That’s right!  You can sign-up for most group medical travel plans and the premium can be claimed from your HSA, similar to a private group insurance plan like Manulife’s Cover Me or similar products from Blue Cross.  I have Travel Assist, a product from Benecaid and ETFS.  It provides me with out-of-province medical and emergency sickness for up to $5 million of coverage per trip per person and a $75,000 referral benefit to cover medical and transportation costs in excess of provincial coverage.  Even better, it provides coverage for trip cancellation and lost baggage!  Having a travel policy is essential when leaving your province and given the nominal cost, every Canadian should be investing in this type of overage, especially during the busy summer travel months.

Since it is an eligible expense from my HSA, the premiums are paid with tax-free money making it even more affordable!  If you have an HSA, or are considering one, be sure to add a travel policy, you won’t regret it.  Bon Voyage!

But yes, Tax Freedom Day was last week, June 14th to be exact. Virtually every Canadian added some extra cash to their pay cheque as of June 14th and to be honest, it could not have come at a better time. It costs $100.00 to fill my car each week and the price of food (based on the price of corn) continues to climb along side.

I think Tax Freedom Day will always be a bit of a second-rate holiday for people like me. While it is an important day for most Canadians, it holds little importance for HSA owners. After all, they already enjoy a greater degree of tax freedom when it comes to their medical expenses. When an individual business owner experiences savings of $5,000-$10,000 a year for their high-cost medical expenses through an HSA, you can understand why Tax Freedom Day is a bit over-rated. After all, an additional $150.00 in their pocket from mid-June to December isn’t going to change the world. They have turned Tax Freedom Day into a year-long event. Sort of like those neighbors who leave their Christmas lights up all year long…because they can’t get enough of the holidays I suppose.

But I am always looking for a reason to celebrate and even though I missed the official date, I still have 30 people coming over on Saturday for a Tax Freedom Day BBQ. You know, the kind where you drink lower-taxed domestic beer versus imports and play games like “pin the tail on the finance minister”. That reminds me, I need to order my dollar-shaped cake for the party!

According to the report, 4 million Canadians do not have a regular doctor, and recent immigrants are the most likely to be without one.  Only 73% of people living in Quebec have a regular doctor, the lowest rate in the country.  Nova Scotia, however, had the highest percentage at 94%.  Of those who do not have a family doctor, the study showed that 76% use local clinics and community health centres as their primary source of care.

This lead to me thinking…what does this mean for the corporate consolidation we are starting to see in places like Alberta and Ontario for medical services?  ListenUp Canada, as an example, are consolidating hearing clinics and making access and service more streamlined.  Will private walk-in clinics be branded next?  For those looking for new business venture ideas, might I suggest a coffee in the coming weeks?  We may be onto something here, especially if this trend continues! 

I don’t need them right away and can start saving today.  Since Gremolata is incorporated, I qualify for a Health and Welfare Trust.  I don’t want to go overboard here deposit-wise, but I could easily allocated $300 a month towards an HWT in my name.  This could be considered the core health benefit plan for the company.  This would provide me with $3,600 a year in deposits less a 10% administration fee ($360).  Using this schedule, I would have enough saved up for the braces in two years.  The dentist suggested I wait 6 months before I even consider the consultations with the specialist, so this time line works well for me.

Let’s do some tax talking for a minute.  The $3,600/year would become a business expense for the corporation as a cost of doing business – keeping me healthy.  The $3,600 deposited into my Health and Welfare Trust, as an employee of the corporation, would be a tax-free benefit for me (as long as I continue to reside outside of Quebec).  In essence, I am now receiving $3,600 in additional compensation I can use for braces without having to pay the income taxes on the amount.

So, there you have it.  I can use my Health and Welfare Trust to pay for my braces and save both myself and the company money.  I can be flexible with a deposit schedule I am comfortable with financially and use the funds when I have reached my goal.  You now understand how to save money as well as my dental records.  Ah, the internet.

I know – somewhat gross, but I brush and floss daily and had perfect teeth as a child.  Not a big issue in my books.  I was one of those kids everyone hated, where I never needed braces and everything just grew in perfectly – even my wisdom teeth.  I probably should ask my father for some money in lieu of costs associated with braces, considering how much my perfect dental history saved him.  However, I have been scared of dentists and the idea of having someones fingers poking my teeth, so I resisted until I got an accidental chip on my front tooth. 

The first thing that I encountered when booking my appointment was the famous line – “do you have insurance?”.  I said yes and booked my appointment.  Since it had been a while, I had to get the full exam with those creepy x-rays and the counting of the teeth.  The dentist was a wonderful woman and I would highly recommend her to anyone in and around Oakville, Ontario (e-mail me if you want the details).  Given the painless experience, I was ready to get all kinds of treatments like whitening and a guard to stop me from grinding at night – I deal with allot of stress these days managing the upcoming re-launch of Gremolata.  The dentist said, these are all great things, but they will not be covered by insurance.  That is when I said “no problem, I have a health and welfare trust”.  She looked at me funny and that is when sales man James took over.

I explained to her about the Health and Welfare Trust I have with Benecaid and that I had a reserve of funds I could use for exactly this type of expenditure.  She noted that these costs can be substantial but I told her that I had more than enough to cover it.  She was impressed.  After all, how many clients walk into a dental office and say, give me the works!  Well, those with an HWT would.

I think this is why I am so passionate about Health and Welfare Trusts.  I don’t feel limited to a plan.  I can get the basic care I need but also invest in the things that will make me feel better about myself – such as brilliant white teeth or a new nose (the later requires more thought).  All joking aside, it is a great feeling to know that you have the tax-free money to spend when and how you want to.  It also makes me think how impressed every employee would be with the company they work for if they had access to the same HWT as I did.

Oh, and for the record.  No cavities and a healthy smile was the diagnosis I received!  Whew!

So, what is an Albertan to do with their new found wealth?  After all, each resident is looking at savings in the range of $528 per individual and $1,056 per family.  It is a great amount to use on a new television or perhaps a BBQ for summer entertaining.  But if they are self-employed, like so many other Albertans working in the oil and gas industry, they could be putting these funds into a Health Spending Account to maximize the return.

If you think about the money they are receiving back as part of their total budgetary spending, they could simply deposit the equivalent into a Private Health Services Plan.  There are several HSA suppliers in Alberta who would be happy to take the money for them and in return, the taxpayer now has access to a reserve of funds to keep themselves and their family healthy.  The big perk, they can double dip on the tax break they receive by making it yet another tax deduction for themselves as a PHSP.  Brilliant!

I hope all self-employed Albertans will think about this as an option.  It might be a small amount of money you are getting back, but it is still a great way to make it work for you long-term.   

Canada is a great “wait and see country” when it comes to health benefits.  We are situated mid-way between socialist driven Europe and Free-economy America.  That being said, we tend to wait until one of these two parties develop a new health benefit delivery model then observe performance before we pounce on it.  In marketing, we would be less “early adopter” and more “cautious analyzer”, not that it is a bad thing.  This strategy has actually been beneficial to the global delivery of health benefits as many other countries rely on us to sit back, assess, and perhaps make it better.

As an example, one simply needs to look at our Universal Healthcare system.  We did not invent it, but we certainly perfected it to meet the needs of our people (at the time).  We did not invent Flex Benefits, but we were pioneers in making the election process easier using the Web.  On-line enrollment, tele-claims, and direct-pay drug/dental cards were all heavily influenced by leading Canadian technology companies.  However, while we have had an IT-bulletin from CRA allowing HSAs for years, we have yet to fully embrace them to the same degree as our neighbors to the south.

For the last example, I don’t think we are using a “wait and see” strategy.  We were pioneers in allowing this model to exist and we could be offering these plans to every employee in Canada today.  The strategy we are using here is “cautious execution”.  I think we like the concept but want to see how other countries fare in rolling it out before we go full-throttle with any legislative changes.  Will we go down the full consumer-driven healthcare model like our friends to the south or follow the UK model?  Most likely, like everything we do, we will wait and create new HSA legislation to suit our needs and set a new standard for the world.

I wonder if this culture of “waiting to perfect” will have an impact on the iPhone?  I for one would like to see it incorporated as a TV remote as well as a phone, PDA and iPod.  Hmm, maybe I am on to something here.

We will be adding even more content in the coming weeks.  Stay tuned folks!

Insurance

Places limits on coverage to a defined maximum.  Some plans allow you to have a higher limit for a higher premium.

Health Spending Account

There are no limits in terms of specific coverage.  If you are incorporated and have a Health and Welfare Trust, the amount you can contribute is unlimited.  If you are unincorporated, you are entitled to limits based on the number of dependents eligible from your Private Health Services Plan.  Either way, you are not limited to a specific amount of coverage, you can allocate the funds to whatever healthcare costs you see fit.

Insurance

Requires a premium to be paid.  This premium is equal to the true cost of claims plus 20-30% to allow for risk factored into the plan to ensure profitability for the insurer. 

Health Spending Account

The premium is really a deposit structure equal to the true cost of claims plus 10% to cover administration of the plan.  These costs are fixed.

Insurance

The cost of the premium is defined by the insurer and can be increased at their discretion based on claims from the previous year.

Health Spending Account

The cost of the plan is driven by the consumerand there are only increases if the HSA owner wishes to deposit more money into their account.

Insurance

The plan covers immediate dependents only such as spouse and children under age 18.

Health Spending Account

These plans cover any dependent related to the account holder by blood or marriage, regardless of age, as long as they are financially reliant on them in a given year.

Insurance

These plans may limit coverage to within Canadarequiring a supplemental travel policy for out of country health care expenses.

Health Spending Account

The funds in the account can be used to reimburse claims globally provided it is an eligible expense in their home province.

Insurance

The premium paid cannot be reimbursed and is lost at the end of the year.  If no claims are made, the insurer keeps all of the premium.

Health Spending Account

The funds in the HSA roll-over to the next year and are not lost.  Note:  This applies to a Health and Welfare Trust.  If you have a Private Health Services Plan the funds are lost after 2 years from date of deposit if not spent.

Insurance

The plans do not cover all procedures and drugs. 

Health Spending Account

Funds in the account can be used to cover all drugs and treatments prescribed, dispensed, and performed by a medical practitioner including smoking cessation, fertility treatments, and elective surgery.

Insurance

These plans require basic medical underwriting and do not cover pre-exisitng conditions.

