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The Alberta government officially said goodbye to the health tax in their recent budget effective January 2009, joining seven other provinces and territories (New Brunswick, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Saskatchewan and Yukon) that don’t collect specific health premiums or taxes. These provinces fund healthcare out of general tax revenue.
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.
Well, in Canada that is. Today, Rogers Communications announced that it will be bringing Apple’s iPhone to Canada on their national mobile network. This is a big win for Rogers, but also a classic example of Canada’s long history of being a “wait to adopt nation”. In the benefits world, this could not be any more classic a scenario.
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.
Seeing how we receive questions on how HSAs in Canada are different from those south of the border, we have added a new dedicated page on Health “Savings” Accounts. You can access this page on the top navigation under the tab US Model.
We will be adding even more content in the coming weeks. Stay tuned folks!
I was thinking about Health Spending Accounts, like I always do, and thought I would write a blog entry to clearly articulate the differences between HSAs and traditional insurance. I thought this would be a valuable tool for consumers considering an HSA over an insured plan. Here we go…
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.
I am really getting tired of reports indicating that health care costs are on the rise. It is kind of like saying this summer’s hottest trend will be swimsuits. But yet again, another report has been released (you know who you are) stating that health-care cost increases continue to outpace other business cost increases as well as the consumer price index. Groundbreaking study.
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.
In previous entries I have talked about cost-containment and I recently realized that perhaps this topic needs some more clarification. Cost-containment is a buzz-word used by many in this industry and different players have different versions of what they bring to the table in terms of value. While they all offer good solutions, sometimes the simplest of models are overlooked. To support this, I ask the following…
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.
Recent studies by Statistics Canada indicate that more than 1.7 million Canadians ages 45 to 64 provide care to approximately 2.3 million seniors with long-term disabilities or physical limitations. Seven out of 10 of these caregivers are employed full-time. With baby-boomers being forced to balance the needs of their elderly parents and their careers, the outflow of skilled workers into early retirement to focus on their families may speed up the looming labour crunch. While most HR professionals are focused on the approaching mass retirement of baby-boomers across Canada, eldercare responsibilities are proving to be a burden for the employee and an opportunity for the employer.
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.
Some more help on finding the right HSA for you in my series on items you should look for when choosing an HSA provider…
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!!
I am often asked about the conflict of interest with Health and Welfare Trusts and their portability – especially when it comes to employee retention. Many people will argue that the notional credit HSA model, where the employer can take back the funds if the employee quits, does a better job of retaining talent. To this I often respond with…”just like how salary keeps them, right?”
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?
HSA Information for Canadians 
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