Who exactly are Health Spending Accounts (HSAs) for, and why are they useful?
If you’re self-employed and incorporated, a Health Spending Account (HSA) is an excellent way to reduce the cost for you, your family, and your employees share of their Health and Dental expenses to a meaningful degree.
In short, an HSA enables you to treat personal health and dental expenses as legitimate business expenses.
There is no ongoing monthly or annual cost to maintaining an HSA, and as an APEGA member the normal registration fee is waived for you. There is only an administration fee (10%) when claiming expenses, but even with the fee the math is much more favorable than without an HSA.
Let’s illustrate how a Health Spending Account (HSA) works using an example:
- Step 1: Say you go and visit the dentist for a routine teeth cleaning. The visit might cost you $200. You pay the $200 personally using a personal credit card.
- Step 2: You would subsequently submit your $200 expense to the HSA Provider. You can submit the expense conveniently and securely either by taking a photo of the receipt using a mobile app, or online using a secure web portal.
- Step 3: Concurrent with submitting your expense, your corporation provides funding for $220 (i.e. $200 + a 10% fee). These funds must come from your corporate bank account and go to the HSA Provider. These payments can be made easily and conveniently using online banking.
- Step 4: The HSA Provider reviews your expense to ensure it is compliant with CRA guidelines. Assuming that the expense is compliant, the HSA Provider will then deposit (credit) $200 into your personal bank account.
Once this process has completed, you will have successfully been reimbursed personally (tax-free) and paid for the expense corporately.
This is a business expense just like any other – you treat it similarly to how you might for anything else your business pays for as part of its regular operations (e.g. office supplies, internet, business meals etc.).
Why is this valuable and how does it save you money?
To help illustrate, let’s compare the two ways one might pay for the $200 dental expense. One can either pay personally out-of-pocket or pay using an HSA.
Say you didn’t have an HSA setup and chose to simply pay the $200 dental expense out-of-pocket instead.
Whenever you pay any expense personally, you are spending after-tax dollars.
If we assume you live in Alberta, and pay the top-marginal tax rate (48%), it means that in order to have $200 (after-tax) in your pocket that you can spend at the dentist, you must first earn $384.61 before-tax.
Put another way; if you earn $384.61 of income you are left with $200 after paying the income tax.
So, when you paid $200 personally at the dentist, it is in fact costing you $384.61 before-tax in this illustrative example.
Paying Using an HSA
By contrast, if you use an HSA to pay for the same $200 expense, your corporation will only require $220.
This means an immediate savings of $164.61 (i.e. $384.61 - $220 = $164.61) on your $200 dental expense, or about 43% in percentage terms.
It is the same $200 dental expense, but paid for in two very different ways, the result being that one way (using an HSA) is substantially less expensive than the alternative (paying out-of-pocket personally).
What if you have Health and/or Dental insurance already?
A Health Spending Account works well independently of an insurance plan but is also complimentary.
Let’s illustrate how a Health Spending Account (HSA) works in conjunction with your insurance plan using an example:
- Step 1: Say you go and visit the dentist for a routine teeth cleaning. The visit might cost you $200. You submit the expense to your insurance company for reimbursement. The insurance company reimburses some percentage (percentage will vary depending on your plan), and you pay the balance out-of-pocket. Let’s say the insurance company reimburses 80% of your $200 dental expense – this leaves you with $40 that you must pay out-of-pocket (i.e. the balance of 20%).
- Step 2: You would then submit your $40 expense to the HSA Provider. You can submit the expense conveniently and securely either by taking a photo of the receipt using a mobile app, or online using a secure web portal.
- Step 3: Concurrent with submitting your expense, your corporation provides funding for $44 (i.e. $40 + a 10% fee). These funds must come from your corporate bank account and go to the HSA Provider. Again, these payments can be made easily and conveniently using online banking.
- Step 4: The HSA Provider reviews your expense to ensure it is compliant with CRA guidelines. Assuming that the expense is compliant, the HSA Provider will then deposit (credit) $40 into your personal bank account.
In short, if you have insurance and an HSA you would submit the expense to your insurance first, and to the HSA second (or concurrently).
HSA’s can be used for you and your family, as well as for employees where applicable and their family members as well - so it can serve as an excellent employee benefit for attracting and retaining your employees.
As an exclusive APEGA member benefit, the $300 registration fee is waived for you when setting up a new Health Spending Account. This waived fee typically covers the necessary documentation, and onboarding costs, as well as the market leading online and mobile software platforms.
Representatives from Garrett Agencies and National Healthclaim are available to support you in getting your HSA setup and can assist with the signup process as well as address any potential questions or concerns you may have. We also encourage you to have a conversation with your accountant regarding accounting specific to your circumstances or tax-specific matters.
Health Spending Accounts are administered by National Healthclaim, which was selected based on quality of its online tools, customer experience, and commitment to verifying all claims to ensure CRA compliance.
This article is being provided by APEGA on behalf of Garrett Agencies which has a group sponsorship agreement with regards to health spending accounts for our members.
Garrett Agencies is an independent insurance consulting firm that has supported and serviced the Engineers Canada plans for over 25 years. Garrett Agencies regularly provides competent professional advice and customized insurance, tax, and estate planning solutions to thousands of APEGA members – at no additional cost. In addition to being the authorized advisors (Engineers Canada Plans), Garrett Agencies accesses the entire Canadian insurance marketplace to provide objective analysis and comparisons regarding any life or health insurance product offerings available in Canada for both individuals and businesses.
For Health Spending Account advice, benefits, and other details, or to apply, visit the Garrett Agencies Website or call 1-800-661-3300 (Monday to Friday, 8:30 a.m. to 4:30 p.m. MST).
Health Spending Accounts are administered by National Health Claim Corporation – a premium provider of Health Spending Accounts.