Health Care Spending Accounts
What Is a Health Care Spending Account?
Health Care Spending Accounts (HCSA) are used as a way of funding health and/or dental benefits while providing increased flexibility to both employees and employers. Health Care Spending Accounts are Individual Employee Accounts that reimburses the eligible medical and dental expenses of Canadian employees, their spouses and dependents. The employer allots a set amount of funds to each employee, each year. The employees then choose how to spend the Health Care Spending Accounts funds as best suited for their needs. These funds may be used to pay for health and dental expenses not otherwise covered by a Group Benefits Plan or Provincial Health Plan. Accounts are governed by taxation rules and regulations developed by the Canada Revenue Agency (CRA). The employer is only required to contribute for claims submitted, any unused funds are either carried forward to the following year or forfeited.
Who is eligible?
Typically, an incorporated business or sole-proprietorship with at least three (3) eligible employees can qualify for Health Care Spending Accounts. Some plans can be set-up with only an owner if the company is incorporated.
What does it Cover?
Expenses must qualify for Medical Expense Tax Credits under the Canada Revenue Agency (CRA) Income Tax Guidelines (www.cra-arc.gc.ca), including but not limited to:
- Acoustic coupler
- Air conditioner
- Air filter, cleaner, or purifier
- Altered auditory feedback devices
- Ambulance service
- Artificial eye or limb
- Assisted breathing devices
- Attendant care expenses
- Audible signal devices
- Baby breathing monitor
- Bathroom aids
- Bliss symbol boards
- Blood coagulation monitors
- Bone conduction receiver
- Bone marrow transplant
- Braces for a limb
- Braille note-taker devices
- Braille printers, synthetic speech systems, large print-on-screen devices
- Breast prosthesis
- Cancer treatment
- Catheters, catheter trays, tubing or other products
- Cochlear implant
- Computer peripherals
- Cosmetic surgery after March 4, 2010
- an expense for cosmetic procedures incurred after March 4, 2010 will continue to qualify as a medical expense only if it is necessary for medical or reconstructive purposes, such as surgery to address a deformity related to a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease.
- Deaf-blind intervening services
- Dental services
- Dentures and dental implants
- Devices or software
- Diapers or disposable briefs
- Doctor – see Medical services provides by qualified medical practitioners
- Driveway access
- Drugs and medical devices bought under Health Canada’s Special Access Program
- Elastic support hose
- Electronic bone healing devices
- Electronic speech synthesizers
- Electrotherapy devices
- Environment control system (computerized or electronic)
- Extremity pump
- Gluten-free products
- Persons with celiac disease (gluten intolerance) can claim the incremental costs associated with buying gluten-free products as a medical expense. The incremental cost is the difference in the cost of gluten-free products compared to the cost of similar products with gluten. It is calculated by subtracting the cost of a product with gluten from the cost of a gluten-free product.
- Group home – see Attendant care or care in a facility
- Hearing aids
- Heart monitoring devices
- Hospital bed
- Hospital services
- Ileostomy and colostomy pads
- Infusion pump
- Injection pen (such as an insulin pen) Insulin or substitutes
- In vitro fertility program
- Kidney machine
- Laboratory procedures or services
- Large print-on-screen devices
- Laryngeal speaking aids
- Laser eye surgery
- Lift or transportation equipment (power-operated)
- Liver extract injections
- Medical marijuana
- Medical services provided by qualified medical practitioners
- Medical services provided outside Canada
- Moving expenses
- Needles and syringes
- Note-taking services
- Nursing home – see Attendant care or care in a facility
- Optical scanners
- Organ transplant
- Orthodontic work
- Orthopedic shoes, boots, and inserts
- Osteogenesis stimulator (inductive coupling)
- Oxygen and oxygen tent
- Oxygen concentrator
- Page-turner devices
- Personalized therapy plan
- Phototherapy equipment
- Premiums paid to private health services plans
- Pre-natal and post-natal treatments
- Prescription drugs and medications
- Pressure pulse therapy devices
- Reading services
- Real-time captioning
- Rehabilitative therapy
- Renovation or construction expenses
- Respite care expenses – see Attendant care or care in a facility
- School for persons with an impairment in physical or mental functions
- Sign-language interpretation services
- Spinal brace
- Standing devices
- Talking textbooks
- Television closed caption decoders
- Treatment centre
- Truss for hernia
- Tutoring services
- Vehicle modification
- Vision devices
- Visual or vibratory signaling device
- Vitamin B12
- Voice recognition software
- Volume control feature (additional)
- Walking aids
- Water filter, cleaner, or purifier
- Wheelchairs and wheelchair carriers
- Whirlpool bath treatments
This list is provided for convenience and is accurate at the time of writing. You must comply with CRA’s guidelines as eligible expenses are determined by the CRA please visit www.cra-arc.gc.ca for further details.
How does it work?
The employer will determine the amount of funds allocated to each employee of a given class. Employers also select how often the funds can be made available to their employees (monthly, quarterly, semi-annually or annually).
