Recently we had a business owner contact us. They were upset with their accountant.
Why? They learned from someone other than their accountant that they could have had their business pay for all their personal health related expenses for years.
To be fair to their accountant, that’s not their accountants role to be an insurance expert also. That’s my role and the reason for writing and posting this article.
If you’re a small business owner, you can have a benefits plan that’s right for you, your family, and your employees. If you own a profitable business in Canada, incorporated or not, you are eligible.
Healthcare Spending Accounts
Healthcare Spending Accounts (commonly referred to as HCSA or HSA) are an increasingly popular alternative to conventional group health and dental plans. They are practical, affordable, flexible, and a cost-effective way to meet the changing needs of many Canadian employers and diverse needs of many employees.
What Is A Healthcare Spending Account?
A Healthcare Spending Account is a pre-determined amount of money provided to employees at the beginning of each benefit year for coverage of their medical and dental expenses.
Claims are submitted by employees and reimbursed in a similar fashion to a conventional benefits plan. Eligible expenses are paid at 100% up to the total dollar amount available in the HCSA. A Healthcare Spending Account can replace or exist alongside conventional medical and dental coverage.
There are no limits, deductions or maximums for owners. Premiums are a 100% fully tax-deductible business expense. Limits can be set for employees if you have any to control costs. And no medical evidence is required.
HCSA Administration
One of our providers, The Benefits Trust, is unique amongst healthcare spending account providers. They offer transparent fees (not seemingly low prices with unexpected surprises built in!), flexibility in their plans, and administrative simplicity.
Their fees are all-inclusive, which means:
- No plan set-up fees
- No claims processing fees
- No annual fee
- No fees for issuing booklets or cards
- Advisor’s commission is already included in the administration fee
- No “account maintenance fee” for employee accounts (often deducted by other providers), which typically drain accounts until all funds are exhausted
HCSA Adjudication
HCSAs are an annualized benefit funded on a monthly basis. In this regard, they don’t treat HCSAs any differently than a traditional style plan. Employees shouldn’t have to wait to submit claims – with their plans the full annual amount is available from day one. All HCSA funds belong to the employer, who will always receive a refund of unspent HCSA dollars at the end of one or two benefit years, depending on their chosen plan structure.
Some providers adjudicate HCSAs on an as-earned basis, and many offer only “pay-as-you-go” plan funding. This can be a challenge for companies if each expense must be approved and a cheque must be written for each batch of claims. It’s also a challenge for your employees if they must wait for a batch to be submitted.
Their budgeted approach with stable monthly funding protects against the cash crunch that affects so many businesses. They allow their members to carry surpluses or deficits without interest applied to either. They provide clear, accurate reporting to employers in monthly financial statements as well as during year-end reconciliations.
How Does a Healthcare Spending Account Work?
At the beginning of each benefit year, the plan sponsor decides the amount of HCSA dollars available in each employee’s individual account (normally by class of employee). For example, Executives could receive $3,600 per year, and all other employees $1,200 per year.
Employees and their families can then claim from these accounts to cover Canada Revenue Agency (CRA) approved health and dental expenses, which they encounter throughout the benefit year. This allows employees to spend the funds on expenses their families incur, rather than restricting them to the dollar limits and specific expenses set out in a conventional benefits plan.
Healthcare Spending Accounts ensure controlled benefit costs for the employer and complete claim flexibility for the employees.
Unused account balances can be carried forward into the next benefit year.
Under the Income Tax Act, any item that qualifies for the Medical Tax Credit is eligible for coverage through an HCSA. Please refer to CRA website for a detailed list of eligible expenses.
Often this definition of eligible expenses is broader than that of a conventional employee benefits plan, allowing for additional flexibility for employees and executives in particular.
What Are the Tax Advantages For An Employer?
As with a conventional employee benefits plan, the cost of an HSA health plan is a tax-deductible business expense, and the benefits are received tax-free. To be considered a tax-deductible expense to the plan sponsor, a Health Care Spending Account must be a pre-set limit, which is 100% employer funded. The funds cannot be used to purchase additional insurance (i.e. life Insurance). Unused HCSA amounts cannot be paid out at year-end as cash to the employees.
Healthcare Spending Accounts provide employers with complete control over claims costs each year, because the employees can only claim up to their individual maximums. Funds that are not used for claims within the specified time period remain the property of the plan sponsor and will be returned to them. Many employers are looking for creative ways to control their health and dental expenditures; a Healthcare Spending Account can be an ideal solution.
For more information on setting up Health Care Spending Accounts for your Canadian company, call your insurance advisor or contact us today.