Health Spending Account

There is no medical required and the funds can be used to cover pre-existing conditions.

Where are the reports on trends in cost-containment or innovative benefit strategies?  How about a study on the trends within small to medium sized employers or recommendations from businesses to reduce costs?  As an industry, we tend to state the obvious far too much.  Unless a study reveals that costs have actually gone down, why on earth report the findings?  Especially if the report does not offer any solutions to reverse the trend. 

To my colleagues in the benefits world, for the love of god, please stop stating the obvious.  Otherwise we will all have to get new jobs in new fields where these skills are embraced.  By the way, it is currently 18°C and partly cloudy in Toronto with light winds coming from the West and as the sun sets, I expect it will get cooler.

What costs can you yourself as a business owner truly contain when it comes to health benefits?

For many, the answer is nothing.  But think for a minute about what  you pay and what it is used for.  You pay a premium for health insurance much like you would a premium for auto insurance.  The big difference is what you pay to have covered.  Let’s assume your body is like a 2008 Volkswagen Passat.  It has tires (or teeth) to grip the road.  It also requires regular maintenance (like massage therapy or acupuncture) to keep it running and to prevent wear.  Ten years down the road, you may need to spend money on a new engine not covered under warranty (like elective surgery) to keep it going for a few more years.  In case you get into an accident, you buy insurance to protect you from the unforeseen and to give you the money you need to get the car back into working condition.  Similarly, your body could become stricken with Cancer or Diabetes where you need drugs to help fight the disease and keep you in working condition as well.

The big difference here is that the last item, the unforeseen, is truly the only item you need to buy insurance for when it comes to your car.  You don’t buy maintenance insurance or tire insurance as these are predictable expenses and it would not make sense to pay an insurance premium for something you already know you are going to need.  Mind you, some form of fixed rate gas insurance might have been a good idea these days!  The issue today is that we don’t treat the protection of our bodies the same way we do our cars.  We insure the entire package, tires, maintenance and collision.  Further, we choose a low-deductible so that we pay a higher premium unlike our cars where we tend to choose a higher one given the risk and the balance we are willing to take between upfront costs and unforeseen costs.

This is where I believe that the basics of cost-containment should be focused.  For every day medical costs, we should be paying them out of our pocket in real dollars.  After all, if you know that your teeth need to be cleaned every 6 months, why would you buy insurance for it and pay an inflated premium?  It is going to happen just like a new set of Winter tires every November or an oil change.  Instead, you should be using a more sensible financing vehicle to pay for the predictable medical costs and only purchasing insurance for the unforeseen, like Cancer, Heart Disease, or Diabetes.

To pay for the predictable costs, a Health Spending Account is the ideal solution.  You can control the amount you spend and benefit from the tax savings.  Secondly, you can contain the rising costs of premiums by taking away the claims you used to run through the plan and leave it for drug-only – the unforeseen costs if you will.  If you are in decent health, you may wish to get a higher deductible drug plan, further reducing the premium you pay.  The deductible amount can always be run through your HSA, so you are not loosing by doing this.  If anything, you are saving even more money in taxes, a win-win solution.

Well, there you have it – my thoughts on cost-containment.  I could have talked about per visit maximums, generic drug replacement, or electronic card adjudication and fraud monitoring.  But the reality is that cost-containment really begins with the employer using the simplest of philosophies.  Of course, it helps if you know a bit about cars in my analogy.

An opportunity for employers?  Did he say that correctly?  Yes, in fact.  Providing care services for a parent can be an immense financial burden for employees.  While some can pay for basic care services, many opt to manage the care themselves due to the overwhelming costs.  The opportunity for the employer is that the introduction of a Health and Welfare Trust to the benefits program could help to relieve this burden for the employee.  The result is a reduction in stress amongst employees with elderly parents and a desire to stay with their current employer long-term, perhaps well into their expected retirement years.

The Health and Welfare Trust provides the employee with pre-tax dollars to use towards health care costs.  Since Canada Revenue Agency (CRA) allows a dependent to be an elderly parent, as long as they are financially reliant on the employee, the costs associated with their care is considered an eligible expense.  This means that the HWT can actually serve as a formal financing vehicle for the employee’s elder care needs.  As an employer, you can choose to provide the HWT as a top-up to the existing benefit plan, as an alternative matching for a DC pension plan, or even through a salary amendment agreement with the employees.  The key benefit for the employee is that the original costs paid with after-tax dollars can now be paid using pre-tax dollars.  In some cases this amount can be a substantial financial benefit for the employee.

As an employer you stand to benefit, as your baby-boomer employees opt to stay longer knowing they have access to a financial vehicle to care for their parents.  You also have the opportunity to establish yourselves as an employer of choice within your industry by offering an innovative employee-focused benefits solution.

Portability

Health Spending Accounts are portable, meaning you can take them with you.  OK, they may not be the same as the picture of your family or cat on your desk but when it comes to changing employers your HSA belongs to you and you can take it wherever you go.  That is, provided it is a Health and Welfare Trust OR a dedicated Private Health Services Plan account (i.e. not notional credits).  As a small business owner, you may also choose a different HSA provider or administrator and move your funds accordingly.  In recent weeks, I have been hearing stories about HSA providers refusing to allow clients to move their HSA funds.  As always, when I hear it, I report it.

Let’s look at both scenarios…

As an employee, you may have been issued a Health and Welfare Trust from your employer.  Let’s assume you received $100/month over a three year period and you left the company.  Next, let’s assume that you never really used the funds and had saved up $2,500.00 over the past 3 years.  While your employer may not be providing you with any more deposits upon departure, you can still use the funds in the account for future eligible expenses.  If you have a Health & Welfare Trust or a Private Health Servcies Plan not linked to a flex benefits program (i.e. using notional credits), the funds can go where you go. 

For the employer, you may decide at one point or another to move your HSA program to a different provider.  There can be many reasons for the move – it is not really important.  However, you do have the right to move the funds over to another administrator at any time.  Your current HSA provider cannot limit you from moving the funds, however, they may charge you a fee for the transfer.  Either way, you should never accept a response from an administrator that the funds cannot be moved.  If you decide to move your group HSA and you are challenged by the provider, you need to get tough with them.

If you currently have an HSA program and you want to move it to a new provider, you should speak with your broker/advisor, consultant, or incumbent carriers.  Each of these parties should be able to help you with the transition.  If your current HSA provider refuses to cooperate….buyer beware!!

You see, very few people leave companies for money, they leave it for people, policies, or practices they feel they can better relate to.  Money may be a driving factor, but the reality is that employees tend to leave companies because they no longer have a bond to the people, leadership, or culture of the company they are with.  So the use of an HSA as an employee retention tool, where it is a benefit as long as they are employed by the company, can actually be a negative versus a positive.

This is why I love the Health and Welfare Trust as a form of HSA.  When an employer offers it to their employee, they are saying “Here is a benefit I think you could use and I hope it helps you today, and in the future”.  There are no conditions to the gift you are providing them as an employer.  When you offer something as a condition of employment, your gesture may send the wrong message to the employee.

If you still want this to be a retention tool, why not focus on the deposit schedule versus limiting access.  You can fund the employee’s HSA using a monthly schedule and let them know that you will continue to fund the account until they cease to be an employee.  For many employees, the value of the funds will become apparent the first time they send in a claim.  When they realize how much they can save each month and what they can save for healthcare-wise in the future, the incentive to stay is pretty much established. 

The bigger perk is that the gesture, seeing how it does not come with any conditions, is a more employee focused benefit and makes you look like a HR hero versus a cheap old bugger!  

Every few weeks, I am showcasing a different advantage of owning a Health Spending Account in this segment called…

HSA Advantage….

Cutting back your group benefits plan is the last thing you want to do as an employer.  Unfortunately, the rising costs associated with group benefit plans over the past few years has forced many employers to scrap their plans or cut specific coverage to control costs.  Many times, this is done without looking at the true claims and determining where a better plan could actually enhance the coverage while saving money.

Before you cut, you should look at how your plan truly functions.  A good start is the claims by category.  If you see that certain areas of your plan are experiencing higher claims versus others, you may want to re-adjust the plan limits and incorporate a Health Spending Account to contain costs.  For example, let’s say that a plan review shows that costs associated with paramedicals (massage therapy, acupuncture, etc..) are rising whereas dental claims are staying level.  Now let’s assume that dental claims have not reached anywhere near the plan maximums.  In this situation, it is clear that paramedicals are much more popular with your employees.  Obviously, you don’t want to cut paramedicals from the plan.  But you could replace the coverage with an HSA.

This strategy allows you to keep the plan whole while implementing a fixed cost for an area of your plan where claims are increasing.  Remember, your overall premium next year is based on what the insurer expects you to incur from what they are insuring.  If you are seeing an increase in paramedicals then this will be reflected on your next renewal as an increased premium.  By removing the coverage from the insured plan and providing coverage using a fixed dollar for the true cost of the claim, you are containing these costs while still keeping the coverage.

Using a Health Spending Account to cover paramedicals as a replacement to the insured plan coverage could save you significant money at renewal and contain costs long-term.  As a result, you may want to take the savings and provide more money in the HSA for each employee as a top-up – seeing how the additional amount you provide in HSA dollars will not negatively impact your premiums down the road.  Now you are controlling costs and enhancing your plan…who’s going to win employer of the year this time around?      

1. Original Receipts & Prescriptions

This is by far the biggest issue for customers.  You should always send the original receipt and if you have it, a copy of the prescription to validate that it was prescribed by a doctor.  The second item isn’t always necessary but is handy to ensure faster processing.  If you want a copy for your records, keep the photocopy AND NOT the original.  The insurance provider or HSA adjudicator will question the copy and most likely return it to you.  After all, if they received a copy, how many other companies did you send the copy to?

2. Use The Right Form

With so many forms, it is hard to stay on top of which one to use.  Every insurer or HSA provider should have the forms readily available on-line.  If you are unsure which form to use, your best bet is to call your insurer or HSA adjudicator once a year and ask.  Download and print a couple and keep them on file.

3. Complete the form in FULL

Many insurers have standardized forms designed to be scanned to retrieve the data and convert it into an electronic format.  This technology is used to speed up the processing and is designed to be a benefit for the customer.  When you do not complete the form in full, or enter information in the wrong place, it can cause problems in scanning and slow-down the adjudication of your claim.  Take your time and complete the form in full.  Most insurers and HSA adjudicators have reference guides you can ask for if you need help…just ask them for a copy.

