What Is a Health Spending Account?

Navigating through employee benefits can sometimes feel like learning a new language, but knowing the facts can help you protect your team while growing your business. One of Canadian businesses’ most popular forms of health benefits is Health Spending Accounts (HSA).

A health spending account is a non-taxable benefit plan that covers eligible expenses not covered by provincial or federal programs. Implementing an HSA for your business can be complicated. A meeting with a business advisor can help you understand your options and make the best choice for your needs.

Defining a Health Spending Account

At its core, a health spending account is a versatile supplement to traditional health benefits. It offers an account of tax-free dollars that eligible employees can use to pay for a wide range of health-related expenses not typically covered by other benefit plans. For employers, an HSA provides a flexible and cost-effective way to offer significant health coverage, supporting your employee’s wellness.

Unlike other health benefit mechanisms, HSAs are not limited to specific medical necessities, making them a favourite for many small business owners and employees seeking extended health support.

An HSA must conform to a private health services plan (PHSP) as determined by the CRA. Canadian residents who own incorporated companies with as few as 1 employee can create and leverage an HSA. Sole proprietorships and unincorporated businesses may be eligible if the owner has at least 1 arms-length employee.

The Benefits for Employers & Employees

Employers can choose the amount they contribute annually, often per employee, without being tied down by the constraints of pre-determined health plan parameters. This flexibility allows you to make tax-deductible contributions that can reduce your business’s taxable income.

HSAs help keep your workforce healthy, happy, and productive while also providing additional compensation for current or prospective employees.

For employees, tax-free funds for unexpected or non-traditional medical expenses can be a substantial plus, offering additional support where it’s needed most.

The transparency afforded by HSAs allows employees to understand the true value of their health benefits. This knowledge may drive employee engagement since workers can see and spend their health dollars directly.

How HSAs Differs from Traditional Health Plans

A key differentiator between an HSA and traditional group health benefit plans is flexibility. While traditional plans come with pre-determined coverages, an HSA empowers employees to allocate funds strategically according to their individual requirements.

While the exact details of an HSA are unique to the organization, these funds may cover:

• Prescription medications
• Dental work
• Vision care
• Hospital visits
• Physical therapy
• Massage therapy
• Chiropractic care
• Mental health support

Many plan members use this benefit to cover additional expenses from their primary plan. For example, if they go to the dentist for a regular cleaning, their standard benefits may only cover 80% of the fee, but they can choose to use their HSA to pay for the remaining 20%. This versatility can allow personal health choices to drive the benefit utilization.

The HSA Process

Employers generally decide the annual contribution limit for employees’ HSAs—a critical step in structuring the benefit. The process is straightforward:

1. Funding the HSA: Employers make deposits into employees’ HSAs for the year.
2. Claiming: Employees who incur eligible expenses file a claim along with supporting documentation.
3. Adjudication: The insurer reviews claims to comply with the allocated funds and plan rules.
4. Reimbursement: Approved claims are reimbursed from the HSA balance.

The simplicity of this process, coupled with the personalized nature of HSA reimbursements, fuels its appeal as a primary benefit or as an add-on to another plan.

Wellness Spending Account vs. HSA

While HSAs cover health-related expenses, wellness spending accounts cater to a more flexible range of wellness initiatives. LSAs (lifestyle spending accounts) can include fitness memberships, nutrition consultations, electronics, or even purchasing a new mattress—all within a pre-determined budget.

It’s a wellness pool that employees can dip into for non-medical health needs. This can be a great way to promote healthy living and overall well-being.

You’ll have to decide which option might best serve your employees, depending on their lifestyles and priorities. You may also consider flexible spending accounts, which blend health and wellness accounts or allocate certain amounts to each for employees to use as they see fit.

Choosing a Group Health Benefit Plan

One of the most compelling aspects of HSA is its tax advantage. Employer contributions are considered a deductible business expense, while employee receipt of HSA funds is non-taxable. When strategically designed and communicated, an HSA can add immense value to an organization’s benefits package.

Implementing an HSA can elevate an organization’s employee-centric policies, enhance tax efficiency, and, most importantly, provide a robust health support system tailored to individual needs. It also demonstrates your commitment to your team’s health, providing versatility and personal choice.

If you’re ready to explore the potential of HSAs for your team, schedule a meeting with one of Qopia Financial’s benefits advisors. We can review your options and determine the plan that suits your needs.