Tax Reimbursement Time…Five HSA Tips!

I am a bit of a looser when it comes to taxes and I am probably the first Canadian to submit their return each year.   I always get a reimbursement cheque and immediately put it back into my investment portfolio.  For self-employed Canadians however, there is a better option!

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?

Thanks Everybody!

It has been three months since I started this blog, and slowly but surely, the message is getting out there.  We now have a steady flow of loyal visitors to the site with an interest in Health Spending Accounts and how they themselves could be saving money.  I am always looking for feedback from others and love answering questions from the readers.

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!

Insurance Is Upset at Flaherty – But Why?

The recent federal budget got the whole Canadian insurance world up in a tizzy.  While most people did not notice the entry, everyone in the benefits consulting and insurance world started freaking out over one paragraph.  It wasn’t in the budget speech.  Rather, it sat in the bowels of the 416 page budget details document.  So what could have gotten everyone so upset?  Well, on Page 282, Appendix 4, the following was documented…

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!

Buyer Beware #7 – Privacy

Some more help on finding the right HSA for you in my series on items you should look for when choosing an HSA provider…

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!!

Easy Enrollment – Only in America!

I just returned from visiting family in Florida.  I try to go once or twice a year to enjoy my father’s retirement lifestyle of 8:00am power-walks along the beach, afternoon spring-training ball games, and traffic at 4:00pm trying to beat everyone to the early-bird special at the local seafood restaurant.

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…

HSA Advantage #6 – Employee Appreciation

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?