Healthcare Spending Account Guide for Small Business

Learn about Flexible Healthcare Spending Accounts (FSA)and how to select one for your business.

FSAs are considered by many to be the best option for small businesses to provide employee benefits. This guide will help you understand what an FSA is, how it can help your business and your employees and how to select the best FSA for your business.

The Benefit of Benefits

Having a benefit plan, such as a Flexible Spending Account for your employees has a number of benefits, including:

• You, as the business owner, get benefits too
• Tax benefits help your bottom line
• Having employee benefits helps you to attract new employees
• Having employee benefits helps you to retain employees
• Employee benefits can reduce stress because your employees have benefits that help them in times of trouble
• Employee benefits can help your employees live healthier lives, reducing sick days and increasing productivity

FSA Helps to Attract Employees

An employer sponsored Health Care Account goes a long way to help employers attract and retain employees. Adding an FSA makes your benefits offering more robust, helping you find and keep good employees. An FSA allows you to offer health benefits for the first time due to affordable costs.

HSA Reduces Stress

Employers and employees worry less knowing there are benefits to cover health and wellness expenses. This reduces stress and empowers employees to successfully manage their healthcare expenses. As a by- product when we reduce employee stress and anxiety, we help their wellness and they feel better and they will need less healthcare expenses.

Affordable Benefits for Employees

For any growing small business, at some point, the business owner needs to start thinking about providing benefits for their employees. Small business owners will often procrastinate on getting benefits for as long as possible, because traditional employee benefits programs are very expensive.

Most small business owners don’t know there is an alternative to traditional employee benefits plans. Flexible Spending Accounts are a highly flexible option. FSA’s enable a small business with a small budget to provide employee benefits.

This guide will orient you on the details of Flexible Spending Accounts across Canada.

What is an FSA?

A Flexible Spending Account provides an employee with a fixed amount of money in a benefit plan. The employee gets to choose how the money is spent. In most FSAs, there are two main areas in which the employee can choose to spend their benefit dollars.

• Medical expenses through a Healthcare Spending Account (HSA)
• Wellness expenses through a Wellness Spending Account (WSA)

In addition, there are other options that can be added:

• Retirement savings
• Charitable Giving
• Individual insurance such as life insurance

Your employee can choose to spend all of it on one area on some on each one.

Best of all, there are tax benefits for the business and employees.

Tax Benefits of an HSA

There are particular tax benefits for the employee and for the business with a Healthcare Spending Account. If you give the money directly to the employee and not through an HSA, the employer can still claim the expenses as a deduction, but the employee will have to claim the benefit as taxable income.

According to the CRA, contributions are deemed a tax deduction for your company and any amounts reimbursed are a non-taxable benefit for employee. When you use the HSA, your employee does not pay any tax on the amount spent. The payment from your business is considered a tax deduction. The repayment to employee, is tax free.

HSA Benefit Options

Medical Costs

Under the provincial health care system many medical expenses are covered by the province, but not all. There are many medical expenses that are usually excluded from the provincial health plan. Some of the many medical expenses not covered include: drugs, dental, and vision.

Providing your employees with assistance for medical costs can help reduce stress for your employees at key times in their lives. That helps them to better focus on their work.

Wellness Spending

There are many services that are outside of traditional hospital and other medical services. Some of these services include: massage, chiropractic, and counselling.

Ensuring that your employees have good physical and mental health can increase their effectiveness at work and decrease sick days.

Having an benefit plan that allows for wellness spending enables your employees to spend from their WSA account for diverse things such as gym membership, sports, child care, and even pet insurance.

Retirement savings

Although it is not commonly included as part of a Flexible Spending Account benefit plan, allowing employees to use their benefit dollars to invest in a Registered Retirement Savings Plan (RRSP) will help them prepare for retirement.

Employees are free to invest their RRSP savings in a way that best fits their situation.

According to the Canadian Revenue Agency (CRA), a Registered Retirement Savings Plan (RRSP) is a CRA-registered, retirement savings plan that an individual establishes. The individual or their spouse or common-law partner can contribute.

Charitable Giving

Charitable giving is one way that your employees can support a specific cause or organization that is close to their heart. Although also not traditionally included in a Flexible Spending Account, a Charitable Giving option allows employees to give some of their benefit dollars to a CRA-registered charity of their choice.

Eligible Medical Expenses

This section will help you understand what types of medical expenses your HSA can be used for.

