Are Health Spending Accounts the New Benefits Plans?

It’s no secret that traditional employee benefit plans are hard to come by today. Whether it’s the rapid shift to gig work, the rise of the almost full-time worker, or something else—millions of workers lack reliable benefit plans.

Now you may be wondering: just how serious is this problem? Well, it may be more serious than we think. 

In a 2019 study conducted by the Conference Board of Canada, 66% of Canadian organizations are now offering HSA. Does this mean traditional benefit plans are on their way out? 

Before we can answer that, it’s important to address the misconception from many employers that an HSA is a replacement for a traditional benefits plan. 

Insurance is the heart of any traditional benefits plan. Insurance protects employees in the event of large or catastrophic claims. 

What happens if an employee or their dependent needs medication that costs hundreds of thousands of dollars each year? What if they need to be hospitalized while out of the country? Even the most comprehensive HSA funds will dry up quickly.

So, why are HSAs becoming so popular? In this post, we’ll cover the basics of HSAs, why they are popular, and some of the key benefits they offer.

Why should you have an HSA?

An HSA is a great way to supplement a traditional benefits plan and provides flexibility for plan members and their families. Employees value choice, and an HSA is a great way to offer choice while keeping liabilities fixed for a business. 

It also can be a tax-advantaged method that provides another form of compensation—as HSA allocations are non-taxable in the hands of employees.

For early-stage companies with a small team, an HSA may be their initial plan offering until the team is large enough to justify comprehensive benefits.

What can an HSA be used for?

The Canadian Revenue Agency (CRA) allows an HSA to pay for health and dental expenses, which are eligible under the group plan but not fully reimbursed. This may include things like deductibles and expenses above the co-insurance limit. 

In addition, health and dental expenses not eligible under the group plan that meets the Income Tax Act’s definition of “health expenses” eligible for the medical expense tax credit is also covered by HSAs.

The “HSA 10% Rule” establishes that expenses that are eligible for CRA’s Medical Eligible Tax Credit (METC), and total more than 90% of the entire premium, are considered as a Personal Health Spending Plan (PHSP)—assuming all other conditions are met.

Are HSAs right for your business?

Virtually any incorporated business can benefit from an HSA. They provide a great starting point for early and growth-stage companies, which can add to a company’s compensation and culture objectives. 

And because claims are entirely tax deductible and processed on revenue, HSA offers a strategic solution that gives your company a before-tax business deduction.

HSAs and COVID-19: What You Need to Know

COVID-19 has created new health and safety standards for many health and dental service providers as set out by their associations, regulatory bodies, and governments. 

Health and dental service providers must now wear personal protective equipment (PPE) and allow time between patients to clean equipment and surroundings. 

Insurers have advised PPE fees are not an eligible expense under their existing extended health and dental plans. We have also been advised that some provincial dental associations (excluding BC at this time) have created specific procedure codes for PPE-related expenses. 

To cover COVID-19-related PPE expenses, there are two options: 

  1. Most insurers are willing to amend your extended health and/or dental plan to cover PPE expenses and may adjust the premium accordingly. 
  2. If an employee is charged a PPE fee, it’s a reimbursable expense under an HSA as long as the fee is attributable to an eligible medical or dental expense.

What are you seeing in the market?

Start-up companies are shifting towards offering more flex benefits to their employees through HSAs and Wellness Spending Accounts (WSAs), either as an introduction to coverage for their employees or as a supplement to their more rigid comprehensive benefits program.

Even if your long-term goal is to offer a comprehensive benefits program, there’s no denying the benefits an HSA has to offer.

Are you looking to explore the best way to provide benefits to your employees? Get in touch with our team today to explore HSAs, employee benefit programs, and more.

Marcus Acaster

Marcus is a benefits consultant who works with start-up and growth-stage companies to create, implement, and manage benefit plans. Marcus uses data-driven methods to ensure businesses are providing effective benefit programs in a constantly evolving industry.

Brandon Chapman

Brandon is the founder of SaaS Wealth Insurance - Vancouver's leading financial planning firm. His goal is to help clients achieve a better life by offering full-service financial planning aimed at growing and protecting their wealth.

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