A Healthcare Spending Account (HSA) is a group benefit that reimburses employees for a range of health-related expenses, which is over and above their regular benefit plan. You can think of it as the cherry on top of a great benefits package.
There are a lot of things job applicants consider when reviewing job offers, above and beyond the salary. Having an HSA in addition to regular benefits is a great way to be a cut above the competition.
This article will outline some of the reasons you should include an HSA in your benefits package, the costs, and answer frequently asked questions related to HSAs.
Why introduce an HSA?
- Flexibility: Give your staff more choice and empower them to spend on the things which matter most to them
- A way to reduce monthly insurance premiums: To use an example - A group can strip paramedical practitioners and eyewear from the core insurance plan and reduce their monthly premiums. In doing so, they can introduce an HSA on the side, which can be used to access the benefits which were removed
- A way to create greater plan cost sustainability: ALL claims made through an HSA have zero impact on the claims experience which drives your annual policy renewal
- Most operate on a ‘Pay as you go’ method: If employees don’t use their HSA, the employer doesn’t incur any costs
What does it cost?
The cost will vary from provider to provider, but the core elements to be aware of are as follows:
Initial Deposit (Float): Typically, this will represent 2/12 of the total annual allotment for the whole group
- 10 employees with $1,000 each per year would require a deposit of $1,666.67 ($10,000/12 months x 2 months)
- The float is required to ensure that when an employee submits a claim to their HSA, they’re reimbursed right away, otherwise, the provider wouldn't be able to reimburse your employee until your next invoice is paid
- If/When you terminate your plan, the provider reimburses your deposit
No Monthly Cost: With most providers, they do not charge a monthly fee to have an HSA
Admin Fee: With most providers, when an employee submits a claim to their HSA, the business will be billed for the employee’s claim cost, plus an admin fee (plus applicable taxes)
For Example:
There's a 15% admin fee with ABC provider.
If an employee submits a $100 chiropractor claim, the employee gets reimbursed their $100 tax-free and their available annual HSA balance would be reduced by $100.
On the next invoice, the business gets billed for the cost of the claim plus the 15% admin fee (plus applicable taxes).
In this example, it would be a $115 cost to the business plus applicable taxes.
Pay as you go: When a month goes by and no employees use their HSA, the business does not incur any cost in addition to their insured benefits
Employee Q & A
An eligible HSA Benefit may include, but is not limited to:
- Extended Health Benefit (EHB) and Dental Expenses not otherwise eligible under the core insurance policy, but eligible under the Income Tax Act, as determined by CRA.
- EHB and Dental Deductibles and Coinsurance (where applicable).
- Additional Vision Care Expenses
- Eligible Expenses as defined under the EHB Provision and the Dental Benefit Provision (if applicable), for which the maximum has already been paid during the policy year.
- Eligible Medical Expenses must be incurred by a plan member that's actively Insured under the policy and must have been incurred in the plan member's province of residence.
For more details on Eligible Medical Expenses, visit the CRA Website
Any benefits that are determined to be taxable by the Canadian Customs and Revenue Agency (C.C.R.A.) are NOT eligible for reimbursement through the HSA Benefit option. Examples include:
- Gym memberships
- Fitness classes or apparel
- Transportation expenses (taxi, train, uber)
Items such as these that aren't eligible under an HSA benefit would be eligible through a separate Taxable Spending Account.
The HSA Benefit cannot be used to pay the employee’s share of any premium.
How should employees submit a claim?
In order to take full advantage of the HSA Benefit, claims should be submitted in this order:
- The employee submits the claim to their employee plan for reimbursement.
- The employee submits the remaining claim to their spouse’s plan for reimbursement (if there is coordination of benefits in place).
- The employee submits the outstanding claim along with the Explanation of Benefits form (EOB) to the HSA Benefit for reimbursement.
Yes. See the prior FAQ.
Spouses should always submit their own eligible claims to their benefits plan first. Any remaining eligible claim should then be submitted to the employee benefit plan before submitting to the HSA Benefit for reimbursement. The HSA Benefit should always be the last payor.
The Employer chooses either “use it or lose it” or “one year carry forward” at plan implementation.
With “one year carry forward”, any unspent HSA Benefit is carried forward for one year only. If there is a balance of HSA dollars that remain unspent after the end of the second benefit year they will be forfeited back to your employer. Active employees have 365 days from the incurred date of the claim to submit eligible expenses.
HSA claims are subject to the same contractual provisions as outlined in the employee group insurance plan contract.
Benefits paid out under the HSA Benefit are NOT taxable to the employee (except in the province of Quebec).