You are currently browsing the tag archive for the ‘health and welfare trust’ tag.
OK. I have to make an announcement. One that I am sure will shock many of you out there who know me personally and read my blog. It is a little embarrassing, however, I went to the dentist today….for the first time in twelve years!!
I know – somewhat gross, but I brush and floss daily and had perfect teeth as a child. Not a big issue in my books. I was one of those kids everyone hated, where I never needed braces and everything just grew in perfectly – even my wisdom teeth. I probably should ask my father for some money in lieu of costs associated with braces, considering how much my perfect dental history saved him. However, I have been scared of dentists and the idea of having someones fingers poking my teeth, so I resisted until I got an accidental chip on my front tooth.
The first thing that I encountered when booking my appointment was the famous line – “do you have insurance?”. I said yes and booked my appointment. Since it had been a while, I had to get the full exam with those creepy x-rays and the counting of the teeth. The dentist was a wonderful woman and I would highly recommend her to anyone in and around Oakville, Ontario (e-mail me if you want the details). Given the painless experience, I was ready to get all kinds of treatments like whitening and a guard to stop me from grinding at night – I deal with allot of stress these days managing the upcoming re-launch of Gremolata. The dentist said, these are all great things, but they will not be covered by insurance. That is when I said “no problem, I have a health and welfare trust”. She looked at me funny and that is when sales man James took over.
I explained to her about the Health and Welfare Trust I have with Benecaid and that I had a reserve of funds I could use for exactly this type of expenditure. She noted that these costs can be substantial but I told her that I had more than enough to cover it. She was impressed. After all, how many clients walk into a dental office and say, give me the works! Well, those with an HWT would.
I think this is why I am so passionate about Health and Welfare Trusts. I don’t feel limited to a plan. I can get the basic care I need but also invest in the things that will make me feel better about myself – such as brilliant white teeth or a new nose (the later requires more thought). All joking aside, it is a great feeling to know that you have the tax-free money to spend when and how you want to. It also makes me think how impressed every employee would be with the company they work for if they had access to the same HWT as I did.
Oh, and for the record. No cavities and a healthy smile was the diagnosis I received! Whew!
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.
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.
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?
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!
Ah, Budget Day! One of the few days in the year when the finance minister gets a new pair of shoes, accountants in Ottawa suddenly feel like movie stars, and the CBC has so much Class A news content to share that they nearly collapse from the pressure in the newsroom. Yesterday, the federal government announced a new tax-savings vehicle for Canadians designed to help people save money on taxes. But what are the true savings versus an HSA?
Tax-Free Savings Account. This flexible, registered, general-purpose account is designed to allow Canadians to save money, tax-free. Starting in 2009, Canadians can contribute up to $5,000 every year to a registered Tax-Free Savings Account, plus carry forward any unused room to future years. The investment income, including capital gains, earned in the plan will be exempt from any tax, even when withdrawn. Canadians can withdraw from the account at any time without restriction. There are no restrictions on what they can save for; and the full amount of withdrawals may be re-contributed to their Tax-Free Savings Account in the future, to ensure no loss in a person’s total savings room.
It is important to note here that the $5,000 is not a deduction. It is an allowance. This means that you will not have to pay any tax on the interest this $5,000 earns. So what are the savings? Well, let’s say you are an incorporated professional in the $100,000 income tax bracket and you deposit $5,000 into a TFSA. You then use these funds to invest and your rate of return is 4%. Well, you would be looking at a total annual tax savings of $27.00 versus a traditional taxable account.
Health Spending Account. Now let’s take the same $5,000 and have your incorporated entity deposit the funds into an HSA in the form of a Health and Welfare Trust. The $5,000 becomes a business deduction for the company and is a non-taxable benefit for you, the employee. In essence, you are receiving $5,000 tax-free to pay for your current after-tax healthcare expenses. If these expenses are already $5,000 per year, you just saved yourself roughly $2,029.00 in taxes in comparison to the current medical tax credit less related fees for administering the HSA.
Both a Health and Welfare Trust and the new Tax-Free Savings Account can be used as a savings vehicle for future spending. While the HWT does not earn interest, the initial tax savings far exceeds any reasonable return one could hope for from an investment using a TFSA. But a TFSA does sound like a great tool for short-term savings. The question is, which is a better strategy. Opening a TFSA on January 1st, 2009 and depositing $5,000 or opening an HWT for the same amount and taking the $2,029.00 in tax savings to fund a TFSA the following year? Sounds complex, but a better model for making your money work for you in my opinion.
It is the last week for Canadians to make contributions into their RRSP to take advantage of the tax-deduction for 2007. I myself have received numerous calls from my financial advisor reminding me to top-up my contributions for 2007 and letters indicating that my advisors will be available until the wee hours of the night to help me should I decide to add more to my investment plan. It makes me wonder, how many Canadian small business owners would put more into the RRSP each year if they could free up the extra money? Are they spent?
Financial advisors tend to focus on the after-tax money available to invest as opposed to looking at ways to free-up pre-tax dollars as a tool for investing. For many small business owners, the HSA is an unknown option. Each year, they take a few of their after-tax receipts and make a claim for the medical tax credit. A nice gesture from the federal government to reimburse for medical expenses but certainly not enough to give someone more money to invest. The reality is that if they had a Health Spending Account, they could be using the tax-savings to re-invest into their retirement plan.
Each year, some financial advisors look for ways their small business clients can contribute more without giving them any real options to free-up the funds to do it. To all my readers out there who are financial advisors with small business clients…get them an HSA today! Show them how they can make their current after-tax expenses into pre-tax business deductions. Show them how this will impact their taxable earnings and how they can use the savings to re-invest in their RRSP! Given the economic conditions and the tough time your clients have had this year, this is a great way to show them how resourceful you are in finding ways to build wealth for them using a readily available and sensible solution – the HSA.
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!!
Oh how I love thee Alberta, with your lucrative oil sands and snow-capped mountains. You shine across this great land with your quality beef, enormous shopping mall, and WestJet regional hub. You stay the course and never turn back on a decision…well, until yesterday that is.
In 1969, you jumped into the controversial world of health premiums by implementing a “user fee”, or friendly “here’s to helping you get better” tax. Albertan families paid an average of $1,056 a year in health premium taxes to the government last year alone. Your decision to change the course and eliminate them is a major reversal for a 37-year-old government that has resisted calls to stop collecting the much-loathed fees. Well, sometimes the message gets lost in the delivery and so we cannot blame you for not getting it earlier. After all, your neighbor British Columbia followed suit, as did Ontario. Could they be that bad a thing to have around? But why now Alberta? Why give up on something that has caused so much controversy for so long?
After all, you do have the highest number of incorporated professionals in the country saving money on personal taxes and the largest concentration of Health Spending Accounts per capita in Canada. Considering this, it would appear that taxes and healthcare are obviously not issues for Albertans. It certainly is an issue for Ontarians like me, but of course, we are still adapting to healthcare premiums and de-listed services. Give us a few more years and everyone in Ontario will be incorporated with their own Health and Welfare Trust. I wonder if Mr. McGuinty realizes this? It could be a budget balancing issue if everyone starts paying less tax through incorporation.
Oh well, at least we have those oil sands. Fort McMurray is just north of Sudbury, right?
HSA Information for Canadians 
You must be logged in to post a comment.