What is a health spending account?

What is a health spending account?

A health spending account is an individual account with a fixed dollar amount used by employees and/or their eligible dependents for reimbursement of health and dental-related expenses not covered by provincial health insurance or other group benefit plans sponsored by the employer is known as a health spending account (HSA), also known as a health care spending account (HCSA), or a health reimbursement account.

As a business owner, why would I offer an HSA?

Except for Quebec, most HSAs in Canada are tax-free, allowing employees and dependents to utilize pre-tax corporate funds from an HSA “health expenses bank” to cover medical expenses that would otherwise be paid out-of-pocket.

HSAs are a good method to provide employees greater freedom over how they utilize their benefits because they have a far wider range of eligible expenses than regular plans do.

For small business owners who work independently and are incorporated, this can be a great way to save tax dollars.

What are the eligible expenses allowed in a HSA?

The Canada Revenue Agency (CRA) sets forth the expenses that can be deducted through an HSA and they are identical to the medical expenses that could otherwise be deducted on a person's tax return.

Here are examples of expenses that can be claimed through an HSA:

Medical Practitioners: chiropractor, dentist, dermatologist, gynecologist, nurse, orthopedist, optometrist, psychologist, physiotherapist, obstetrician, optician, ophthalmologist, naturopath, neurological, surgeon, osteopath, pediatrician, physician, psychiatrist, acupuncturist, anesthetist, massage therapist, speech therapist

Medicine and Medical Treatment: alcoholism, birth control pills, blood tests, cardiographs, contact lens, contraceptives, crutches, guide dogs, hearing aids, hydrotherapy, fertility drugs, insulin treatment, lab tests, laser eye surgery, metabolism tests, radium therapy, prescription drugs, pre-natal care, post-natal care, splints, spinal fluid test, sterilization, private hospital room, vaccines, vasectomy, vitamins prescribed with a prescription.

Dental Treatment: braces, bridges, crowns, root canal, dental X-ray, dentures, examinations, extractions, fillings, fluoridation, gum treatment, oral surgery

Other Medical expenses: artificial eye, artificial limbs, wheelchair, diagnostic fees, diabetic supplies-with a prescription, X-Rays, cat scan, MRI, eye glasses, oxygen equipment, kidney machine, pacemaker, hearing impaired equipment, transportation relative to healthcare

What are the options for a HSA?

A stand-alone HSA might be provided by the employer or as a component of a group benefits plan.

Usually, the employer contributes the full amount to the account. At the start of each year, the employer decides which group(s) of employees (also known as Classes) are eligible and how much they will contribute to the employee's HSA "health expenses bank."

In the Management Class, for example, all managers receive $1,000 in their HSA "bank" annually. Each member of the class receives the same amount of money. Each year, every Non-Management Class employee receives $500 in their HSA "health expenses bank").

If an HSA is added to a traditional group plan, any medical expenses incurred by employees must first be reported to their group benefits plan. The HSA can then be used to report any unpaid expenses.

What happens to unused HSA funds?

When it comes to handling any leftover money or expenses at the end of the fiscal year, the employer has two?options:

Any unused cash or expenses may be allowed or disallowed by the employer to carry over to the following plan year.

Unused funds will be lost and sent back to the employer if rollover is not allowed.

If an employer permits unused contributions to carry over to the following plan year, they may specify a maximum rollover amount on the condition that any unused contributions will be forfeited and returned to the employer at the end of year two – funds cannot be carried over indefinitely.

Overall, HSA’s can be used to pay for a wide range of health and wellness expenses. HSA’s are a great way for businesses to offer health and wellness benefits to themselves and their employees.