Health Spending Account

What is a Health Spending Account (HSA)?

Health Spending Account is a fairly new product in the market.  Nowadays, Canadians are looking for options and flexibility, an HSA will provide just that.  Health Spending Accounts can be implemented as Stand-Alone coverage or as Supplemental coverage to a traditional Medical Plan.

It is designed to provide reimbursement for eligible health care expenses and other benefits that are NOT covered through your Provincial Health Insurance Plan.

HSA allows you to decide how much to contribute to the plan.  Also, the option of which health care services you want to use it on.  Insurers allow you to add Stop-Loss coverage to your Health Spending Account.

Health Spending Accounts can be advantageous if the premiums you pay (Employer) exceed your claims.  Also you;

  • Pay only for the benefits you use.
  • Don’t pay After-tax out-of-pocket expenses, (e.g. Deductibles, Coinsurance Amounts)
HSA-Depth
The HSA offers flexibility with respect to the covered benefits.  In addition to the benefits covered under traditional plan, an HSA can also be used in a broader range of services. For example;

  • Dental services that are might not be included in your plan (e.g., Orthodontics, implants, Bridges)
  • Over-the-Counter Medications
  • Cosmetic Surgery and much more..
CRA Eligible Medical Expenses
http://www.cra-arc.gc.ca

In CRA search box, enter #IT519 for the most current publication version of Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction.

In depth look at Health Spending Account (HSA)

PlanHow it WorksCovered BenefitsAdvantages
  • Health Spending Account can be beneficial for large corporation or self-employed individual.  If you own a business you can have Health Spending Account.
  • Health Spending Accounts are self-Insured Private Health Plan that Employer can control and minimize the cost. 
  • It can be established as a stand-alone plan or as a supplemental coverage to a traditional group medical plan.
  • The HSA allows for plan members (employees) to get reimbursed for eligible medical expenses (Refer to “Covered Benefits” tab)
  • To complement an HSA,  the majority of companies provide Stop-Loss protection.  Stop-Loss protection is designed for the employer to self-insure against unexpected claims against , whether it’s a single large  and/or number of smaller health and drug benefits claims. (For more details Refer to “How it Works” tab)
HSA-how-it-works

  • Health Spending Account can be established for large corporation or self-employed individual.
  • All contributions must be paid by the employer.
  • Contributions to an HSA are 100% tax-deductible (some restrictions may apply).
  • At the start of each benefit year, the plan sponsor (Employer) determines how much (Dollars) is allocated  to each employee account.  Similar to Traditional Group Medical Plans, companies can establish different classes for their employees (e.g. Management, Staff, or warehouse).  Each class of employees can have different maximum amounts.  For example; Management $5,000 per year, Staff $3,000 per year.
  • The HSA is established with Third-Party Health & Welfare trust account.
  • The plan sponsor has the options of having customized Stop-Loss protection.
  • Each member (employee) can use the funds inside their HSA for eligible expenses not covered by provincial health plans or any other plans.  This can include;
    • Deductibles and coinsurance Amounts
    • Health and/or dental Claims in excess of maximum coverage amounts
    • A wide range of other eligible medical expenses. ( Refer to the next section, Covered Benefits, for example of covered benefits)
  • The trust companies sign off on eligible claims and reimburse each member.
  • The employee HSA balance is reduced by the amount of each reimbursement.
  • Unused funds can be carried over into the employees Health Spending Account for the following year. (Some conditions may apply)
  • Stop-Loss Protection can be added to most HSA to cover catastrophic claims.  Whether it’s a single large  and/or number of smaller extended health care benefits and Prescription drug.
  • The deductible for Stop-Loss can be as low as $1,000 to $25,000.  The lower the deductible the higher the premiums.  The most common deductible is between $5,000 to $10,000 per employee.
  • All deductibles and their premiums can be deducted from the plan members Health Spending Account.
Health Spending Accounts follow a more inclusive definition of eligible expenses as set by the Canada Revenue Agency (CRA) under the medical Expense Tax Credit.

These eligible expenses can not have been paid by any other private or government plans. Your HSA can cover expenses similar to traditional medical plans.

Below, are example of some the benefits and services offered in a Traditional Medical Coverage.

Examples of Benefits offered through Private Individual Medical Insurance Plans
In addition to the benefits covered under traditional plan, an HSA can also be used in a broader range of services. For example;

  • Deductibles, C0-Insurance Amounts
  • Dental services that are might not be included in your plan (e.g., Orthodontics, implants, Bridges)
  • Over-the-Counter Medications
  • Cosmetic Surgery
  • Eyeglasses, Professional Services and/or other benefits that have gone above your Annual Maximum amounts under you traditional plans.
  • Some benefits MUST be prescribed in writing by a medical practitioner. Few examples of those benefits are;
    • Medically required Home Renovation
    • Home Care
    • Dentures
    • Teletypewriter
    • Made to order Wigs

In case of confusion,   it’s best to refer to the Canada Revenue website under Medical Tax credit to get an up to date definition of eligible expenses.  (Click here for CRA web site)

There are many advantages with having Health Spending Account.

The plan can be established for large corporation or self-employed individual.
For Employer:

  • All contributions are 100% tax deductible (some restrictions may apply).
  • Control the  plan cost and most important, to  be certain how much it will cost in future.
  • The addition of Stop-Loss protection, reduces the possibility of excess liabilities against unexpected claims while limiting the financial exposure.

For Employee:

  • The contributions made by the employer is NOT a taxable benefit to the employee.
  • Can decide on what and how to use the benefits.  Only pay for benefits they use.
  • Don’t have to pay out-of-pocket for deductible and/or co-insurance amounts.
  • Has the option of using pre-tax dollars for upcoming eligible medical expenses.
  • Claims paid out are tax-free benefits (except for Quebec residents).
Given all the details that are involved in finding the right products for your needs it’s important so speak to an adviser that can inform you of what different plans and companies can offer.

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Useful Information

Want to Compare. Check out Various Table and Chart on Individual Medical Plans and Related Products

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Every company wants to control costs. Like everything else, the cost of group insurance coverage is rising every year. Claims history is the most important factor in the rising cost of Group benefits. Premium cost increase effect companies that already have coverage and for employers looking to purchase group medical coverage for the first time.
Companies that have existing coverage
Companies looking to get Group benefits
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