Traditional Employee Health Benefit Insurance vs. Health Spending Accounts (HSAs)
Author: Amy Tong, AT Financial
Connect with Amy via our Dental Business Directory
As part of a company’s compensation package, employee benefits can be seen as one of the crucial factors that helps attracting and retaining talent. When deciding whether to offer traditional employee health benefit insurance or Health Spending Accounts (HSAs), the employer has to understand the differences between these two options, taking into consideration affordability to the employer and employees’ needs.
What is a Health Spending Account (HSA)?
Health Spending Account (HSA) is a contract between an employer and an employee. As its name implies, it is specifically for medical expenses items whilst the eligible expense list is defined by the Canada Revenue Agency and includes things like prescription glasses, physiotherapy, orthodontics, dental care and much more.
The contract states that employee medical expenses will be reimbursed by the employer. The reimbursement is tax-free to the employee and tax deductible for the employer. For the incorporated professional, the employer is the corporation, and the professional is the employee.
How does HSA work?
- HSA can convert an after-tax personal medical expense into a before-tax business expense.
- The reimbursement is 100% tax-free to the employee (with the exception of Quebec).
- The payment from the corporation is 100% tax deductible.
Who qualifies for a HSA?
- Incorporated business may offer the HSA to employees and has the flexibility to specify the spending limit for different classes of employees depending on their role, responsibilities and compensation. Employees must be actively engaged in the business and receive the plan based on their capacity as employees of the corporation.
- Unincorporated business (sole proprietors, partnerships) may also quality for HSA if the self-employed individuals are actively engaged in the business on regular and continuous basis, and meet certain income test criteria.
Differences between Traditional Group Benefits Insurance and HSA
One of the major differences between a Traditional Group Insurance and HSA is the annual renewal rates which change from year to year depending on previous years’ usage by plan members. As such, employers are always dealing with a variable expense.
With traditional plans, there are no refunds for any unused benefits. However, any unused benefits can be returned to the employer under HSA. It provides employers or business owns with added flexibility and help manage their benefit costs more effectively.
|Traditional Group Benefits Insurance||HSA|
|Annually Increasing Premium||No Premium|
|Restrictive and Limited Expense List||Comprehensive Expense List|
|Deductible (may be applicable)||No Deductible|
|Co-Insurance (may be applicable)||No Co- Insurance|
Benefits of HSA
- Many HSA providers do not charge any enrollment or set up fees, or only charge a minimal cost
- No annual increases on premiums
- Cost Effective: No monthly premiums. A minimal administration fee (say, 10%) and applicable tax are applied only when claims are submitted.
- Unlimited Coverage: No limits on covered expenses
- Customizable: Have different plan types to choose from
- Full Control: Employer can control the costs to keep within a budget
- Tax saving vehicles: All expenses paid are fully deductible by the corporation
- Digital Process: Claims can be done online through individual employee accounts.
- Online services and help: 24/7 online services are available
Considering the benefits mentioned above, HSAs are great options for employers who are looking to provide their employees with health and dental benefits. Apart from the tax benefits that HSA will bring to business, having a well-designed health benefit plan will also help boost employee satisfaction and retain your talent, which is especially important in the war for talent these days.
Author: Amy Tong
B.Com, CLU, CHFC, CHS, RCIS
MDRT – Lifetime Member, TOT
President of A.T. Financial Group Inc.
- Insurance and Investment Solution
- Corporation Planning
- Wealth Management
- Estate Planning
- Amy Tong is a graduate of University of Toronto with a degree in Commerce
- She is a Million Dollar Round Table (MDRT) “Top of the Table” qualifier; an honorable accreditation that less than 1% of the world’s life insurance and financial services professionals achieve.
- As the President of A.T. Financial Group and AWM Financial Services Inc., Amy has over 25 years of experience in the financial and insurance services industry and over 20 years expertise in providing financial solutions to professionals in the dental industry.