4. Send Your Claim to The Right Address

Be sure to send your original claim and the correct completed form to the right place.  Many insurers and HSA providers have more than one location for adjudicating claims.  If you are unsure of where to send your claim, call their customer care department before you send it.  It can save you problems down the road.

5. Coordination of Benefits

If you are already covered under another plan (i.e. company plan or spouse’s plan), the insurer will most likely ask you to submit your claim to the first insurer before you submit it to them.  They will cover anything not covered from the other plan up to your maximum.  If you have an HSA, it is always wise to send the claim to your insurer first.  When you receive the claim back, the difference can be taken out of your HSA.  To do this, you simple forward the original Explanation of Benefit (EOB) received from the original insurer with a claim form.  The HSA adjudicator will take the amount unpaid from your insurer and reimburse you the difference from your HSA.  While it is a complex process, it does save you money in the long-run from your HSA.  After all, if you already have insurance through another source and it is not costing you anything, you should take advantage of it!

These tips are not going to ensure that every claim is paid but it will help to make the process faster and ensure proper adjudication.  If you follow these tips, you should see a significant reduction in follow-up with your insurer or HSA to find out…”Why won’t you pay my claim?” 

What would we protest?  Why accessibility of course.  Why are HSAs offered by only a few providers and why are they limited to business?  Shouldn’t everyone have access to an HSA as they do in the United States?  Is this the result of some anti-HSA sentiment lurking in the bowels of Ottawa?  Why do Canadian families without a company sponsored plan have to use a high-priced drug insurance product from the big-three insurers when an HSA would be a better solution?  Why Ottawa?  Why?

It is a shame people do not get more enraged over this and want to start protesting.  I can imagine a field of men, women, and children holding candles oustide of the Ministry of Finance in Ottawa.  We would be singing classic HSA protest songs like “All we are saying is give HSAs a chance”, “We’re here we’re sick, and we want HSAs”, or my favorite…”I am HSA, hear me roar, in numbers too big to ignore..”.  Good times.

Oh well, I will continue my blog until such time in hopes that someone in Ottawa will hear my cry…Vive la Revolution!

A smart place to put your tax reimbursement is always a Health Care Spending Account (HCSA or HSA).  But what should you think about before putting your money into one?  Well, if you own your own business that is not incorporated, you may want to consider opening a Private Health Services Plan (PHSP) this year.  If you do, you should take a few steps to consider if this is a good option for you…

1. Do a headcount of your family members.  To determine your maximum PHSP allowance each year, you simply add $1,500 for each eligible adult over the age of 18 years and $750 per dependent under 18 years old.  If it is you, your spouse, and your son, then you are entitled to $3,750.00.
2. Top-up or Not?  Take a look at your finances (high-level) and get a sense of how much money you will be getting back from your return.  If you have a financial planner or broker, speak with them about topping up your RRSP contributions.  They will have access to several calculators to help you determine how much your return could be if you “maximized it”.  You may want to top-up to get the reimbursement to equal your PHSP allowance.
3. Take a look at your family and business finances and decide if you can go a year without the reimbursement.  Some families rely on their tax reimbursement each year, so deciding not to take it can be a bit of an issue.  If you can live without the money and put off that trip to Disney World with the kids for the coming year, why not make it work for you next year?
4. Be sure to send in your return to Canada Revenue Agency sooner than later.  Why?  The earlier you receive your reimbursement, the better off you are for next year’s deductions with your PHSP.  The deduction for the PHSP is pro-rated, so you will want to start your contributions early in the year to get the full benefit.  The faster you get your money back, the faster you can open your account.  But remember, you can always simply open the account and fund it yourself until you get reimbursed – but why use your own money?
5. Finally, determine the final deposit amount for your PHSP.  This is done by calculating the difference between your maximum PHSP allowance (less pro-rated months if you are not early) and your return reimbursement.  If you are getting more back from CRA versus your PHSP allowance, congratulations!  If not, you need to look at how much your family needs for healthcare and whether or not you want to top it up with your own money.  Remember, what you put into your PHSP is a full deduction for you (unlike RRSPs), so you may want to go the extra mile here.

Well, that just about covers it.  If you do decide to use your tax return to fund a PHSP, remember that the strategy here is to use the funds to pay for your healthcare costs while making a sensible tax move.  The money you deposit in the coming months will be 100% deductible off your 2008 return as a business expense.  If you think about the same money going into an RRSP, you would never receive the full amount as a tax deduction.  If you are going to be making regular RRSP contributions throughout 2008, why use your 2007 reimbursement to get a small lift when you could get a full lift from a PHSP?

Have a topic idea?  Or a question you would like to stump me with?  Then send me an e-mail with your question!  I love a challenge!

Thanks again folks!  Keep looking for more HSA insights right here!

Budget 2008 also proposes to clarify the METC provisions regarding the eligibility of drugs and medications.

Currently, drugs, medications and other preparations are eligible for the METC when they are both prescribed by a recognized medical practitioner (or a dentist) and recorded by a pharmacist. These two requirements are intended to ensure that only costs for substances not generally available to the public and required for medical reasons receive tax relief. However, recent court decisions have interpreted this measure to include, in some cases, the cost of vitamins, supplements and drugs that could otherwise be purchased without a prescription. Such an interpretation goes beyond the policy intent of the METC.

Budget 2008 therefore proposes to clarify the wording for eligible drugs and medications to ensure that those that may be purchased without a prescription remain ineligible.

Holy Cow Batman!  Do you mean that I cannot claim Flintstone Vitamins from my HSA?  I actually need to have a prescription from a doctor and actually see the pharmacist to get something a little more legitimate?  What could the insurers and consultants be so upset about?

Well, they believe that this wording will eliminate ALL over the counter prescriptions.  This is because there is a disconnect on what the government is trying to achieve and what the consultants and insurers understand as “the realm of their industry”.  The goal here is to stop sole-proprietors from buying over-the-counter (OTC) vitamins then claiming them as eligible expenses on the METC.  The consultants and insurers are assuming that the wording will eliminate over the counter drugs completely and not what the federal budget suggests “Items without a prescription”.  There is a difference.  

Yes, this may have some implications on certain health benefit plans and coverage.  But certainly not anything to be too concerned with here.  You can always assume that the CRA will look at each case with what is the best interest of CRA and whether the taxpayer (individual or corporate) acted in good faith given their interpretation of the rules.  After all, they are not all evil monsters out to tax you to death.  The problem here is that the wording regarding OTC drugs and the METC has been grey for far too long and has caused multiple headaches for sole-proprietors and CRA.  So they want to clarify the rules.

Let’s just see what they come up with before everyone starts claiming that the sky is falling.  PS – If you do get hit on the head be sure to see your Doctor first if you need some form of pain reliever – just to be safe!

Privacy

The protection of personal information is a major issue in Canada, especially when it comes to group health plans.  We have had rules in Canada protecting individual privacy for a few years now, but unfortunately, some people still don’t get it.

The Personal Information Protection and Electronic Documents Act (also known as PIPEDA or the PIPED Act) is a law relating to data privacy. It governs how private-sector organizations collect, use and disclose personal information in the course of commercial business. In addition, the Act contains various provisions regarding the use of electronic documents. PIPEDA was passed in the late 1990s to promote consumer trust in electronic commerce and since then, most companies have created internal teams and processes to ensure they comply.  Last week, however, I heard a story I just needed to share with you as a buyer beware.

A client of Benecaid wanted to have detailed information on their company’s HSA program, specifically the remaining balances on file and a summary of the claims to date.  As the Chief Privacy Officer, the request came to me.  I explained to the client that we could not give them the balances of the trusts established for each employee as it was not owned by the employer.  Once the funds were deposited, it became the property of the employee and the claims and balance of the account was considered private information.  The client was surprised as the last provider they had for their HSA program used to provide detailed claims information by employee. 

“Excuse Me?”  That was my response.  You see, the client’s previous HSA had been set up as a cost-plus arrangement and claims were paid as incurred.  The old HSA provider not only adjudicated the claims, but would clearly list the claims and their costs along with the employee for the employer.  Given the serious nature of revealing claims information to employers since the inception of PIPEDA, I find it hard to believe that a responsible HSA provider would share this information.  However, I wanted to let everyone know that if you have access to your employee claim information currently, you need to stop accessing it immediately – especially if you do not have expressed written consent from the employees.  If you have an HSA set-up in the form of a Health and Welfare Trust, then the issue can be even more serious as you do not have access to these accounts as an employer.  They are owned by the employee once funds are deposited and you cannot request a report on claims.  It would be similar to you asking for a copy of their personal bank transactions a day after payroll.

If you currently have an HSA program and your provider allows you to see detailed information on claims for each employee, you should ask them to verify if this is allowed..  If they are unfamiliar with PIPEDA and the rules for accessing and sharing personal information….buyer beware!!

In a previous post, I discussed the frustration I had with setting up the bank accounts for Gremolata.  While visiting my Father, we decided to choose a new local bank and open an account.  I won’t share the name of the bank but they are well known across the US.  I was floored at how easy it was to open an account and how customer-focused they were in the process development.

First, the process was completely on-line.  The financial representative entered all of the information in about 10 minutes then proceeded to show us how the on-line banking site worked for an additional 5 minutes.  The site was intuitive and a kit was provided with step-by-step instructions.  At the end of 15 minutes, she hit print and we were provided with one sheet summarizing all of the details and the requirement for us to sign once.  That’s right folks, no multiple copies and no multiple release forms.  It was all consolidated into one simple print-out.  All in all, with the leisurely chit-chat from the bank representative, the entire process took 30 minutes.

I think Canadian financial institutions could learn a lot from their colleagues in the US.  While I understand that regulations are different here, the key to my superior experience in the US is the fact that technology made the process faster and less of a hassle for the customer.   You have to agree to just as many terms and conditions (perhaps even more), but because it was consolidated into one form and the process was done using a series of questions and on-line authorizations, it was much easier to follow and far more efficient.

Now if they could just find a way to stay out of asset-backed commercial paper and high-risk mortgages…

Every few weeks, I am showcasing a different advantage of owning a Health Spending Account in this segment called…

HSA Advantage….

