A Private Health Services Plan, or Health Spending Account (HSA), is a variation of a traditional group benefit plan that provides reimbursement for a wide range of health and medical-related expenses. HSA’s are administered in accordance with Canada Revenue Agency guidelines. HSA’s provide a cost-effective way for an incorporated business to provide health and dental benefits to their employees. For business owners, the HSA turns your (& your dependents) after-tax, personal medical expenses into before-tax business deductibles. Under current Canadian income tax laws, there is a limit on the amount an individual can claim on their personal tax return for medical expenditures, whereas the HSA allows a higher threshold. Being able to use before-tax, corporate dollars to pay for personal medical expenses makes the HSA an incredibly valuable tax-planning mechanism for business owners. Furthermore, it provides tremendous control when it comes to offering extended health and dental coverage to employees.
What are the costs?
- A one-time setup fee of $250, which is a deductible business expense.
- 10% administration fee on all claims (example given below).
- No annual premiums, deductibles, or hidden fees. If the business does not use the HSA because there were no medical expenses incurred, there are no costs to the business.
How does it work?
- The employee pays their $500.00 dentist invoice on their personal debit or credit card.
- The employee goes online to their HSA portal and submits a copy of the $500 dentist invoice.
- The business submits payment for $552.50 ($500 dental bill + 10% admin fee + 5% GST on the admin fee) to the HSA provider – fully tax-deductible.
- The employee receives a tax-free direct deposit from the HSA provider for $500.
- The business has a deductible expense for the full amount submitted and the employee faces no tax implications or out of pocket costs.
Scenarios for a Health Spending Account:
- Let’s say a business consists of the owner and 4 employees. The owner wants to provide an extended health plan for the employees but is concerned about the cost of premiums with a traditional group benefit plan. To maintain complete control, the owner implements a HSA, providing each of the employees with $1,000 to use over the course of the year. It is entirely up to the employee how they spend their “extended health and dental” funds. They can go for periodic massages, they can go to the dentist, the chiropractor, etc. The owner knows exactly what this is going to cost for the year ($1000 x 4) and the employees are provided with some health & dental flexibility.
- Under an alternative scenario, let’s assume a business consists of just one individual, the owner, who is actively involved in the business as an owner-operator. They have a spouse and young children who are not covered under any other benefit plan. When setting up the HSA, the spouse and children can get added to the plan as dependents of the owner. This allows the business, through the HSA, to deduct the eligible medical expenses incurred by the owner, the spouse and the children.
- The HSA also works in conjunction with traditional, premium-paying group benefit plans. For example, if a business owner is covered under a group benefit plan that their spouse belongs to, there are commonly co-pays attached, where the plan member might have to pay 20% of the expenditure out-of-pocket. The business owner can set up a Health Spending Account for their business and expense the out-of-pocket portion through the HSA.
To speak to us about setting up a Health Spending Account for your business, contact Jeff Graham at 604-761-7543 or email@example.com. The setup process involves a few basic forms and can be completed electronically in a matter of minutes.