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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?
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?
Every few weeks, I am showcasing a different advantage of owning a Health Spending Account in this segment called…
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!
Every few weeks, I am showcasing a different advantage of owning a Health Spending Account in this segment called…
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.
Every few weeks, I am showcasing a different advantage of owning a Health Spending Account in this segment called…
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.
Every few weeks, I am showcasing a different advantage of owning a Health Spending Account in this segment called…
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.
Every few weeks, I will be showcasing a different advantage of owning a Health Spending Account in this segment called…
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??
HSA Information for Canadians 