How do you create a flexible benefits environment in a small business or provide an enhanced compensation strategy while limiting tax exposure?
A Health Spending Account (HSA) is an exciting, tax-advantaged vehicle which can bring more flexibility to your benefits strategy. The Health Spending Account is essentially a bank account for benefits. It allows the employer to provide employees with a pre-determined amount of credits that can be used for any eligible medical or dental expense. The employee is reimbursed with pre-tax company dollars, which means your employees are using less after-tax salary for health care costs. In benefits surveys, Health Spending Accounts are highly ranked as a valued benefit by executives and employees. In addition, these plans are an essential tool for the business owners considering that any health or dental expense paid with after tax dollar could be a 100% deductible business expense using the HSA.
Health Spending Accounts allow the employer to classify each employee and assign specific reimbursement levels for each class, giving the employer added flexibility in their compensation offerings. Additionally, the HSA provides the employer with a pre-determined maximum benefits cost, eliminating the risk or effects of health increases or inflation.
Even with a traditional health plan employees almost always incur additional costs not covered by the group benefits plan. The Heath Spending Account allows each employee to utilize their HSA credits without limitations of co-insurance and deductibles, essentially creating a flexible spending program traditionally only available to large companies.
The credits in the HSA can be used to cover costs not covered by a spouse’s plan. For instance, John and Mary Smith recently found out their teenage daughter requires braces; Mary’s benefit plan provides 50 per cent coverage for orthodontics. However, John’s benefit plan includes a health spending account so he is able to use the credits toward the additional expenses of his daughter’s braces that are not covered by Mary’s plan. John appreciates that his benefit plan allows him to utilize his credits for his claims needs.
The HSA also provides flexibility in who is covered. For example, a “dependent” under CRA’s definition, that governs HSAs, is broader than in a traditional group insurance plan, so expenses for parents or other family members who are financially dependent on a plan member can be directed through the HSA for reimbursement. This supports diverse work environments where there may be new Canadians in the employee population who have expectations for a broader definition of dependents based on their experience in their home country.
A Health Spending Account can be a great addition to your compensation strategy regardless of the size of your business. As an employer, anything that provides enhanced benefit to the employee, increases satisfaction and supports attraction and retention efforts is worth considering.
A full listing of eligible expenses is available through the Canada Revenue Agency or by contacting the AQ Group Solutions Plan Member Advocacy Team.