Holy Dental Bill! Help me HSA!

To continue with my dental experience, I decided to ask for a series of estimates for braces – the invisible kind not the kind Tutti wore back in the eighties.  Many of you are asking yourself…why on earth would you want braces?  Especially at your age?  Well, I have always had a bit of an overbite and when my wisdom teeth came in, they caused my teeth to be extra tight.  So, I am exploring the option of getting braces…..until I received the quote.  The cheapest solution will probably be $6,000 for what I am looking for – the equivalent of two 42″ Plasma Screen TVs or new hardwood floors in the house!

I don’t need them right away and can start saving today.  Since Gremolata is incorporated, I qualify for a Health and Welfare Trust.  I don’t want to go overboard here deposit-wise, but I could easily allocated $300 a month towards an HWT in my name.  This could be considered the core health benefit plan for the company.  This would provide me with $3,600 a year in deposits less a 10% administration fee ($360).  Using this schedule, I would have enough saved up for the braces in two years.  The dentist suggested I wait 6 months before I even consider the consultations with the specialist, so this time line works well for me.

Let’s do some tax talking for a minute.  The $3,600/year would become a business expense for the corporation as a cost of doing business – keeping me healthy.  The $3,600 deposited into my Health and Welfare Trust, as an employee of the corporation, would be a tax-free benefit for me (as long as I continue to reside outside of Quebec).  In essence, I am now receiving $3,600 in additional compensation I can use for braces without having to pay the income taxes on the amount.

So, there you have it.  I can use my Health and Welfare Trust to pay for my braces and save both myself and the company money.  I can be flexible with a deposit schedule I am comfortable with financially and use the funds when I have reached my goal.  You now understand how to save money as well as my dental records.  Ah, the internet.

HSA Advantage #6 – Employee Appreciation

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?

 

New Eligible Claims for Medical Tax Credit & HSA

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 Advantage #5 – Cost Control

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!

 

HSA Advantage #4 – Dependent Coverage

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.

 

What? No Medical Required?

I was at a cocktail party over the weekend and met another guest who happened to be an independent consultant.  When I told her that I worked in the health insurance world, she went silent and looked as if she wanted to kill me!  I noted the serious look on her face and said “Uh-oh, somebody better walk me to my car later..”  She laughed, and apologized for the glare.  She then explained herself..

It turned out that she did not have any prescription drug or dental coverage.  She had applied to the three well-known carriers ( I won’t mention which ones specifically) and had been denied a suitable plan because of a pre-existing condition she had and the fact that she travels overseas frequently.  The drugs she currently pays for, no matter what plan she selected, would never be covered.  When she heard I worked in the health insurance world, she immediately wanted to give me a piece of her mind.  That is, until I started to explain the concept of a health spending account.

In her situation, the HSA was the best solution.  She had no problem getting travel insurance, but it would not cover the pre-existing conditions.  That was the least of her concerns.  What she wanted was a manner in which to pay for her day-to-day drug claims in a more cost-effective manner.  Luckily, she was incorporated and was eligible for a health and welfare trust.  Over a drink, we estimated her average drug costs each month (including her massage therapy and dental visits.  At the end of the day, she needed a health and welfare trust worth about $200/month.  While I could not calculate the exact savings on the spot I did explain that the total amount would be an eligible business expense for the corporation and tax-free for her to spend.  Any overseas expenses related to her pre-existing condition would also be eligible as expenses from her health spending account – an added perk.  While she thought that was impressive, she was really more excited about the fact she did not require the medical!

The Big Eligible Claims Debate.

Every time I meet with a financial advisor, a lawyer, an accountant, or a potential Benecaid client, I am always asked the same thing…

What is an eligible claim?

Well, many different providers of HSAs have different interpretations on what CRA is trying to say.  Medical expenses eligible to be paid out of the HSA (HWT or PHSP) are expenses which would otherwise qualify as medical expenses within section 118.2(2) of the Income Tax Act.  The list is pretty long when you think about ALL the varying practitioners, procedures, and conditions out there.  So here are a few simple rules to make it easier…

1. Treatments MUST be performed by a Licensed Medical Practitioner. 
2. Products must be prescribed by a Licensed Medical Practitioner AND dispensed by a Licensed Pharmacist or Licensed Medical Practitioner.

Important!!  Don’t forget that each province sets the guidelines as to what a Licensed Medical practitioner is!  If the health profession has a college established granting registration numbers and certificates to each practitioner (like doctors, dentists, etc..), then chances are they are licensed.

Equally Important!!  The Licensed Medical practitioner must be licensed in the jurisdiction of the HWT or PHSP account holder.  What does that mean?  Well, if you live in Alberta (where massage therapy is not regulated by a college) and visit Ontario (where it is considered a licensed medical practitioner), your claim should be rejected by your HSA administrator.  Why?  Because the service was not considered an eligible expense in your home jurisdiction.  Think about that before your next holistic accu-aquatherapy-meditation trip to Bora Bora!