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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.
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.
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!!
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!
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!!
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!
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