Health Spending Account: What You Should Know

Executive Summary

Health Spending Accounts (HSAs) offer business owners, their families, the leadership team and their families the opportunity to save money, save tax and retain key staff.   Essentially, the business will pay for medical expenses out of revenue with ‘100 cent dollars’ and then claims these payments as a business expense.  It could be considered to be a type of self-insurance.  

 

The Details

Once established, an HSA works much like a travel expense policy.  Approved, eligible staff have a set of rules to follow to incur a medical expense.  The staff member pays for the visit, procedure or expense and then submits the receipt for reimbursement.

An expense will be approved or declined.  If approved a payment will be authorized and sent by the Administrator to the claimant, just like a traditional employee benefit plan.  

Claimants need not concern themselves with co-pays, deductibles and limits to individual services.  Medical expenses will be funded up to the global limit.  The per-person limit each year without regard for sub-limits for plan elements like dental, eyeglasses, massage therapy, for example.

The business claims the medical expense and the administration fee as a business expense.   The owner, staff or covered family members do not claim this as income, as long as the plan is established and operating according to CRA rules.

Not every business is eligible to participate in an HSA. Unincorporated, sole proprietorships, for example, cannot.  HSAs are legal for corporations, their owners, staff and families, unincorporated business owners, staff and families as long as at least one arms-length employee is present.

 

The Bottom Line

Health Spending Accounts offer a multitude of benefits. They offer the ability to provide benefits with pre-tax corporate dollars, avoid income implications for recipients, and provide flexibility of coverage. 

For more information, on HSAs, I encourage you to get in touch.