A Health Spending Account (HSA) is an employee benefit that offers reimbursement for a wide range of health and dental expenses. These expenses are often in addition to what is provided for under a traditional, fully insured plan with Extended Health Care (EHC) coverage. In our experience, the best way to think of an HSA is like a bank account. Each employee has their own HSA which they access and use for eligible health and dental expenses (more on those below). Employees receive a set amount for the year, chosen by the employer, which allows employers to accurately predict their overall cost of providing benefits. This is different from traditional group benefits plans, which can have varying costs or large annual increases. The Canada Revenue Agency (CRA) determines the eligible expenses for an HSA. HSAs are administered in accordance with the Income Tax Act (Canada). As with other employee benefit programs, an HSA is a tax-deductible benefit, and the benefits are received tax-free.
HCSA in Action To showcase the power of cost containment, let’s consider an example of a small tech startup with three employees. Each employee is given a $1,000 HCSA to use on eligible expenses per year. Right off the bat, we can easily calculate their overall benefits spend as $3,000/year ($1,000 x 3). Although it’s important to note that there are usually additional administration fees and taxes on top of this, these too are predictable, and so our tech startup, with funds tight as they start their business, can accurately predict how much benefits will cost them per year. Eligible HSA Expenses and the Canada Revenue Agency (CRA) HSA’s are used exclusively for eligible health and dental benefits expenses. There is a long list of what is eligible under a HCSA, but here are a few of the most common uses: Ambulance Services Cancer Treatment Dental Services Vision Care Medical Cannabis Crutches Fertility Treatments Hearing Aids Heart Monitoring Devices Pacemakers Why should employers include a Health Care Spending Account in their employee benefits plan? Today’s workforce is extremely diverse, and it’s becoming challenging to provide a benefits solution that works for everyone.
HSAs provide your employees with a choice in how and when they spend their dollars, allowing employers to provide coverage for what’s most valuable to each person. We like to use our own benefit plan as an example: We used to offer a $200 vision care benefit to our 90+ employees across Canada, but since only approximately 50% of employees wear glasses or contacts, half of our staff were paying premiums for a benefit they would never use. That didn’t sit right with us. So we removed our vision care benefit entirely and instead offered a $200 HSA to all employees in its place. This gave employees the choice of what to use their $200 on; those who needed a new pair of glasses could buy them, but other employees could choose to cover extra dental costs or paramedical expenses as needed. What are the tax advantages of a Health Care Spending Account? Offering a HSA as part of your benefits package comes with certain tax advantages, since HSAs are a non-taxable benefit.
This means that HSA contributions from an employer to an employee are tax-free. If an employer allots $500 in an HCSA, that’s what employees have to spend, rather than $500 less government taxes. Meanwhile, those same contributions are 100% tax-deductible for the employer. At tax time, employers can include their total HCSA spend (as claimed by employees) as a corporate tax deduction. Using our previous tech startup as an example, they would be able to claim up to $3,000 ($1,000 x 3 employees) plus the cost of administration fees and taxes.
What’s the difference between a Health Spending Account and a Personal Spending Account?
he main difference between a Personal Spending Account (PSA) – also known as a Wellness Spending Account (WSA) – and an HSA is what’s covered. Plan Sponsors can decide the expenses covered under a PSA. Additionally, PSA’s are a taxable benefit for employees and become part of their total compensation package.