending 
Account

Employees can claim any qualifying CRA (Canada Revenue Agency) health or dental expense. Employers can elect to add certain riders at an additional cost for items like out of country emergency coverage, employee assistance plan, catastrophic drug coverage, & life insurance.

Provides 100% reimbursement for covered items, no deductibles are applicable.

A combined annual limit for all benefits, for each employee (including their dependents), is determined by the employer.

HSA’s do not have any premiums. The employer only pays for what is used by the employees.

Employers must pay 100% of the cost.

100% tax deductible to employers. 100% tax-free to employees. 

Employees choose where they wish to spend their allocated annual health spending account dollars.

There is no renewal necessary, as the employer is only responsible for funding the claims of the employees up to the stated annual maximum.

Eligibility requirements are generally more flexible. (i.e.: hours worked per week, definition of eligible dependents)

Most HSA plans are on a stand-alone basis, although most can be tailored to have certain add-on’s (emergency travel coverage, life insurance, high costing health claim coverage)

More Choice. More Benefits.

Group Benefits I Life Insurance I Group Retirement

Offering a Health Spending Account (HSA), Wellness Spending Account (WSA), or both, undoubtedly provides many benefits for both employers and employees. To figure out how an HSA, WSA, or both, can fit into your company’s overall benefits strategy, it’s vital to understand what will deliver the most value to your organization and its employees.

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Windsor, ON, Canada
Head Office

Oshawa, ON, Canada