A Health Spending Account allows an employer to offer an effective benefit solution while working within a budget.  For ease you may wish to think of this plan as a “pre-defined contribution” plan as the cost is specified but the coverage is flexible. 

The employer designates a dollar amount that each employee may use on any CRA (Canadian Revenue Agency) eligible health and/or dental expense.  The amount designated is the maximum amount that each employee may spend in a one year period.  Therefore the employer knows in advance the maximum potential cost.  At the beginning of each year the maximum amount starts again.

Employers also have the option to offer a “carry forward”.  This would allow funds that were not used to carry forward an additional one year period.   Meaning, should the employee have money left over at the end of the year one, unused amounts may be carried forward until the end of the 2nd year.  If there are still unused amounts at the end of the second year, the money would forfeit back to the employer.  The forfeit must be designated at the beginning of the year and must be the same for each class or division.  Please note that forfeits are considered taxable income to the employer upon return, as the employer would have received a tax credit the year prior.

Example:

A HCSA can be the solution for many situations including:

• Companies with no current coverage
• Employers that must work within a budget (non-profit organizations)
• Employers with high turnover issues but still want to offer benefits
• Employers that would like to “top up” their traditional benefits with a budgeted mechanism
• Employers that may offset their traditional plan in efforts to control claims experience and premiums of the traditional plan
• Employer groups of any size, par time staff, contractors

HCSA Feature Highlights

• Expenses/ costs are known upfront
• Costs will never increase unless the employer increases the benefit or additional employees are added
• Benefit spending is flexible for each employee (the employee’s choose what they use their benefits for)
• Employees may purchase other Non Provincial Accident and Sickness products such as critical illness, individual health and dental plans etc with the funds in a HCSA
• Additional insured products such as travel or catastrophic health coverage (stop loss) may be attached to the HCSA
• Available to a greater range of people.  Individual applicants with pre-existing health conditions or high drug expenses, who have been declined by other insurers, may qualify to participate in the Medical Dental Spending Account without any health evidence.
• Future HCSA costs are not impacted by health and dental claims experience
• Benefits received by employees from the HCSA are tax free
• Contributions made by the employer are a tax- deductible business expense

How an HCSA works

The total benefits which may be claims from the HCSA in any calendar year are limited to the total amount contributed to the account by the employer in that year, plus any balance remaining from the used credits for the immediately prior year.  The benefits which may be claimed are limited to the amount accrued in the account.

HCSA Illustration:

In this illustration, $100.00 is contributed by the employer ($1,200 / annum).  Claims for the year totaled $889.00, leaving a balance of $311.00 to be carried over into the second year.  Any claims incurred in the second year will be paid firstly from the $311.00.  If any balance of the first year’s contribution remains unused at the end of the second year it will be forfeited to the employer.  The $889.00 received as claim payments is tax free to the employee.  Claim expenses not reimbursed in a plan year cannot be carried over to the next year.