Article by Jhonny Elderson
Health Spending Accounts (HSAs) allow incorporated Canadian businesses to use before-tax money to pay for unrestricted health care. HSAs are essential because without one a business ends up overpaying taxes and limiting health coverage.
A Health Spending Account is a tax free benefit that a corporation (as an employer) provides to employee-owners, employees and their dependents. A Health Spending Account can be used as a standalone plan, or, if you have an existing health insurance plan (e.g., Blue Cross), it will cover all the expenses and health services these traditional plans do not cover.
A Health Spending Accounts is as essential as a bank account for incorporated Canadian companies. To illustrate this point one only has to examine the issues that arise if a business does not put in place a Health Spending Account.
Without a Health Spending Account at least four key issues arise:
1) Employees need to use after-tax salary to pay for healthy care expenses, including those expenses not covered if they happen to have a traditional health insurance plan. This results in companies overpaying Canada Revenue Agency about to per day per person, the bulk of which cannot be recovered.2) Only a small percentage (normally less than 10%) of out-of-pocket medical expenses is recoverable by employees, at year end, through their personal taxes.
3) Employers may be required to provide a wage increase to cover employee benefit costs, which is 30% to 40% more expensive than providing benefits via a Health Spending Account.
4) Employees are saddled with increasing health care costs, and limited access to the services cans negatively impacting employee satisfaction / retention. This can be a real issue if competitors offer a Health Spending Account to help offset these costs.
For small businesses (especially single owner businesses) a Health Spending Account is not a lot different, in principle, than the treatment of office expenses. Businesses always use before-tax dollars to pay for office expenses, and employees (or owners) are normally reimbursed for these types of expenses. Why should health care expenses be so different? Why would a business wish to use any after-tax dollars to pay for health care costs?
The shocking truth is that traditional monthly health insurance plans (e.g., Blue Cross) are designed at least 30% in profit for the insurance providers when it comes to routine health expenses. On average, a small business will get out 70% (or less) of the premiums they put in – the traditional monthly plans are designed that way, especially for the smaller business user. And, if you claim more in one year, your premiums or limitations will normally increase to maintain that minimum 70/30 ratio.
Some small businesses keep traditional health insurance plans (or a stripped down versions of these) to cover catastrophic events (i.e. accidental dental, private nursing care, etc), however a Health Spending Account is the most efficient and economical solution for covering routine healthy care expenses.
There are at least 7 advantages businesses can realize by putting in place a Health Spending Account. These include:
1) Paying for Health Care costs using before-tax money
2) Minimizing overpayment of health care related taxes to Canada Revenue Agency
3) Eliminate or minimize employees’ out-of-pocket care expenses
4) Quick reimbursement for out-of-pocket expenses to owner-employees, employees, and dependents
5) Providing access to virtually unrestricted care services
6) Spending 30-40% less than on health benefits than the equivalent salary increase
7) Improving employee satisfaction and retention. It is a fact that 50% of employees prefer health benefits vs. the equivalent salary increase according to a 2009 study sponsored by Health Canada
In today’s competitive business environment is it any wonder why most Canadian businesses are beginning to see that a Health Spending Account is as essential as a bank account.
About the Author
Steve Hash man is a co-owner of Pretax Health. He is based in Calgary, Alberta, Canada. Steve has over 25 years of experience in Product Development and Marketing in the high tech and health care industries. Visit Pretax Health. Sign-up right from the website and you can be filing claims in minutes.