The employer will select the rolling type as set out below:
Unused Health Care Spending Account contributions are rolled over into the next year but must be used by the end of that year.
Claims incurred beyond the Health Care Spending Accounts benefit amount are paid out of the following year’s contributions
Unused contributions are forfeited at the end of the year.
Some plans will require a security deposit equal to two months of anticipated claims plus fees and taxes.
Employees get the freedom to choose how they spend the Health Care Spending Accounts funds as best suited for their needs.
Is A Health Care Spending Account Insurance?
To put it simply, a Health Care Spending Account is more like the pre-paid Visa of the benefits world. For this reason, the utilization tends to be 100% and employers should plan for this in their budget. Health Care Spending Accounts can be purchased as stand-alone products but is typically added to a Group Benefits plan to add more flexibility, control costs and/or enhanced coverage. If purchased on a stand-alone basis, it is difficult to pay for claims that are catastrophic in nature such as drug coverage, medical expenses, large dental expenses and emergency out of country medical insurance which are best left insured.
What are my options?
Provide a stand-alone Health Care Spending Account
This option is great for predictable benefit costs, flexibility for employees and budgeting purposes. The problem here, is that claims will only be paid up to the contribution limit. While this offers employees with flexibility and choice, they may not have their claims covered beyond the typically conservative contribution limit.
Provide traditional, fully insured benefits and top-up coverage with a Health Care Spending Account
This option allows the employer to provide traditional insurance, which allows the employees to have more security, with the added flexibility of topping up their coverage or claiming things not covered by the core plan through a Health Care Spending Account. A knowledgeable group benefits advisor will be able to find you a creative mix of options which can protect your employees, offer flexibility and cost stability. This means not pulling a product off the shelf but instead customizing and designing the right plan and mix of options for you and your employees.
Provide a Health Care Spending Account with fully insured catastrophic coverage
Catastrophic coverage combined with a Health Care Spending Account (HCSA) covers unpredictable medical expenses like high cost prescription drugs, accidental dental, hospital, and emergency travel while utilizing a health care spending account for the smaller claims.
Traditional Insurance v. Health Care Spending Account
With an insured plan, the plan design is determined by the employer and is the same for each class of employees. This type of plan is referred to as a Defined Benefit (DB) Plan. The monthly premiums are paid for by the employer (at least 50%) and premiums will fluctuate from year to year. Coverage levels, coinsurance, and deductibles are selected by the employer.
A Health Care Spending Account, is typically fully funded by the employer using pre-tax income. If an employee contributes to a Health Care Spending Account, it must be with after tax dollars and therefore this would not be beneficial. This type of plan is referred to as a Defined Contribution (DC) Plan. It is the employee’s choice as to what health or dental expenses they use their contribution amounts for and employees are not restricted by plan design, coinsurance and deductibles. Any expenses must qualify for medical expense tax credits under the Income Tax Act, per Canada Revenue Agency’s Guidelines. An employer will contribute a pre-set annual contribution amount, which is allotted to each employee. A Health Care Spending Account allows an employer to control their costs at a pre-determined budget.
Health Care Spending Account Coverage Levels
Typically, Health Care Spending Accounts can be set-up with amounts, per employee, per year as follows:
The balance of Health Care Spending Account is reduced by the claims an employee is reimbursed for through the account.
Treatment of premiums
With some Health Care Spending Accounts, any surplus generated at the end of the year does not become the property of the Insurance Company. Rather, any surplus can be rolled over to future years for the employee or retained by the employer, if unused after two years.
Employees can use their contributions towards eligible expenses that are important to them. In contrast, a traditional insured plan must stipulate specific benefit levels, i.e. coinsurance, annual maximums etc.
Scope of coverage
A Health Care Spending Accounts scope of coverage can be greater as it is not limited to a pre-determined plan design and can cover non-traditional expenses per CRA’s guidelines. Though the scope of benefits may be greater, the coverage will be capped at the contribution level, traditional insurance/benefits may allow the employee to claim much more in terms of dollars when compared to a Health Care Spending Account. Even a basic, traditional group benefits plan will typically allow an employee to claim much more in dollars though it may be limited in terms of the scope of benefits offered.
In summary, Health Care Spending Accounts are a great way to make plans more flexible in a simple manner. They can also provide a means of covering predictable elements of an insurance plan in an affordable way. Employees are looking for more flexibility now more than ever and the trend will continue, while employers are looking at ways to control their escalating costs and still provide a competitive solution. A Health Care Spending Account allows employers to offer a new benefit to employees without being subject to unexpected utilization. It delivers benefits in a tax effective manner, allows employees to claim expenses that may not have otherwise been reimbursed under the Group Benefits Plan and can allow for predictable expenses such as vision, paramedical and sometimes dental to be eliminated from the core Group Benefits Plan to keep rates stable. The question then becomes whether a Health Care Spending Account alone is enough coverage for you or your employee’s and if not, what is the ideal blend of insurance to combine it with based on your needs? A knowledgeable group benefits advisor will be able to review your needs and history to come up with and design an ideal solution for you and your employees.