You are currently browsing the category archive for the ‘Buyer Beware’ category.
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!!
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!!
Some more help on finding the right HSA for you in my series on items you should look for when choosing an HSA provider…
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!!
Some more help on finding the right HSA for you in my series on items you should look for when choosing an HSA provider…
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!!
Some more help on finding the right HSA for you in my series on items you should look for when choosing an HSA provider…
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!!
Some more help on finding the right HSA for you in my series on items you should look for when choosing an HSA provider…
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!!
Some more help on finding the right HSA for you in my series on items you should look for when choosing an HSA provider…
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.
In recent years, I have seen a growing number of Health Spending Account solutions appear in the market. Some are great and I applaud those providers who have done their research and developed a product that is respectful of the interpretation bulletins published by Canada Revenue Agency (CRA). However, a growing number of companies have entered the market in recent years looking to make a quick buck without truly investing in their knowledge of the product. To help, I thought I would start a new blog series…. items you should look for when choosing an HSA provider…
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!
HSA Information for Canadians 