Health Spending Accounts For Canadians Explained

A Health Spending Account (HSA), also known as a Health Care Spending Account (HCSA) or Health Reimbursement 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 under provincial health insurance or other group benefit plans sponsored by the employer. 

Why Offer an HSA?

In Canada, HSAs are tax-free in most cases (with the exception of Quebec), meaning employees and covered dependents use pre-tax corporate dollars, from an HSA 'bank', to pay for medical bills that would normally be an out-of-pocket expense.

HSAs are an effective way to give employees more flexibility in how they use their benefits as the scope of what can be reimbursed is much broader than what is typically covered under a traditional plan.

Eligible Expenses

Expenses that can be claimed through an HSA are dictated by the Canada Revenue Agency (CRA) and are the same as the medical expenses that could otherwise be claimed on an individual's tax return.

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

• Prescribed medications not covered by traditional benefits plans (or the co-pay amount not reimbursed by the plan) or above the plan maximum.
• Eye care services such as exams, prescription glasses, contacts, or laser eye surgery.
• Paramedical services provided by eligible licensed medical practitioners like massage therapists, chiropractors and physiotherapists (see eligible practitioners).
• Dental care not covered by traditional benefits plans (or the co-pay amount not reimbursed by the plan) or above the plan maximum.
• Full-time home care or home modifications for medical conditions.
• Prescribed medical supplies, devices and equipment like air filters, blood pressure monitors, bathroom and mobility aids (see eligible supplies) 
• Diagnostic and rehabilitation services
• Medically-required travel expenses such as ambulance services

It's important to know there is no insurance protection for catastrophic expenses or out-of-country coverage with an HSA. Once you've hit your allocated HSA limit, you're done. A traditional group benefits plan can provide this.

HSA Options

An HSA can be offered by the employer in two ways: on a stand-alone basis, or as part of a group benefits plan. The financial responsibility of the employer and employee varies depending on the implementation of the HSA.

1. Stand-alone HSA (aka Private Health Services Plan/PHSP):

• A stand-alone HSA/PHSP is a flexible option for self-employed and small businesses. 
• The account is typically fully funded by the employer.
• The employer determines which group(s) of employees (aka Classes) are eligible and how much they will invest in the employee's HSA 'bank' at the beginning of each year.
• Each member of a class receives the same fund amount  (e.g. All managers in the Management Class receive $1,000 in their HSA 'bank' per year. All employees in the Non-Management Class receive $500 in their HSA 'bank' per year).
• A valid HSA must conform to CRA Private Health Service Plan rules.

2. HSA as part of a group benefits plan:

• Employees must first submit any medical expenses through their group benefits plan. Any expenses not covered can then be submitted through the HSA.

• The HSA is typically funded by the employer to ensure it's most tax-effective but it can be funded by both the employer and the employee.
  • However, any employee contributions are deducted from the employee payroll on an after-tax basis thereby eliminating the tax advantage of an HSA - which is why HSA's are most commonly funded by the employer.

In both cases, the HSA 'bank' balance decreases as claims are reimbursed until the balance reaches zero.

Unused HSA Funds

The employer has these options for handling unused funds and/or expenses at the end of the year:

1. Employer chooses to allow/disallow any unused funds or unused expenses to roll over into the next plan year.
2. If rollover of unused funds is not permitted, the funds will be forfeited and returned to the employer.
3. If an employer allows unused funds to rollover to the next plan year, they can set a maximum rollover amount with the condition that any unused funds will be forfeited and returned to the employer at the end of year two - funds can't be carried over perpetually.

HSA Taxation

• Employer funds + administration fees are both tax-deductible business expenses for employers.
• Employee expenses submitted and reimbursed through an HSA are reimbursed to the employee tax-free.

HSA Administration Fees

• Most insurance companies charge a set-up fee combined with a claims administration fee to manage the administration and cost of paying claims.  Simply Benefits does not charge a set-up fee to administer an HSA.  We offer a competitive fee based on the size of your group.

How Members Submit an HSA Claim

In the Simply Benefits platform, we make it easy for members to submit claims through their HSA. See how:

Quick Tip: In the Simply portal, for members that submit a claim through their traditional plan first, they can submit any unpaid amount automatically (in one claim) through their HSA by choosing the Top Off option(see screenshot below). Members are typically are reimbursed within 48 hours.

Taxable Lifestyle Spending Accounts (LSA)

Though they may sound similar, a Health Care Spending Account and a Lifestyle Spending Account (LSA) operate differently. Unlike an HSA, an LSA is considered a taxable benefit. The employer decides what lifestyle expenses will be reimbursed, and after-tax dollars are used to cover the products and services. Commonly reimbursed expenses are non-medically required products and services that fall under categories such as:

• Health (ie. massage units, vitamins and supplements, weight loss programs)
• Cosmetic (ie. teeth whitening, cosmetic dermatology, hair replacement) 
• Fitness & Sporting Goods (ie. gym membership, ski passes, fitness trackers)
• Alternative Practitioner (ie. meditation classes, aromatherapy, reflexology)
• Personal (child daycare services, parking pass, legal fees)
• Other (elder care, spa services, veterinary fees)

Final Thoughts

Given the tax-free benefits, Health Spending Accounts are a great option for any business looking to provide their employees with health and dental benefits. Further, as new generations continue to enter the workplace, spending accounts are becoming increasingly popular. Stay on top of the trends with more information on the type of benefits that millennials want.

Employer Looking to Offer a Spending Account?

If you don't offer a Spending Account already but would like to, it's easy to add! Just speak with your benefits advisor to set one up. If you need an Advisor, contact us and we'll introduce you to one of our partners.

Questions About Your Simply Benefits Spending Account?

Contact the Simply Benefits Support Team.

Advisor Looking for a New Innovative HSA Solution?

Simply Benefits providers both Health Spending Accounts and Lifestyle Spending accounts. Speak with our sales team to learn more. 

Additional Employee Resources

If you're an employee looking for help to better understand your group benefits plan, check out these resources:

• Employee Health Benefits Coverage Types Explained in 5 Minutes
• How the Dental Fee Guide Impacts Your Employee Benefits Plan
• How Employee Group Life Insurance Works
• Cost Saving Strategies for prescription drugs and paramedical and dental providers.

About Simply Benefits

Simply Benefits is Canada's newest Third Party Payor (TPP) that provides Employee Health Benefits 100% digitally through our Canadian Advisor partners. Our all-in-one digital solution provides three portals that enable Benefits Advisors to digitally manage all client plans online, Employers to efficiently administer employee coverage, and Employees to view, update and use their benefits 24/7 via desktop or smartphone app.

We help ENGAGE Employees Anytime, Anywhere, SIMPLIFY the Benefits Experience, and EVOLVE an Advisors’ Benefits Business.

Connect with us at simplybenefits.ca or on LinkedIn, Twitter, Facebook, Instagram, and YouTube.

Employee Benefits Made Simple.