It does not matter if you are a small company or a large multi-national corporation – low employee appreciation is running rampant these days. You pay them a salary or a wage. You may even provide them with a drug and dental plan. Some of you go as far to offer a pension plan or similar retirement savings incentive. Combined with the summer BBQ, annual holiday party, vacation time, Friday morning donuts, car allowances, and generous business expense reimbursement and you end up spending a lot more money each year on your employees than you think. So why do they still think you are a cheap old bugger – especially when it comes to health benefits?

That’s easy, they don’t appreciate or understand the cost. But who do you have to blame for this? It is not like you open the books up every year and show them how much you spend on their health. And you certainly cannot disclose how much was claimed to demonstrate the value of the plan. So how is a free health plan where an employee receives a charge card for their costs with no responsibility for the bill payment ever going to get them to sit back and say, “Gee Boss, thanks for the $2,000 you forked out last year for keeping me and my family healthy”?

Traditional plans do not receive the same level of appreciation as a Health Spending Account for one major reason – it is not a tangible benefit. They cannot see a health plan and they do not have an active role in the decision making process when choosing services or a practitioner. An HSA however, is a limited supply of cash the employee may choose to use how they see fit. When used to replace day-to-day expenses such as paramedical or vision, the behavior of the employee changes. They no longer see a line of credit, but eventually learn that if they want something, they may use the funds to purchase it. They also realize that the choice they make today may impact their ability to use their HSA down the road. As a result, a single $100 massage becomes two $50 massages as the employee looks for ways to maximize their spending by driving a bit further to a cheaper practitioner. They have more of a stake in the decision making process and see the true value of the benefit being offered.

So what does this do for employee appreciation? First off, it is a fixed dollar amount the employee can immediately assign a tangible value to. If the company does well, and you give them an extra $50 a year, the employee can immediately associate value to the increase. In the example of the employee who likes massage therapy, it means he/she can now go one more time. Secondly, it allows the employee to spend the money as they want, when they want. They have an active role in how they spend the money and the outcome, making them not just the recipient of a perk but a key player in how big a perk it actually is. These two features drive employee appreciation for your gesture – a major reason why so many companies are incorporating an HSA before other, less tangible benefits. Now, who wants to organize this year’s BBQ?

The budget approved the following items to be included as eligible expenses: altered auditory feedback devices for the treatment of a speech disorder; electrotherapy devices for the treatment of a medical condition or a severe mobility impairment; standing devices for standing therapy in the treatment of a severe mobility impairment; and pressure pulse therapy devices for the treatment of a balance disorder.  Expenses for service animals specially trained to assist an individual who is severely affected by autism or epilepsy to cope with the individual’s impairment, was also added.   Currently, the rules only recognize an individual who is blind, deaf or has a severe impairment that markedly restricts the use of the individual’s arms or legs.

Finally, the budget announced that it would revise the wording on prescription drugs.  Currently, drugs, medications and other preparations are eligible for the Medical Tax Credit when they are both prescribed by a recognized medical practitioner (or a dentist) and recorded by a pharmacist.  However, recent court decisions have interpreted this measure to include, in some cases, the cost of vitamins, supplements and drugs that could otherwise be purchased without a prescription.  To clarify the issue, the government is going to clarify the wording for eligible drugs and medications to ensure that those that may be purchased without a prescription remain ineligible.

This is good news!  By reinforcing the rules, the government is taking a serious stance on the importance of the Medical Tax Credit as well as Health Spending Accounts.  This should be a taken as stern message to some of the fly-by-night HSA providers to shape up your adjudication and HSA knowledge, or ship out!

Tax-Free Savings Account.  This flexible, registered, general-purpose account is designed to allow Canadians to save money, tax-free.  Starting in 2009, Canadians can contribute up to $5,000 every year to a registered Tax-Free Savings Account, plus carry forward any unused room to future years.  The investment income, including capital gains, earned in the plan will be exempt from any tax, even when withdrawn.  Canadians can withdraw from the account at any time without restriction.  There are no restrictions on what they can save for; and the full amount of withdrawals may be re-contributed to their Tax-Free Savings Account in the future, to ensure no loss in a person’s total savings room.

It is important to note here that the $5,000 is not a deduction.  It is an allowance.  This means that you will not have to pay any tax on the interest this $5,000 earns.  So what are the savings?  Well, let’s say you are an incorporated professional in the $100,000 income tax bracket and you deposit $5,000 into a TFSA.  You then use these funds to invest and your rate of return is 4%.  Well, you would be looking at a total annual tax savings of $27.00 versus a traditional taxable account. 

Health Spending Account.  Now let’s take the same $5,000 and have your incorporated entity deposit the funds into an HSA in the form of a Health and Welfare Trust.  The $5,000 becomes a business deduction for the company and is a non-taxable benefit for you, the employee.  In essence, you are receiving $5,000 tax-free to pay for your current after-tax healthcare expenses.  If these expenses are already $5,000 per year, you just saved yourself roughly $2,029.00 in taxes in comparison to the current medical tax credit less related fees for administering the HSA.

Both a Health and Welfare Trust and the new Tax-Free Savings Account can be used as a savings vehicle for future spending.  While the HWT does not earn interest, the initial tax savings far exceeds any reasonable return one could hope for from an investment using a TFSA.  But a TFSA does sound like a great tool for short-term savings.  The question is, which is a better strategy.  Opening a TFSA on January 1st, 2009 and depositing $5,000 or opening an HWT for the same amount and taking the $2,029.00 in tax savings to fund a TFSA the following year?  Sounds complex, but a better model for making your money work for you in my opinion.

Financial advisors tend to focus on the after-tax money available to invest as opposed to looking at ways to free-up pre-tax dollars as a tool for investing.  For many small business owners, the HSA is an unknown option.  Each year, they take a few of their after-tax receipts and make a claim for the medical tax credit.  A nice gesture from the federal government to reimburse for medical expenses but certainly not enough to give someone more money to invest.  The reality is that if they had a Health Spending Account, they could be using the tax-savings to re-invest into their retirement plan.

Each year, some financial advisors look for ways their small business clients can contribute more without giving them any real options to free-up the funds to do it.  To all my readers out there who are financial advisors with small business clients…get them an HSA today!  Show them how they can make their current after-tax expenses into pre-tax business deductions.  Show them how this will impact their taxable earnings and how they can use the savings to re-invest in their RRSP!  Given the economic conditions and the tough time your clients have had this year, this is a great way to show them how resourceful you are in finding ways to build wealth for them using a readily available and sensible solution – the HSA.

If you have not seen “Sicko”, I strongly urge you to do so.  While many say that the film is biased (Its Michael Moore people, get used to it), it does provide an excellent overview of the American system in comparison to universal systems in Canada, the UK, France, and Cuba.  As a Canadian, one of the first things you will notice about the film is how basic our universal care is next to other countries.  If you want to be surprised when you watch the film, don’t read any further… 

England’s National Health Services or NHS, as an example, has an innovative flat-fee for drugs.  As of April 2007 the prescription charge for medicines in England became a flat fee of £6.85, roughly $13.45 CDN.  People over sixty, children under sixteen (or under nineteen if in full time education), patients with certain medical conditions, and those with low incomes, are exempt from paying.  The charge is the same regardless of the actual cost of the medicine but higher charges apply to medical appliances.  In France, the system pays for and manages in-home doctor visits, hospital care, prescription drugs, salary continuance for parents and recovering patients, as well as in-home domestic support services to ease the burden of families who have had a recently born child.  That’s right, they send you a government issued nanny and pay for it!

While I would be opposed to some of the perks in the French system (we pay enough in taxes already), I must say that the UK’s NHS solution does have some perks, particularly the fixed drug costs.  Gossip in Ottawa is leading many to believe that a national pharmacare system is inevitable.  Until then, we are still miles ahead of the US system.  According to the Institute of Medicine of the National Academy of Sciences, the United States is the only wealthy, industrialized nation that does not provide universal health care.  Apparently not an issue as the Oscar went to “Taxi to the Dark Side”, a film about an Afghan taxi driver beaten to death in 2002 while in U.S. military custody and the abuses committed during the detainment and interrogation of political prisoners.  An important issue as well, and I will probably watch this on the weekend.  But still, I still think “Sicko” could have done more for America.

I guess we should not be surprised.  For years now government agencies and health providers have been stumbling over this concept.  It wasn’t the concept – everybody agrees that it would be a useful tool.  Rather, it was the people involved.  With so many varying interests, bureaucratic levels for approval, and decision makers, it is no wonder why it has taken them so long to come up with a solution.  Like everything else, it took an outsider to jump in and say “Hey guys, shut up for a minute and listen…here is how you do it.”.

I think that the announcement today by Google is a wake-up call to our industry as a whole, whether they be practitioners, healthcare associations, government agencies, or insurers.  The old-ways of doing things are quickly being replaced by new and more efficient manners of operating.  The wake-up call is that we need to start thinking like an outsider looking into our industry and stop making policies and strategies based on how it has always been done or how the industry perceives the current benchmark of the industry.  Otherwise, we will start to see more and more “industry outsiders” one-upping the leaders in our field.

I can already here the comments from the leaders of our industry…”This is terrible, what about privacy?  This cannot be allowed!”.  And I do agree to some point.  The third-party services being offered by Google are an issue because they are not covered by the Health Insurance Portability and Accountability Act (HIPPA) in the US.  Passed in 1996, HIPPA established strict standards that classify medical information as a privileged communication between a doctor and patient. So sure, there are rules in place to protect this information and Google is not bound by them.  Just get over this issue for a moment and ask yourself – Is it better to reject Google’s accomplishement because of privacy issues or celebrate the fact a technical solution we have all been waiting for is here and ready to be used?  We could not do it, and Google did.  I think as an industry, we need to embrace it and find a way to take the breakthrough technology and apply it in a manner that is sensible and not try to re-invent the wheel.  If we keep doing this, we will continue to get further and further behind other industries and be subject to more embarrassments like today’s announcement.

Mandatory Insurance

There are many Health Spending Account (HSA) providers in the Canadian market these days.  I will not get into a name game over various providers but I did want to stress one major issue I have over how they package HSAs and their availability.  Specifically, the issue related to mandatory insurance.

Don’t get me wrong, insurance is ALWAYS a good idea if you are using an HSA for your core  benefits plan.  The issue that is counter-productive is the requirement of many HSA providers when it comes to insurance.  First off, an HSA is supposed to be a financing vehicle for your healthcare spending, not just a nice to have addition to insurance.  Many providers will not allow you to have an HSA unless you purchase their core health insurance product.  Why would they do this you ask?  It is a cash grab.  Most HSA providers use the HSA as a “nice to have” bonus to an individual health insurance product or combine the HSA into the overall plan itself.  The issue here is that as an HSA owner, you have the right to choose the insurance product you want to buy and it should never be a conditional requirement to access the benefits of an HSA.

