Image Courtest stockimages/ FreeDigitalPhotos.net

Health Spending Account (HSA)

A Flexible Self-Insured Way to Cover Health & Dental Expenses for Ontario Businesses

ID-10041666 -photostock

Meet Tom, a business owner earning $65,000 a year. He expects his out of pocket drug, dental and other medical costs will be roughly $5,000 next year for him and his family. Using a health spending account instead of paying for these expenses using personal income, not only will he reduce his personal taxes by almost $2,000, but the costs are 100% deductible to his business.

 

 

 

Common Questions about HSA

  1. What is Health Spending Account?
  2. Who should consider HSA?
  3. How does it work?
  4. Who is covered by the HSA?
  5. Can the dependents spend all the money in the account?
  6. How is it different from traditional health insurance plan?
  7. Can we contribute different amounts for each employee?
  8. What happens if an employee doesn’t use the money?
  9. How do employees submit claims?
  10. What if an employee’s claim exceeds the amount in the HSA?
  11. What if an employee is already partially covered?
  12. What happens if an employee leaves the company?
  13. What are the costs of setting up?
  14. How do I get started?

 

 

What is Health Spending Account?
It is similar to a bank account, but is established exclusively to pay for health-care services, using pre-tax dollars. Rather than paying the health expenses directly from your bank account, HSAs can be written off as a tax-free business expense – saving you up to a third off traditional healthcare benefits. It also allows you to take control over company spending on medical costs by setting up flexible and customizable plans to suit both your business and its individual employees.

 

Who should consider HSA?

Businesses owners who are looking to provide health benefits for their family and employees. Almost all businesses are eligible, as HSAs are available to any corporation or limited company that pays taxes. The size of the business is unimportant – there could be two employees or 2,000. Entrepreneurs and their dependents are also eligible under a private health services plan, given that there is at least one arm’s-length employee being insured.

How does it work?

It’s simple: as an employer, you make a regular contribution on behalf of one or more employees into a Health Spending Account, against which they make claims for healthcare spending. HSA administrator will adjudicate the claims and processes the reimbursements. For most HSA administrators, the contribution amount is determined at the start of the program for each employee enrolled, and cannot be changed for a year. Changes to the contribution amount and terms can only be made when the program is up for renewal (every 12 months) or in the event of a significant life event like a marriage, birth or death in the family.

Who is covered by the HSA?

Both your employees and their dependents will be covered by HSA to the amount you have contributed. An eligible dependent is a spouse, a child or any member of your household who is connected to you directly, by marriage or by adoption, and who is financially dependent upon you. They must also be a Canadian resident who resides in Canada for a minimum of six months out of the year.

Can the dependents spend all the money in the account?
Yes. The only provision is that the money must be used by the employee or their dependents. If the whole amount of money in the HSA is used to pay for a single child’s orthodontic treatments, that’s fine by us.

 

How is it different from traditional health insurance plan?

It lets the insured choose the benefits they want.  HSAs can be used to augment or replace your health benefits plans. Unlike traditional plans, which often include items that you don’t want or need, a Health Spending Account, lets you choose which healthcare services you want. See the list of eligible expenses at the Canada Revenue Agency website.

You decide how much to contribute and choose the services on which you wish to spend from HSA. However, HSA does not have the insurance component, it covers up to the amount you contribute into the account.

 

Can we contribute different amounts for each employee?
Yes, given that  you can show they have different roles within your company which justifies the disparity.

What happens if an employee doesn’t use the money?

It simply gets rolled over the following year. The funds are held in trust for the use of employees and remain available to the employee until all funds are exhausted.

 

How do employees submit claims?

Submitting claims with our affiliated HSA administrator is easy. Once a company is set up with their online services, employees simply complete the online claim form, scan in the medical receipt and attach it, and then click submit. They’ll start processing the claim immediately and will release tax-free funds immediately on receipt of original receipts.

 

What if an employee’s claim exceeds the amount in the HSA?

As employees will set up a monthly payment program, we will give employees two options. They can either wait until sufficient funds have entered the HSA, at which point we will release the full amount, or they can take what’s there immediately and then receive the remainder when funds become available.

 

What if an employee is already partially covered?

Then we’ll cover the rest. If an employee already has some form of health insurance – perhaps through a spouse or from a previous employment agreement – which covers (for example) 80% of their claim, we will then cover the remaining 20%. All we’ll need is a premium billing statement from the other insurer, which can be scanned and submitted online along with the completed claim form and medical receipt.

What happens if an employee leaves the company?
Even after leaving the company, the employee can access the funds by submitting an eligible medical expense.

 

What are the costs of setting up?

Since Samuel Li is the organizer of the 1ofAkind Small Business Group, he has obtained an association plan with a HSA administrator, YourHSA. It offers great discount for all his members and all the viewers of SamuelConsultant.com.  Unlike many similar companies, there is no cost to open an HSA through this channel. You simply pay an admin fee (and applicable taxes) for each contribution. Through our association plan, you will also receive discount on the admin fee. A claim processing fee of $3.75 is deducted from claim reimbursements to employees.

 

How do I get started?

[note] Feel free to contact me. I’ll be happy to assist you further. [/note]

Disclaimer: Image Courtesy photostock/ FreeDigitalPhotos.net