Last updated: Mar. 13, 2019
Each year, business owners spend significant money on health care expenses for both their employees and themselves.
Setting up a Health Spending Account (HSA) is an affordable way for Canadian small business owners to minimize their medical expense costs.
Why an HSA?
A Health Spending Account is a tax-efficient way to pay for health and dental expenses.
Health and dental benefits offered through a HSA are fully tax deductible to the business and received 100% tax free by the employees.
It can fit into your existing insurance plan to pay for things not covered (or partially covered), or it can be a stand-alone solution by providing you (and your employees) a reimbursement plan for most health and dental expenses.
Either way, the tax advantages of using a Health Spending Account are unparalleled and should be part of your health and dental budgeting strategy.
You are suitable for an HSA if you:
- Own a business
- Pay medical bills
- Pay income tax/receive T4 income
How Does an HSA Work?
Using an HSA begins when the employee makes a purchase or has a partially paid expense by another insurance plan.
The HSA provider then coordinates the process from receipt of the employee’s claim to funding the reimbursement (up to the appropriate limit as set by your business).
Once the claim has been processed, your company receives an invoice for the service (submitted expense plus 10%) as a business expense and the employee receives the reimbursement tax free.
If you are an incorporated company, you can use a stand-alone HSA and have the option of adding onto it using services like FBC’s InsurPak. All people using an HSA must receive a T4 income to comply with the CRA.
If you’re a Sole Proprietor or Partnership, the CRA requires an HSA program to form a contract of insurance between two separate legal entities.
Since a Sole Proprietor is also the “employee” (one legal entity), relevant insurance components from another legal entity are required to complete the contract of insurance.
Adding FBC’s Insurpak to your HSA ensures that you, as a sole proprietor or partnership, are compliant with CRA.
5 Benefits of Using an HSA
1. Using Pre-Tax dollars to pay for Healthcare
The Canadian Government considers Healthcare expenses to be tax-free if managed within a Health Spending Account.
A Health Spending Account creates an environment for companies to pay for healthcare expenses directly using pre-tax dollars.
If you compare the difference between your company adding money to T4 income, and paying tax on that income, in order to pay for healthcare expenses vs. your business being able to pay directly for them with pre-tax dollars, the savings are significant.
2. Flexible Funding
With most Health Spending Accounts, you have two funding options:
- Pay-as-you-go funding where notifications are sent (email) to the company administrator whenever an employee claim is submitted. The company then provides funding (cheque or online bill payment) to cover the claim plus an administration fee. If no claims are submitted, there is no funding needed.
- Pre-funding where a block of money (any amount) can be submitted (cheque or online bill payment) to create a funding pool that is automatically drawn against for each approved claim.
The choice is yours, and in either case, you will receive an email notification automatically when more funding is required.
3. Transparent Admin
Online applications allow you to control every part of your plan.
Most HSA admin consoles allow you to see exactly the status of your plan, and make any changes you need: Administer benefits, add or modify users, it’s all available via an easy to use web interface.
4. Online Claim Filing
An HSA self-administering claims process makes it easy.
Employees file claims online, directly and discretely, protecting your organization from privacy violations.
Employees have complete visibility into their healthcare spending budget, giving them the ultimate flexibility in deciding how to apply it.
5. Health Spending Accounts offer a large range of allowable expenses
Having an HSA doesn’t mean much if you can’t claim what you need. HSAs cover a wide range of expenses, and you can claim as much towards any expense you want (up to the yearly limit), including:
- Dental (Basic & Major)
- Orthodontics
- Prescription Drugs
- Paramedical Services
- Vision Care
- Physiotherapy
- Chiropractor
- Click here to view / print a full listing of eligible expenses for a FBC HSA
If you’d like more information about an FBC HSA, call our HSA product specialist, David McKenzie. 1-833-813-1541 or dmckenzie@fbc.ca.