I, for example, have had a Manulife “Cover Me” insurance product for many years.  It is my emergency back-up insurance should I ever need it.  I have never made any significant claims and pay the low premiums purely for protection only.  I also have a Benecaid HSA as an employee of the company.  At the time, I could have opted to purchase Benecaid’s Premiere Plan product (in my opinion superior to Manulife), however I decided to stay with Manulife as I had been with them for many years and my medical history for pre-existing conditions would have remained intact by staying.  Over the past few years, I have been able to claim my premiums to Manulife as an eligible expense from my HSA.  The key thing to note here is that I used my HSA from one provider to pay an insurance premium for a product I chose to purchase from another provider.   Choice is the key. 

When an HSA provider requires you to purchase their insurance product with an HSA, it takes away the freedom of choice the HSA is supposed to provide as a core benefit.  The HSA is your money and you should have the right to choose how it is spent.  If you want basic insurance coverage, you should be able to select any provider you desire.  The HSA allows you to tailor your overall health plan to suit your needs.  When an HSA provider asks you to choose a specific insurance plan they represent, they are not acting in the best interest of the client.

If you currently have an HSA or are considering one, be sure to ask your HSA provider about any requirements related to a sponsored insurance product.  If they only permit you to buy the product they recommend….buyer beware!!

HSA Advantage….

One of the biggest issues facing employers, both small and large, is the never ending increase year over year in the cost of their health benefits plan.  Whether they are a global corporation or a sole-proprietor, the increases in annual premiums for health insurance is making a huge dent in the value vs. cost equation.  Annual premiums are calculated at renewal each year by the claims incurred in the previous year.  Since claims and overall costs continue to rise, pretty much every policyholder can expect an increase in premiums every 1-2 years.  Luckily, the model for an HSA is very different. 

When you establish a Health Spending Account, you make an assessment of your needs for healthcare costs in a given year.  You may decide that you will spend a certain amount on predictable items like dental cleanings and massage therapy.  You may also decide, and it is strongly recommended, to buy a basic insurance solution to cover the unpredictable events, like illness and drugs.  The total amount needed to cover these costs is what you would then deposit into your HSA.  The key here is limiting the claims you make against insurance and increasing the claims you make through your HSA.  This model allows you to make claims without every dollar contributing to premium increases.  As a result, you obtain a better level of budget certainty year over year as you have greater control of your spending and where it is being spent.  Since you are using real dollars for 75% of the costs, assuming 25% of your HSA is reserved for drug-only insurance premiums, you have greater control on spending and can increase the contribution to your HSA or cost as you see fit.

When you think about the money you spend on your health insurance plan, most people would say that they have 0% control over the costs.  With an HSA for the predictable claims and a basic drug plan for the unpredictable, you can at least gain control over 75-80% of you plan.  I am sure you would agree that any degree of control and budget certainty is better than none!

Hillary Clinton (Democrat) – A Canadian Living Outside of Quebec, probably in Saskatchewan!

Hillary would mandate individual health insurance coverage for all Americans. Offers federal subsidies for those who cannot afford it. Allows individuals to choose from among several private plans also offered to members of Congress, as well as a new public insurance plan modeled after Medicare. Expands Medicaid and federal children’s health care programs.

Barack Obama (Democrat) – A Canadian most likely to live in “La Belle Province”..does he speak French?

Would create a national health insurance program for individuals who do not have employer-provided health care and who do not qualify for other existing federal programs. Allows individuals to choose between the new public insurance program or from among private insurance plans that meet certain coverage standards. Requires employers who do not provide health coverage for employees to pay into the national health insurance program.

Mike Huckabee (Republican) - Could visit Canada but would probably be driven out of Saskatchewan by mobs! 

Says current system is “irrevocably broken” but opposes federally mandated universal coverage. Would encourage private sector innovation to reduce health care costs. Supports market-based approaches at the state level. Would make health care more affordable by reforming medical liability, improving electronic record-keeping, promoting portable health plans, expanding health savings accounts, making health insurance tax deductible, and offering tax credits to low income families.

John McCain (Republican) - Couldn’t even get passed Customs! 

Opposes federally mandated universal coverage. Would increase awareness and promote the use of existing children’s health insurance programs while expanding community health centers. Supports health care tax dividends for low-income Americans, medical malpractice reform, improving electronic record-keeping, expanding health savings accounts, and encouraging small businesses to band together to negotiate lower rates with health care providers.

If you want to see more coverage on the candidates, CNN offers an excellent election coverage page you should check out.

HSA Advantage….

If you apply for insurance, one of the first things they ask you for is the list of dependents.  Most people have had traditional insurance at some point in their life and so we all know that a dependent is basically your spouse, and children under 18-21 years of age.  You can have a child as a dependent over age 21 with many plans however, they need to be enrolled in school full-time.  Well, when it comes to Health Spending Accounts, you can kiss this goodbye!

Health Spending Accounts use a different model for determining dependents thanks to the wonderful people at Canada Revenue Agency (CRA).  Because the rules for HSA delivery are tied to the guidelines related to taxes and financial dependents, an HSA allows you to cover a wider range of family members, not just the spouse and kids.   In the CRA’s interpretation bulletin IT-339R2 Meaning of Private Health Services Plan, it clearly states that the funds may be used by the employee, the employee’s spouse, and any member of the employee’s household with whom the employee is connected by blood relationship, marriage or adoption.  This means that in theory, an HSA should be able to cover a grandparent, an uncle, a sister, a nephew or anyone else in your family.  Of course, to be a friend of CRA, it is recommended that if you choose to add one of these dependents, they should be financially dependent on you for support in the year.

The key point here is that you are not limited to your immediate family for coverage with an HSA.  If you have an elderly parent who relies on you for financial support and care…use an HSA!  If you have a brother or sister who struggles to care for their autistic son and rely on you for help…use an HSA!   Got a university drop-out son or daughter at home who just won’t leave the nest…use an HSA!

There is no limit to how and who you can coverage with your HSA as long as you remain smart about the guidelines set by CRA.  If they rely on you for financial support, then they can be your dependent.

Classes Are Key

I received a call the other day from an advisor with questions regarding Health Spending Accounts.  He had a client with a Health Spending Account at another provider and wanted to switch it over to Benecaid.  I said sure and asked him how many classes were in the group.  I heard silence at the other end of the phone.

It turns out that the client had set up the Health Spending Account for themselves and not for the other employees in the company.  In theory, this is OK.  The problem was that he did nothing to distinguish himself from the other employees in order to receive this benefit nor did he establish a fixed amount or maximum.  This can cause issues for the Canada Revenue Agency, specifically when you need to explain that this is not a shareholder benefit.  The key to clarity is classes.

The interpretation bulletins are for interpretation.  This means that as an HSA owner, you should make every effort to show your interest in following the rules and using the gift CRA has given Canadians in a sensible way.  Establishing classes in your company based on work roles and performance is a great first step to show that you are acting in good-faith.  You do not need to offer an HSA to all employees, but you should always provide the benefit to members of the same class.  Each class should have defined contribution amounts or limits reasonable to the work and compensation of the employees within the class.  If you have a team of executives, of which one member is the owner, you should offer an HSA to the entire team.  If you only have one owner in the team of executives, you should make a distinction as to why they are entitled to the HSA versus other employees.  Establishing benefit classes, one for executives and another for administrative employees is a great start.

If you currently have an HSA or are considering one, be sure to ask your HSA provider about the establishment of classes  If they don’t know what benefit classes are….buyer beware!!

In 1969, you jumped into the controversial world of health premiums by implementing a “user fee”, or friendly “here’s to helping you get better” tax.  Albertan families paid an average of $1,056 a year in health premium taxes to the government last year alone.  Your decision to change the course and eliminate them is a major reversal for a 37-year-old government that has resisted calls to stop collecting the much-loathed fees.  Well, sometimes the message gets lost in the delivery and so we cannot blame you for not getting it earlier.  After all, your neighbor British Columbia followed suit, as did Ontario.  Could they be that bad a thing to have around?  But why now Alberta?  Why give up on something that has caused so much controversy for so long?

After all, you do have the highest number of incorporated professionals in the country saving money on personal taxes and the largest concentration of Health Spending Accounts per capita in Canada.  Considering this, it would appear that taxes and healthcare are obviously not issues for Albertans.  It certainly is an issue for Ontarians like me, but of course, we are still adapting to healthcare premiums and de-listed services.  Give us a few more years and everyone in Ontario will be incorporated with their own Health and Welfare Trust.  I wonder if Mr. McGuinty realizes this?  It could be a budget balancing issue if everyone starts paying less tax through incorporation.

Oh well, at least we have those oil sands.  Fort McMurray is just north of Sudbury, right?   

One of the e-mails I received asked if I believed that Consumer-driven healthcare could work without insurance.  The answer of course is no.  If you had the chance to read my article in Benefits Canada this month, I provided some options for Canadian companies to use the US-model of delivering CDH with the use of a Health and Welfare Trust (HWT).  In the article, I suggested that companies offer an Health Spending Account in the form of an HWT as a replacement to traditional insurance for predictable claims.  An HSA is an ideal funding model to cover predictable claims, the ones you know your employees will incur and therefore you have no need to insure for the event.  After all, nobody would ever consider buying gas insurance for their car so why would you pay a premium for your annual dental cleaning. 

However, I cannot stress enough the importance of insurance for the unpredictable.  That is, after all, why we buy insurance.  If anyone thought that I suggested we abandon insurance and go to a cash-savings model only, I apologize.  What I wanted to stress is that the decision making on how premiums are paid and what they are paid for should be part of the decision making process of the consumer.  Maybe not immediately, but certainly down the road once the support network is in place to educate and inform consumers to make sensible choices.  The key issue at hand is the ability for consumers to make choices and spend their money in a more sensible manner.  Buying insurance for the unpredictable claims and using their HSA for the predictable is money spent, in a sensible manner.

