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Health Spending Accounts
A cost-effective way for businesses to pay for health and dental expenses for employees and business owners alike.
What is a Health Spending Account?
A Health Spending Account (HSA), also known as a Private Health Services Plan (PHSP), offers a tax-efficient solution for incorporated business owners across Canada to manage health and dental expenses. This innovative program benefits both employees and business owners, allowing them to allocate funds for medical needs in a tax-efficient manner.
An HSA can complement your existing health insurance plan by covering costs that are not fully reimbursed. It serves as a versatile tool, either enhancing your current insurance coverage or operating as an independent health care funding solution.
The true strength of an HSA lies in its flexibility and tax benefits. It enables the payment of eligible medical, dental, and vision care expenses not covered by standard health insurance plans. Moreover, these expenses are treated as business expenses for your corporation, offering significant tax advantages. This feature not only provides financial relief but also encourages a proactive approach to healthcare management.
Tax Efficient Benefits
HSAs provide significant tax savings for both employers and employees.
Enhanced Flexibility
HSA's cover a wide range of medical expenses, offering greater flexibility than traditional insurance.
Easy Online Management
Modern HSAs are user-friendly with minimal paperwork, easing management for businesses.
Workforce Appeal
Offering HSAs can boost employee satisfaction and loyalty, aiding in workforce retention.
How Does a Health Spending Account Work?
A Health Spending Account (HSA) transforms personal health and dental costs into legitimate business expenses through a simple three-step process:
Incurring the Expense
The process begins when you, the business owner, or an employee incurs a health or dental expense. This could range from a routine dental check-up to a more significant medical procedure. Generally, this expense is paid for using a personal credit card.
Submitting and Processing the Claim
The individual who incurred the expense submits the claim electronically to the HSA provider along with copies of their receipts. The provider then reviews the claim for compliance with Canada Revenue Agency (CRA) guidelines, ensuring it meets the necessary criteria. During this step, the provider requests the necessary funds from the business/employer to cover the amount of the claim.
Receiving Tax-Free Funds
Once the claim is approved, the HSA provider deposits the funds into the claimant’s personal bank account, tax-free. These disbursements are made using pre-tax corporate dollars and are deductible as a business expense, offering a fiscal advantage to the business and a tax-free benefit to the employee.
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Ideal Candidates for a Health Spending Account
For the Self-Employed: An HSA is perfect for self-employed individuals seeking to provide health benefits for themselves and/or their employees, ensuring comprehensive health coverage.
Tax-Savvy Businesses: Businesses aiming to manage health and dental expenses in a tax-efficient manner will find HSAs particularly beneficial, as they offer significant tax advantages.
Health-Conscious Employers: If your goal is to maintain the health and productivity of your family and/or employees, an HSA is an excellent tool, supporting a healthy workforce.
- Flexible Benefits for Employees: Businesses looking to offer health and dental benefits that are flexible and tailored to individual employee needs will find HSAs to be an adaptable solution.
- Small Businesses Seeking Benefits Solutions: For small businesses that may not qualify for or need a traditional group benefits plan, HSAs provide a cost-effective alternative to offer health benefits to employees.
Eligible Expenses Covered by a Health Spending Account (HSA)
Health Spending Accounts (HSAs) offer comprehensive coverage for a variety of health and dental expenses, ensuring you and your employees have access to a wide range of medical services and support. Covered expenses include:
Prescription Medications: Covering the cost of prescribed drugs essential for health and well-being.
Dental Treatments: From routine check-ups to more complex dental procedures.
Paramedical & Wellness Services: Including treatments from chiropractors, physiotherapists, and other wellness practitioners.
- Vision Care: Expenses related to eye exams, prescription glasses, and contact lenses.
- Family Care: Covering health needs for the entire family, including pediatric and elder care.
- Maternity Health: Supporting health needs during pregnancy and postnatal care.
- Hospital & Medical Services: Expenses incurred for hospital stays and medical procedures.
- Emergency Travel Medical: Providing coverage for medical emergencies while traveling.
- Medical Equipment, Devices, and Supplies: Including necessary medical aids and equipment.
- Private Health Insurance Premiums: Covering the cost of premiums for private health insurance plans.
Get in touch
Talk to an advisor who can understand your situation, answer your questions and help you build an insurance plan appropriate for your business.
Frequently asked questions
Answers to key questions about Health Spending Accounts (HSA's)
An HSA is designed to reimburse many common healthcare expenses that employees or business owners may incur. Reimbursable expenses are generally based on the Canada Revenue Agency’s definition of eligible medical expenses, and may include medical, dental, vision, and other healthcare services. Coverage is also subject to the rules of your specific HSA plan, so reviewing plan details helps ensure you understand how the account can be used.
As the employer, you decide how much funding to allocate to the HSA. When you or an employee incur an eligible expense, a claim is submitted through the plan administrator with supporting documentation. Once approved, the expense is reimbursed from the available HSA balance. This structure allows you to provide health benefits in a controlled and predictable way.
How unused HSA amounts are handled depends on how the plan is set up. Some plans allow limited carryover of unused balances or claims, while others do not. Because these rules are determined when the plan is designed, it’s important to understand your carryover options before choosing a structure.
Health Spending Accounts can be structured to include business owners, employees, and their eligible dependants. Eligibility is based on your business structure and how the benefit plan is set up, so working with an advisor helps ensure the arrangement fits your company and overall compensation strategy.
Traditional group benefit plans provide predefined coverage categories with set limits. An HSA offers a more flexible approach, allowing you to allocate funds that can be used for eligible healthcare expenses based on individual needs. A Lifestyle Spending Account (LSA), by contrast, is generally used for wellness or personal development expenses and is treated differently under tax rules.
Still have questions?
Please contact our office and we'll be happy to address any questions you may have.
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