Healthcare Spending Accounts

Chris Redfern

credfern@orrinsurance.net

0 comments

Employers have been trying to find creative ways to offer health and dental benefits to their employees for years, and Healthcare Spending Accounts (HSA) have been picking up steam. When it comes to implementing a benefits plan, cost is often top priority. While traditional style benefits plans are the most popular, employers have been exploring HSA options more and more as employees are demanding more bang for their buck. If a traditionally insured benefits plan (those offered through insurers like Manulife, Sun Life, Canada Life etc. where prescription drugs are covered with no maximum, chiro/physio/massage are covered with certain maximums, etc.) does not fit your budget, HSA’s are an amazing alternative.

What is an HSA?

In short – an HSA covers your employees for their health and dental expenses up to a limit (set by you), each year. As the employer, you can set classes with different limits. For example, you can have Employees With Under 2 Years Service as a class, then Employees With 2-5 Years Service as another, and then Employees With 5 Years+ Service as the third class, all with different annual limits.

What does it cost?

The HSA doesn’t cost you anything unless it’s used. There is a one-time setup fee of $333 for the initial implementation, and then after that it’s billed as it’s used. Each claim will have a 10% admin fee added, as well as taxes. The total cost on each claim is 21.5%.

Why set up an HSA?

Having the corporation pay for your health and dental expenses is much more cost efficient than paying for those expenses in after-tax dollars. For example, if the owner of a business is in a 50% tax bracket, and has an $8,000 orthodontics bill, they would have to make $16,000 to pay for that $8,000 dental bill in after-tax dollars. It would be better to have the corporation pay the claim and reimburse the owner for the $8,000. It is 100% tax deductible to the corporation and non-taxable to the owner/employee.

We often suggest setting up an HSA even if it is only for Owners. The only requirement for the HSA is that the Owner(s) are generating new monies and are actively engaged in the day-to-day operations of the company.

What is covered under an HSA?

Whatever the CRA deems medically necessary. The CRA has a list ¹here of eligible expenses which is always expanding. Here is a list of a few expenses that would be eligible under an HSA:

· Prescription Drugs

· Medical Services & Supplies

· Healthcare Professionals (Chiro, Physio, Massage, etc.)

· Vision (glasses, contacts, optometrist, etc.)

· Dental (including Orthodontics)

· Hospital Services

· Prescribed Medical Treatment

· Lab Tests/Exams

Who is eligible?

You as the employer decides who is eligible. You can set an hours worked per week limit, or only allow certain classes access. You just need to make sure all who are eligible for a class are included.

¹ https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html