Health Spending Account Guide for Small Businesses

Adding a Health Spending Account (HSA) option to your small business’s benefits package not only helps attract employees, but it also helps your business. If your small business already has an HSA, you want to make sure you use it to its fullest—and that’s what this guide is all about.

Today, we’ll explore what a Health Spending Account is, what it’s for, how it works, and how it benefits you and your employees.

A corporate Health Spending Account for a small business, sometimes called a Private Health Services Plan (PHSP) or Health Care Spending Account (HCSA), is an account you use to pay for your employees’ health insurance overflow expenses. In other words, the account covers expenses your existing group policy does not cover. An HSA reimburses your employees for their eligible health care expenses.

With these impressive benefits, you might wonder why everyone doesn’t have a Health Spending Account for their small business—not all businesses qualify for an HSA.

To set up a Health Spending Account in Alberta, you must:

A Health Spending Account differs from an insurance policy in that there are no surprise premiums or fees. The best part is, you can deduct covered dental and health expenses on your taxes, and so can your employees.

Health Spending Account benefits are for your employees who have health coverage as part of their employment package. Small businesses can offer an HSA as a stand-alone benefit or as part of a flexible benefits plan.

In general, the Health Spending Account you choose for your business offers a fixed amount per year available to each eligible employee.

Each month, you, and possibly your employees, contribute a fixed amount of money to the Health Spending Account. Those employees enjoy this tax-free money by applying it to whatever health expenses they choose—so long as they are approved expenses under the HSA.

However, the process doesn’t work quite like health insurance, where the care provider bills the insurance provider directly. Instead, employees pay their medical expenses with their own money and make a claim against their Health Spending Account.

Once approved, you reimburse the employee through their Health Spending Account for that medical expense. As long as there is money in the Health Services Account, the employee’s out-of-pocket expenses are zero.

If there is any money left over in the HSA after a set term, often monthly or annually, the employer receives the funds back from the Health Spending Account.

Although a Health Spending Account covers a host of different medical expenses, it doesn’t cover everything—which makes sense. It is a supplemental form of coverage, after all. Here are some expenses that a Health Savings Account should cover that go beyond your health benefits or dental benefits plan.

This isn’t an exhaustive list, but it gives you a good idea about the breadth of Health Spending Account coverage. You’ll be given a complete explanation of coverage options when you establish your account.

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There are a few ways Canadian corporations and small businesses can use a Health Spending Account in a benefits package for employees. You can offer a Health Spending Account to cover copays that employees would generally pay out of pocket. That way, they have zero expenses when they need to see a doctor.

Another way to use a Health Spending Account for employees is to supplement their coverage for expenses that are not in their plan at all.

Health Spending Accounts can also be a great alternative to health benefits coverage altogether.

Besides the benefit of covering expenses for the employee, a Health Spending Account has tax benefits as well.

If you were to directly fund healthcare costs for your employees by giving them cash, they would have to declare that as income on their taxes. As a result, their taxable income would increase, and, in turn, their tax liability.

With an HSA, the money is not considered income and is non-taxable. In addition to the employee tax benefit, a Health Spending Account is 100% tax-deductible for you as well.

Given those two factors, it’s hard to imagine a reason not to add a Health Spending Account to your employee benefits package.

Although a Health Spending Account is useful for employees to cover expenses that fall outside of their healthcare plan, the funds are not unlimited. If your employees’ group health care plan doesn’t provide adequate coverage, you have the option to offer extended health care to them.

An extended health care benefit covers expenses that your employees’ health plan doesn’t cover. Any expenses exceeding the limits of your employees’ health coverage plus their extended health care, falls to their Health Spending Account.

Adding a Health Spending Account to your small business benefits package is a smart move to attract the best employees to your business.

These days there’s more competition for top talent than ever before—and those applicants know it. They aren’t just looking for a company that offers a fair wage. They expect a comprehensive benefits package and a company culture that reflects a sense of commitment and care for employees.

An HSA is just one more way to round out your benefits package to attract and retain skilled staff. Even better, not only does it provide them with the means to pay for their medical expenses with no tax consequence, but your business benefits too.

Providing this benefit to your employees is 100% deductible for your small business as a corporate tax deduction. Plus, employees with reliable health coverage are more likely to seek care when they need it and keep up on preventive services—that means fewer sick days.

If you are ready to find out more about how a Health Spending Account benefits your employees and your business, contact Group Enroll for information and quotes from Canada’s top insurance providers!