PHSPs With No Limits

If you are a sole-proprietor, you can open a Private Health Services Plan through most third-party administrators and insurers to finance your healthcare costs as well as insurance premiums.  Most sole-proprietors are individuals (i.e. tradespeople, lawyers, hairstylists, etc..) while some are employee groups (i.e. smaller retailers, professional firms, etc..)  One problem that is causing grief is the growing number of HSA Providers offering PHSPs to sole-proprietors and NOT following the rules in terms of contribution limits.

If you are a sole-proprietor (unincorporated), you may qualify for a PHSP up to an annual maximum depending on the structure of your family ($1,500 / sole proprietor, $1,500 / dependent over 18 years old, $ 750 / dependent under 18 years old).  Some HSA providers have ignored this rule, clearly defined in IT-339R2 (Meaning of Private Health Services Plan).  This can be a problem for small business owners with a PHSP.  One, you may be placing more claims through an administrator than you are allowed to claim on your return, costing you more money in administration fees to the HSA provider.  Secondly, your deduction may be offside if you are offering a PHSP to your employees as an unincorporated entity.  So, what should you do?

First, look at your existing deposit schedule versus claims and compare this amount to the logical maximum you would be entitled to with a PHSP.  If you are above the maximum, you should speak with your HSA Provider regarding options for reducing the amount.  If you have employees, it is important to note that their funds should be residing in a Health and Welfare Trust and not a PHSP.  Secondly, you should remember that as owner – you may only deduct your PHSP contribution or the amount of the smallest contribution made to an employee, whatever is lower.   Many HSA Providers forget this and the last thing you want is an auditor pointing this policy out to you.

In summary, PHSPs are great as long as you follow the rules.  When choosing an HSA Provider, be sure to ask them about their policy on PHSP maximums and over-funding.  If you have a group, ask them how they structure their plans to accomodate multi-employee HWT requirements.  If they are confused by your questions….buyer beware!!

HSA Advantage….

Many readers would argue that this is the number one benefit of having a Health Spending Account.  Others will say it is the tax-savings.  Personally, I would agree with the Flexible Spending crowd on this one.

In case you did not know, Health Spending Accounts cover a wide range of services and procedures – far more than any insurance plan on the market today.  While an HSA is technically an insurance plan in the eyes of Canada Revenue Agency (CRA), it follows a claiming schedule designed for tax deduction purposes as opposed to caps or maximums based on general insurance risk and claiming patterns.   To clarify, think of your traditional health insurance plan from Manulife or Sun Life.  The plan has maximums for things like prescription drugs, massage therapy visits, and private duty nursing.  These caps or maximums are tied to the premium you pay.  The lower the maximum or allowance for each item, the lower the premium you pay – similar to the deductible on your car insurance and the price you pay in premiums. 

A Health Spending Account on the other hand has no plan design and the items you can claim for reimbursement are at the discretion of the owner - as long as you have sufficient funds in the account and the claim is considered eligible by CRA.  The rules for claiming come from Canada Revenue Agency’s interpretation bulletin IT-519R2 Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction.  In addition to covering the basic items (drugs, therapy, dental, etc..) the funds can also be used to pay for many of the items insurance plans refuse to cover – such as smoking cessation, fertility drugs, elective surgery, cosmetic surgery, special needs schooling and more…

The key advantage is that you dictate the amount you want to spend and what you want to cover, not your insurance provider.  If you or your employer decide to deposit $1,200 into your Private Health Services Plan (PHSP) or Health and Welfare Trust (HWT), you can spend it all on one service (such as massage therapy) or on a variety of services for you and your family.  The flexibility of the HSA means that you have complete control over what you spend and when you spend it – a true advantage.  For more information on claiming, feel free to view our making claims information page here at HSACanada.com.

Of course, it turned into a flood of paperwork, documents, signatures, witnesses, initials, duplicates, and authorizations just to give the bank our money.  Now I understand that the bank wants to limit their liability and to protect the interests of the client but the process was certainly not customer-focused.  This has always puzzled me about the banking and insurance industries…why do they make it so difficult to give them your money?

I have worked in several industries outside of the finance and insurance world and I have yet to find one where paperwork and multiple forms are so rampant.  The health insurance industry in particular is filled with paperwork and forms.  I have always believed in making the sign-up experience as painless as possible for the customer.  After all, why would you make the process for a customer to give your their money so tedious that they would consider not following through.  At Benecaid, we are always trying to reduce paperwork and automate the process because we believe that the barrier to accessing our products should never be the paperwork involved with purchase.  I wish more companies in our industry would follow this philosophy.  It would have reduced my level of frustration with the bank on Saturday.

Luckily, I live in Canada.  My Health and Welfare Trust does not earn interest for me and I cannot invest the funds.  It sits in the account, through good times and bad times, waiting for me to make a claim.  The only thing bothering me today is my retirement fund…it is getting battered to pieces.  But I have invested in solid companies…so I know they will come back.  They always do.  So I will sit back, relax, and hope that my HSA colleagues south of the border can afford their medication by the time the bell rings this evening.

While I am sure everyone agrees that communication is key to the success of consumer-driven plans, I disagree with the statement that they are doomed.  Consumer-driven plans using HSAs can easily be compared to investments and savings in the early 80s.  Up until the early 80′s most people required a stock broker to buy and sell stock on their behalf.  Mutual Funds existed, but few people understood how they worked or how to participate.  Many people had a defined-benefit pension, but nobody understood how the money was managed and invested.  Consumer access to information was scarce and the ability to enhance personal wealth through investing was limited to the few.  However, over time the market access expanded, information became more readily available, and consumers became more savvy.  It did not happen overnight and it took several product failures before the investment industry found the right products and tools to turn personal wealth and investing into a consumer-driven product.  But it still happened. 

Today, very few people would have difficulty identifying and explaining the features of an RRSP, a Mutual Fund, or a GIC.  Likewise, they would probably have one already in place and be making regular contributions.  A growing number may even self-manage their portfolio on-line and access information and resources from a variety of Web sites and cable channels such as BNN or CNBC.  Now, don’t get me wrong,  I am not saying that everyone should rely on CNBC for their investment advice.  What I am trying to explain is that the investment industry shifted from being a consumer-excluding to a consumer-driven one over the past two-three decades and I think consumers would agree that it worked out for the better.  The same holds true for health benefit programs.

One could argue that the health benefits industry is behind other industries due to the relationship plan sponsors have played over the past few years in doing the work for their employees.  When consumers are not forced to make decisions and find information, the support tools for the industry never evolve.  Nobody would have envisioned twenty years ago that consumers could access real-time stock quotes and perform on-line stock trading without a broker.  We never would have imagined self-directed RRSPs or “day-trading”.  Why should it be so difficult for the health benefits industry to evolve as well?  Plan Sponsors accepted defined-contribution plans, and turned their employees into consumers.  Perhaps we need to step back and let the industry evolve?  Who knows…20 years from now a Health Spending Account could be as basic a savings vehicle as a chequing account. 

Fund Management

When you open an account with an HSA provider, you need to be certain that the funds are being deposited into a secure and reliable account.  The last thing you need is an HSA provider poorly managing your money.  As I have said before, beware of those companies looking to make a quick buck with little respect for the interpretation bulletins issued by Canada Revenue Agency.

Health and Welfare Trust (HWT)

A Health and Welfare Trust must always be set-up in a custodial trust account in the name of the owner.  Some HSA providers operate their own trusts while others use a third-party (like CIBC Mellon, TD, etc..).  These trusts must be managed by third-party trustees and the funds may only be released from these accounts with the approval of the trustee for eligible medical expenses.   When evaluating an HSA provider, feel free to ask them where the trust is established.  If they operate their own trust or use a third-party, do some investigating on the account and their practices.  This can be done through the Office of the Superintendent of Financial Institutions (OSFI).  If the trust company is legitimate, they will be regulated by OSFI and their Web site offers great resources to determine the stability of the trust company being used.

Private Health Services Plans (PHSP)

PHSPs are most often managed using dedicated bank accounts.  A good PHSP provider should have a dedicated bank account established with a Tier 1 institution exclusively for the funds held for a client’s PHSP.  They should never be deposited into a firm’s operating account.  A few years back, I heard of a major HSA provider in Canada depositing PHSP funds into their operating account (i.e. the same account used to pay their own business expenses).  I was shocked to hear this!  Always ask your provider where the funds reside!

General Policies/Procedures

Whether you have a Health and Welfare Trust or a Private Health Services Plan, your provider should always have a statement of financial responsibility available for you on demand.  This statement should be signed by the firm’s Director of Finance or CFO and provide information on where the funds are held, how the accounts are structured, and the processes and procedures they use to ensure your deposits are managed in a responsible manner.  The statement may also provide the name of their auditor and their general accounting procedures.

In summary, remember to consider fund management as an important evaluation tool in choosing an HSA provider.  If they are reluctant to disclose the procedures and suppliers….buyer beware!!

Their proposal also called for a decrease in the number of deductions available to Canadians.  While they noted medical expenses as a deduction, I was disappointed to see less emphasis placed on reforming the current medical tax credit.  The CTF plan proposes a generous personal exemption, stating that “Basic personal exemptions should be set at a generous level to exclude those with the lowest incomes and ensure the tax system remains progressive“.  Supporters of the HSA could argue that the CTF proposal would have more support from other lobby groups (and the voting public) if it balanced their tax model with more sensible deductions. 

A workforce with more money in their pockets is only beneficial if they are healthy and can produce.  While I agree with the report, one could argue that the replacement of the medical tax credit with some of the HSA policies outlined in the US Medicare Modernization Act might prove to be an additional benefit.  Allowing every Canadian to have access to an HSA and deduct it from their personal income taxes like an RRSP would be a good step forward to keeping Canadians healthier, and not just wealthier.  While I understand the CTF proposal was focused on tax and not deductions, I certainly hope we see more discussion in Ottawa regarding the US-model for Health “Savings” Accounts as tax-savings vehicle to promote healthier and wealthier citizens.

Administration Fees

Every HSA provider charges an administration fee for managing your health spending account.  But what is reasonable and what should you look for in choosing the right HSA provider?  To make a sensible decision, you should look at the different fees being charged and the pros and cons of each.

Administration Fee

Most HSA providers charge an administration fee.  These fees tend to be in the range of 10% and 13% of deposits or claims.  If you pay more than 13%, you should look elsewhere as there are many lower-cost alternatives.  The fee is generally used to adjudicate your claims and manage the funds.  Some HSA suppliers charge the admin fee on deposits while other charge it on claims reimbursed.  Both models have their advantages.  The first one takes the admin fee off on deposit, so you do not have to worry about it later when you make claims.  The later charges you the admin fee each time you make a claim.  They both end up costing the same, so not something to worry about – it is simply a personal preference.

