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I can’t believe I forgot yet another Tax Freedom Day. I am so busy this time of year. I didn’t even get my Happy Tax Freedom Day cards out into the mail until last night. What an embarrassment.
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!
Sorry folks for the long break since my last post. I have been a little busy but thought that this morning I would write about the new Statistics Canada report on the shortage of doctors. Rather, the number of Canadians without a family doctor.
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!
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.
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.
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.
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 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…
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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.
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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.
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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?
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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?
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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?
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!!
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…
Tax-free Savings Accounts (TFSA) were not the only thing announced during the federal budget this week. New allowances were made to the list of eligible claims in addition to some strong actions to be taken to tighten up the words and rules on prescriptions and vitamins. Go Flaherty, get tough with those supplement-poppin baby-boomers!
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!
HSA Information for Canadians 
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