Health Spending Account Basics
To better explain everything you need to know about a Canadian HSA, we sat down virtually with our HSA Manager, Alex Miljkovic from Benefit Deck. Here’s everything we learned from Alex:
What is a Health Spending Account?
An HSA is self-insured benefits account that an employer can set up for their employees.
How much coverage does an HSA provide?
HSAs are completely customizable. Employers decide both the limit that employees are entitled to (ex. $1,000 per year), and the amount of each claim that is reimbursed (ex. 100% or 80%). All employees within the same class (job role) must have the same limit, but different classes may be entitled to different limits. Any amount that is not covered under the HSA is an out-of-pocket expense to the employee.
If a company has an HSA, does it need any other form of health insurance?
No, a HSA can be used as a stand-alone solution for providing health benefits to employees.
Where do the funds in an HSA come from?
A HSA is connected directly to the business’s operating account. It activates when a claim is made.
How do employees access the funds in an HSA?
Employees download an app that provides them with a login id and their HSA information, including limits, claims history, and more. Employees pay for health services-out-of-pocket, then take a photo of the receipt and upload it to the app as a claim. Reimbursement usually happens within 48 hours.
Are employees’ dependents covered under an HSA?
Dependents are covered, but the limit is shared between an employee and all their dependents. If employees have a limit of $1,000 per year from the HSA, this limit extends to their dependents as well, but it is all-inclusive.
For example, if an employee has a limit of $1,000, and they have 3 dependents, the $1,000 will be shared among 4 people. The $1,000 does not need to be shared equally; it is up to the employee and their dependents to allocate the funds in any way they decide.
Do employees have the option to opt-out of an HSA?
Employees can opt-out of an HSA, but given the account’s attractive nature, this is a rare occurrence.
Are HSAs tax-free?
Claims from an HSA are reimbursed tax-free.
Is a Health Spending Account Right for my Business?
Now that we know the basics, let’s discuss whether an HSA is the right health insurance solution for all small businesses. Here’s what Alex had to say:
Do all small businesses qualify for an HSA?
Yes, all businesses qualify for an HSA.
Do you recommend that all small businesses open an HSA?
It is important to consider the unique needs of a business in order to determine whether or not an HSA is the right solution; however, due to its dynamic nature, an HSA can be attractive for almost all businesses.
What are the main advantages of an HSA for small businesses in particular?
An HSA is a viable and cost-effective alternative to health insurance for many small business owners. Instead of paying premiums and deductibles to get health coverage, employees can simply be reimbursed from the HSA. The account also saves money for employers by removing the income tax from medical expenses by paying for the expenses through the business. Additionally, an HSA acts as a good tool for attracting talent to your business.
Health Spending Accounts are a great option for providing health benefits to your employees. To learn more about HSAs, or other healthcare plan alternatives, contact our friends at Benefit Deck.
For all your bookkeeping, accounting, tax, and virtual CFO needs, reach out to us anytime at Blueprint Accounting. We’d love to help you grow your business!