Account Set-up Fee

Some HSA providers charge an account set-up fee.  These fees can be as high as $300.00 simply to gain access to an account.  These providers also charge an administration fee on deposits or claims.  In my opinion, there is no need for a company to charge you an account set-up fee if they are charging you an administration fee – it is simply a cash grab.  If you are opening an HSA for the first time, and you are unsure if it will be beneficial, I would strongly recommend using a provider that does not charge an account set-up fee.  You are wasting your money!

Cheque Processing Fees

These fees are usually issued when a reimbursement cheque is issued (these fees average between $3.00-$4.00 with most HSA providers).  The fee is applied to the batch of fees and not each claim.  These fees cover postage requirements, cheque processing, and related charges to the trust account or bank account – depending on if you have a Health and Welfare Trust (HWT) or a Private Health Services Plan (PHSP) respectively.  If a provider charges a cheque processing fee, the first thing you should look at is their admin fee.  If they are charging 12% or more in admin fee, then they should not be charging you a cheque processing fee.  You should never be asked to pay more than $4.00 for a cheque processing fee – the math simply does not justify it.

In summary, when choosing an HSA provider, you need to consider the fees and what works best for you.  Try to avoid account set-up fees whenever possible.  If you pay an admin fee, ensure that the cheque processing fee is reasonable.  the lower the admin fee, the more acceptable the cheque processing fee.  If the admin fee is high (over 12%) and they charge a cheque processing fee as well, look elsewhere. 

Now I am not condoning what he did, however, it does demonstrate the power of the internet and media in today’s world.  In marketing, bad publicity can sometimes be as effective as good publicity – if it gets your message out.  Corey’s party was promoted with zero cost using his mySpace page.  He did not have to pay anyone to come, and he certainly did not need to issue a press release to get the media to cover his story.  He made the spotlight on every major news network globally, using the internet.  I wonder if Bill Gates is giggling at home while watching the news this evening.

My blog is devoted to Health Spending Accounts and I have decided to use this medium as a way to cost-effectively share my message to the world.  Sure, I have questioned if it will be an effective medium.  However, when I see the results of a 16 year-old, a mySpace page, and a desire to throw a little party for his friends – I start to realize the true power of the internet to share a message.  I just hope my blog is a bit more useful for my readers out there. 

Of course, if all else fails, I guess I could always cash $20,000 in stocks and get some Aussie to throw an HSA party for me!

HSA Advantage….

Tax savings.  I wasn’t going to add this to my blog as I assumed everyone understood this as a benefit by now.  But in thinking about my posts, I wanted to ensure everyone had clarity on ALL of the benefits of a health spending account, so here we go…

When an incorporated business opens a health and welfare trust (HWT) for one employee or numerous employees, the total amount (including the administrative fees) becomes an eligible business deduction for the company – just like paper for the copier, pens, staples, or materials.  It comes off the books as an expense and the impact on taxes would be the same as any other accepted expense.

For sole-proprietors, the contributions are also an eligible expense.  If it is one individual with no employees, the amount deposited into their private health services plan is  declared on their annual return.  In almost all cases, the amount provides greater tax relief than the standard medical tax credit they would traditionally apply for.  For groups, the amount deposited into each employees health and welfare trust would be considered a straight deduction similar to incorporated entities and declared along with the owner’s PHSP on their annual return.

Another opportunity for tax savings is related to salary and total compensation.  Some companies incorporate an HSA into the total compensation of their employees by amending the salary to include an amount to be deposited into a Health and Welfare Trust.  For example, if an employee earns $80,000 and they agree to receive a portion in HSA contribution (say $10,000/year), the employees taxable income would reduce to $70,000 and they would receive $10,000 in tax-free earnings into their HSA.  The benefit for the employer is that the $10,000 becomes a business expense and the source deductions owed by the employer on behalf of the employee would be reduced from a percentage of $80,000 to one of $70,000.

Either way, the key tax savings benefit is that the HSA allows you to pay for your expenses in pre-tax dollars as opposed to after tax dollars.

Unused Funds Being Returned to Company

Canada Revenue Agency is pretty clear on this issue - funds can NEVER revert back to the employer.  The only time this can happen is when an HSA is used in a notional credit program combined with a flexible benefits plan.  If you are working with a supplier and they allow you to take back unused funds from an employee if they quit, then you should re-evaluate your choice of supplier.  Many of the new suppliers have taken the rules outlined in CRA bulletin IT-529 Flexible Employee Benefit Programs, and confused them with the guidelines outlined in IT-339R2 Meaning of Private Health Services Plan. 

The guidelines outlined in the later bulletin, and to an extent those outlined in the original IT-85R2 Health and Welfare Trusts for Employees, are truly the best bulletins to follow regarding PHSPs and HWTs.  The information in IT-529 is related to flexible benefit programs and provides an overview of how to account for benefits using a notional credit program.  A notional credit program supports flexible benefits or cafeteria plans – common in many large corporations.  Running a flexible benefits program using notional credits uses an HSA (in the form of a PHSP) in addition to a core plan offering varying levels of coverage for the employees to choose – traditionally as part of an annual election process.

In summary, funds can ONLY revert back to the employer if the program is part of a notional credit arrangement supporting a flexible benefits program.  They belong to the employee! If you have a Private Health Services Plan or Health and Welfare Trust where the supplier allows you to take back the money if an employee is terminated or leaves…..buyer beware!

For sole-proprietors, the only HSA available is a private health services plan or PHSP.  If they are a small business with no employees, then it makes sense to stay unincorporated – unless their annual maximums do not meet their needs in terms of annual medical expenses.  It is when a sole-proprietor has employees that the benefits of incorporation are revealed. 

If a sole-proprietor has employees and wants to offer a health spending account to them, the employees would be eligible for a health and welfare trust (no limits, unlimited roll-over) while the business owner would be eligible for a private health services plan (caps on contributions, 2 years forfeiture of funds from date of deposit).  But the real headache comes from the contribution limits for sole-proprietors in a group setting.

You see, the rules for unincorporated groups states that the business owner can only deposit as much into their PHSP as the smallest amount offered to their employees in an HWT.  Let’s clarify this with an example…

A sole-proprietor (let’s call him Bob) has three employees, two salespeople and a receptionist, representing two employee classes in terms of compensation and role in the company.  The two salespeople are entitled to a health and welfare trust of $1,200 a year and the receptionist is entitled to $800 a year.  Bob has a wife and two dependent children under 18 years of age.  In theory, Bob should be able to claim up to $4,500 each year in PHSP deposits (2x$1500 + 2x$750).  However, because the receptionist is entitled to only $800, a year, Bob is now limited to the same amount, as she represents the lowest amount being deposited amongst employees.  This means that Bob is losing out of $3,700 in HSA contributions each year.

The solution?  Incorporation of course!  If Bob incorporated the business, he could still deposit $1,200 and $800 into the salesperson’s and receptionist’s health and welfare trusts respectively.  However, Bob would also be able to deposit whatever amount he wanted into an HWT for himself, as long as it was reasonable to his needs and role/position in the company.  Anything perceived as excessive would be considered a shareholder benefit.  Either way, he could at least deposit the full $4,500 he would have been entitled to as a sole-proprietor and receive an additional $3,700 business deduction – more than enough to cover the $250 Industry Canada Fee to incorporate.

It turned out that she did not have any prescription drug or dental coverage.  She had applied to the three well-known carriers ( I won’t mention which ones specifically) and had been denied a suitable plan because of a pre-existing condition she had and the fact that she travels overseas frequently.  The drugs she currently pays for, no matter what plan she selected, would never be covered.  When she heard I worked in the health insurance world, she immediately wanted to give me a piece of her mind.  That is, until I started to explain the concept of a health spending account.

In her situation, the HSA was the best solution.  She had no problem getting travel insurance, but it would not cover the pre-existing conditions.  That was the least of her concerns.  What she wanted was a manner in which to pay for her day-to-day drug claims in a more cost-effective manner.  Luckily, she was incorporated and was eligible for a health and welfare trust.  Over a drink, we estimated her average drug costs each month (including her massage therapy and dental visits.  At the end of the day, she needed a health and welfare trust worth about $200/month.  While I could not calculate the exact savings on the spot I did explain that the total amount would be an eligible business expense for the corporation and tax-free for her to spend.  Any overseas expenses related to her pre-existing condition would also be eligible as expenses from her health spending account – an added perk.  While she thought that was impressive, she was really more excited about the fact she did not require the medical!

The controversy in the US over consumer-driven healthcare comes from the growing trend of large corporations pushing the decision making process for health spending into the hands of their employees.  In doing this, many corporations have decided to offer their employees a Health Savings Account with a high-deductible insurance product and abandon their fully-insured plan.  The key driver is cost as an HSA offers greater budget certainty versus traditional insurance plans.  Those who oppose the model claim that consumer-driven healthcare places too much power in the hands of the employee and that the employer no longer has any responsibility in their health and well-being.  Those in favor of consumer-driven healthcare believe that the model is a more sensible approach as it allows the employee to tailor their health benefit program to the unique needs of their family as opposed to being presented with a canned plan designed to satisfy the needs of all employees.  Either way, the trend has become major news in the US and the HSA industry south of the border is exploding as we speak.  By what about Canada and other countries?  Will they follow suit?

My upcoming Benefits Canada article (the January edition) outlines the differences between the Canadian Health “Spending” Account and the US Health “Savings” Account.  It also examines the challenges and opportunities for Canadian companies interested in adopting a similar consumer-driven healthcare model as their contemporaries in the US.  While I will not get into the details on this blog before the article is printed (I would prefer that you pick up a copy of the magazine), I will cover some of these similarities in future posts.

You see, many people batch their claims and submit them at once.  What is surprising is that many people actually submit their claims once a year, sometimes for amounts exceeding $6,000!  I scratch my head in amazement every time I hear this, especially if you consider the following.

Let’s say you have an HSA and make $6,000 a year in claims.  For arguments sake, we will assume that you incur the same amount each month in healthcare expenses, $500.  Most people batch their claims to save the cheque processing and postage fees (these average between $3.00-$4.00 at most administrators).  However, if they sent them in each month, the maximum amount they would incur in fees would be $48.00/year, and that amount is being a bit aggressive.  While we all like to save money, the issue here is that claims receipts have no interest bearing value – they are not making you any money while sitting in a shoebox.  Or worse, the original costs are causing you to place other household expenditures onto a credit card each month and carrying a long-term balance.  In which case the interest charged means that you are loosing money!

But let’s pretend that you have a big wad of cash under the mattress at home and do not need a credit card.  If you submitted your claims monthly and deposited your $500/month reimbursement cheques into a RRSP at 3%/year, you would make $102.30 in one year and receive the tax deduction of $6,000 for registered savings.  A year later, that amount would be worth $6,285.00 and in ten years, that initial deposit could be worth $8,200.00!!   More than enough to pay for the $48.00 in fees but more importantly, you are putting your money to work for you and not letting it sit in some form of debt or non-interest bearing vehicle!

So, enjoy the tax savings from your HSA but please remember to submit your expenses for reimbursement!  The faster you get the money back, the faster you can put it to work reducing debt or building wealth!  I don’t want to do an interest calculation on a credit card at 22% to get the point across folks!

Taxpayer and Immediate Dependents

Medical expenses for the taxpayer, their spouse or common-law partner, and dependent children under 18 are claimed on line 330 of the federal tax return.  Only expenses greater than the lesser of $1,925 or 3% of net income can be claimed. The lowest tax rate is applied to the medical expenses to determine the amount of the tax credit you will receive.  

“Other” Dependents

Medical expenses for other eligible dependents are claimed on line 331 and a separate calculation is done for each dependent. Only expenses greater than the lesser of $1,925 or 3% of net income of the dependent can be claimed, up to a maximum of $10,000 per dependent. The lowest tax rate is applied to the medical expenses to determine the amount of the tax credit you will receive.

The key difference between the HSA and the medical tax credit is that the HSA is a full-deduction for the business and 100% tax-free for the recipient (i.e. the employee).  There are no thresholds for deduction by the company and the employee does not declare the deposits into the HSA as the amount is not considered to be income.  The amount spent from the HSA on eligible medical expenses represents a true dollar value in tax-free benefit for the employee versus the amount received from the medical tax credit, which is only a portion of the actual cost.  However, it is important to note that the HSA does not reduce overall personal income tax like the medical tax credit – unless it is paid in lieu of a portion of the employee’s normal salary.  For example, if the employee earned $100,000 in 2007, the source deductions would reflect the amount owed based on $100,000.   However if the employee’s compensation changed in 2008 to be $80,000 and the company deposited $20,000 into an HSA, then the source deductions would be reduced to reflect the amount owed on $80,000 as the $20,000 HSA contribution would be a tax-free benefit.

HSA Advantage…. 

Taxes, we all have to pay them.  Last week, I received all of my paperwork for the newly incorporated Gremolata Media Group Inc.  What a stack of forms!  Of course, one of the first things I noticed was the tax remittance forms…which made me think about the Health Spending Account and how simple it is to deduct as a business expense for the corporation. 

If you own an incorporated entity, whether it is a global conglomerate or simply a corporation of one, you can open a Health and Welfare Trust (HWT) to cover your medical expenditures.  If you are not incorporated, you can open a Private Health Services Plan or PHSP (see below).  After my first wave of forms from CRA, I now understand why so many business owners love their HSA.  Their is no annual paperwork!  The deposits into the HSA are a business expense – nothing more, nothing less.  You do not need to fill out any complex forms or ask for a special return from CRA, you simply add it as a debit to your books for the amount deposited into the employee’s health and welfare trust.  The money is non-taxable for the employee, so you do not need to account for it on their compensation or make complex changes to their T4.

As for PHSPs, the story is a bit different.  It is still a relatively easy process.  On your annual return as an unincorporated sole-proprietor, you simply enter the amount you contributed into your PHSP on Line 9270 – Other Expenses.

When you think about it, the process is pretty simple.  Certainly one of the easier items to report to CRA in terms of business expenses – versus mileage, leases, rent, interest earned/paid, or investments.  So, why doesn’t everyone have an HSA??

If I was responsible for Ms. Spears’s personal health insurance policy, I would have been fired long ago.  Of course, if she is financing this personally, the cost must be obscene!  I did some research, and here is what this could have cost using some basic fee guidelines in California and advice from a doctor in Palo Alto…

Getting There…

• Cost for ambulance transportation varies by distance, typically $800-$1000
• Cost for police escort if available, no charge unless asked for and contracted as a special service in advance.

At the Hospital…

• For urgent, comprehensive evaluation by emergency physician: $500
• Hospital charges for nurse evaluation, use of the room: $500
• If an IV is needed: +$250
• Drugs vary widely and depend on whether the doctor orders a tradename drug or a generic preparation: $20 – $200 for drugs
• Observation time in the emergency department : $250/hour
• Evaluation by Psychiatrist in the ED: $300
• Costs for Psychiatric evaluation and counseling for 2-3 days…If an inpatient, then $250 per session for the psychiatrist
• Costs for private hospital room for 2-3 days, varies widely by hospital — $1,000-$3,000/day for the facility charges
• Average inpatient hospital stay in ICU ~ $8,000-10,000/day

Now, listen clearly.  I am not saying that this is what she will experience over the next few days.  However, if this was your typical visit to the hospital and you underwent what the media is reporting over a period of 2 days, then you would be looking at a bill somewhere between $29,000 and $32,000 USD!!!

My point here is that healthcare in the US is expensive, even for a celebrity.  The second thing I would like to remind Canadians about is that not all of the bogus bill outlined above would be covered by medicare here in Canada.  Many of these items, including private hospital rooms and even ambulance transport, would have been billed to your private insurance (if you had any).  And if this was claimed through your insurance, you can be certain that by renewal time, you would receive some form of premium increase.

What would be more sensible?  An HSA using tax-free dollars of course.  All of the items listed above (excluding the police car envoy) would be covered as eligible expenses through an HSA in Canada (and the US).  Even if the funds in the HSA did not cover the total amount, the claim could be rolled over to the next year and future funds used to reimburse Ms. Spears as they became available.  But hopefully, this will be the last time she needs to endure such an expense. 

In all seriousness, I certainly hope this is the last time I wake up to such a sad story about something so preventable.

I was chatting with a friend of mine the other day and we were discussing the cost to attend some US-based high-profile wellness spa – you know, the ones the celebrities frequent.  They had done some research and was surprised at how the cost was really no more than a basic all-inclusive stay at a 5-star resort.  It got me thinking…“Is a week in Arizona at a medical wellness spa an option for me in 2008?”

I have a health spending account, actually, a Health and Welfare Trust (HWT) through Benecaid.  I have barely used it (with the exception of some massage therapy and a new pair of glasses) and have saved up some considerable money.  I certainly have enough for a week at Canyon Ranch or another medically licensed spa – should I take advantage of it?

A year ago, I would never have thought of spending my money on such a trip.  However, with the recent rise in the loonie, I am seriously considering it.  Given that the programs at these spas are overseen by medical professionals and that the transportation to and from the location would be eligible medical expenses, I am starting to think a medical getaway is right for me.  I work hard and never take the time to look after myself.  A week away focused on my physical and mental health and well-being might be a good choice in 2008.

I wonder how many other HSA holders are thinking the same thing?

For Example:

If you are a self-employed professional with a spouse or dependent over 18 years of age, the annual allowance for you to deposit into a PHSP would be 2 x $1500 or $3,000 in total.  However, this is assuming that you started the plan in January.  If you started the plan in July, you would only be allowed to claim for 6 months worth of contributions, or half of the $3,000 you deposited into the PHSP.  You could still deposit the $3,000, but would only receive the tax relief of 6 months worth of access.

If you are an unincorporated sole-proprietor in Canada considering the idea of opening a Private Health Services Plan in 2008, now is the time to do so.

What is an eligible claim?

Well, many different providers of HSAs have different interpretations on what CRA is trying to say.  Medical expenses eligible to be paid out of the HSA (HWT or PHSP) are expenses which would otherwise qualify as medical expenses within section 118.2(2) of the Income Tax Act.  The list is pretty long when you think about ALL the varying practitioners, procedures, and conditions out there.  So here are a few simple rules to make it easier…

1. Treatments MUST be performed by a Licensed Medical Practitioner. 
2. Products must be prescribed by a Licensed Medical Practitioner AND dispensed by a Licensed Pharmacist or Licensed Medical Practitioner.

Important!!  Don’t forget that each province sets the guidelines as to what a Licensed Medical practitioner is!  If the health profession has a college established granting registration numbers and certificates to each practitioner (like doctors, dentists, etc..), then chances are they are licensed.

Equally Important!!  The Licensed Medical practitioner must be licensed in the jurisdiction of the HWT or PHSP account holder.  What does that mean?  Well, if you live in Alberta (where massage therapy is not regulated by a college) and visit Ontario (where it is considered a licensed medical practitioner), your claim should be rejected by your HSA administrator.  Why?  Because the service was not considered an eligible expense in your home jurisdiction.  Think about that before your next holistic accu-aquatherapy-meditation trip to Bora Bora!

For HSA holders, the only perk is that the commonly charged service or administrative fee most HSA account holders are charged will be reduced by 1%.  This means that on or after January 1st, all billings you receive from your HSA administrator should have the GST reduced by 1% – but don’t confuse this with the overall admin fee – it is just the taxes being adjusted.

1. I was growing frustrated with the lack of information available regarding HSAs within the Canadian marketplace.  To this day it amazes me at how little the average Joe on the street understands of the greatest tax savings vehicles in this country!
2. I wanted people to have access to an ongoing forum where news and information on the funding, claiming, and tax benefits could be shared and debated.
3. To share my personal insight on the US and Canadian markets with a goal of clarifying certain misconceptions out there on how an HSA works and the related benefits.

The new year also starts the beginning of a new personal business venture of mine – sort of a “side thing” when I am not focused on HSAs.  With this new adventure as a small business owner, the time was right for a blog.  Given the benefits an HSA can bring to a frustrated small business owner suffering from rising benefit costs, I thought that my new business venture would give me some additional connections and insight into the minds of the entrepreneur. 

On the other side of the coin, many benefits professionals are searching for more detailed analysis and support for implementing HSAs into their benefit programs.  I understand these two needs for information and I hope my blogs will balance these two audiences adequately.