Traditional Medical Expenses

The Canada Revenue Agency (CRA) has a complete list of eligible medical benefits for your employees and their families. They can include traditional medical expenses such as;

• prescription drugs
• dental work
• vision and glasses
• orthodontics

Licenced Medical Practitioner Expense

Services from licences medical practitioners are covered too (although there may be some exceptions).

A licenced medical practitioner must provide or prescribe the service for it to be reimbursed from your Health Spending Account. The HSA recognizes all practitioners deemed eligible by CRA. They must meet the criteria as defined by CRA, listed according to each province in Canada.

• Acupuncturists (some restrictions apply)
• Audiologists
• Chiropodists (podiatrists)
• Chiropractors
• Christian Science Practitioners
• Dental Hygienists
• Denturists
• Dieticians
• Massage Therapists
• Midwives
• Naturopaths
• Nurses and/or Practical Nurses
• Occupational Therapists
• Opticians
• Optometrists
• Osteopath
• Physiotherapists
• Psychoanalysts
• Psychologists
• Speech Therapists
• Counsellors

*Counselling services are eligible for reimbursement if the person offering the counselling services is a social worker, nurse counsellor, or a member of a counselling association recognized at a provincial or federal level, such as the Canadian Counselling Association and the Professional Association of Christian Counsellors.

Here are a few non-traditional expenses that are covered too.

• Cosmetic surgery
• Fertility treatments
• Laser eye surgery
• Home renovations when medically required
• Home care

Who is Eligible for FSA Benefits?

Flexible Spending Accounts including a Healthcare Spending Accounts are great for spouses who already have a traditional group plan. Spousal plan contributions can be submitted through the Flexible Spending Account. Eligible dependants are considered members of your plan. This means that you can use your plan not just your spouse, but your children and anyone who is financially dependent upon you at some point in the year. (Please note that a dependant must be a Canadian resident, having resided in Canada for a minimum of 6 months out of the year.)

Additional Benefits Options

A Flexible Spending Account (HSA) provides benefits to the employees of your business. Some businesses choose to provide a more complete plan that involves insurance products for some or all of the employees.

Here is an overview of some of the most often purchased additional insurance product to complement an FSA for your employee benefit plan.

Major Medical

While a Healthcare Spending Account (HSA) can help cover routine medical expenses, this insurance helps to cover employees for major medical expenses both home and abroad. Major Medical Insurance can help to pay for large medical expenditures inside and outside the province of residence. This includes coverage for hospital expenses, prescription drugs, medical equipment or other related expenses and services.

Travel Insurance Plan

Travel Insurance covers emergency injury or sickness while travelling outside of the employee’s home province of residence, whether for business or pleasure. Average travel coverage includes up to $1,000,000 of medical emergency insurance per person for trips of 45-days or less.

Life Insurance

Life insurance provides protection for an employee’s family in case of death. The amount of life insurance varies and can help the surviving family to have finances for income, covering end-of-life expenses, paying off debts and ensuring children can complete their education.

Accidental Death and Dismemberment (AD&D) Insurance

Accidental Death & Dismemberment is related to Life Insurance but is for specific circumstances that covers unintentional death or dismemberment of the insured. The dismemberment aspect of AD&D includes the loss, or the loss of use, of body parts or functions. AD&D coverage is generally based on a flat amount of coverage, for example: $25,000, $50,000, $100,000 or as a multiple of salary, such as 1 x salary, 2 x salary.

Long Term Disability Insurance

According to the Canadian Life & Health Insurance Association (CLHIA), 1 in 3 people, on average, will be disabled for 90 days or more at least once before they reach age 65. A disability can last for months or even years. Unlike other types of health insurance, Long Term Disability Insurance does not focus on paying for costs related to an accident and/or illness, but instead focuses on replacing lost income following such events.

Long Term Disability Insurance helps ensure employees continue to receive income even when they are unable to work.

Critical Illness Insurance

Almost half of all Canadians will develop cancer during their lifetimes and 3/4 of them will survive. Critical Illness Insurance provides money when life altering events occur due to illness.

While provincial health care covers most major medical expenses due to critical illness while in a hospital, there are other expenses that a patient may have to incur outside of the hospital.

To address this gap, lump sum coverage in increments of $20,000 in cases of life-threatening cancer, heart attack, coronary artery bypass surgery, stroke and other major illness events. Employees are free to use this tax-free money to cover medical or any other expenses they wish.

FSAs for Small Business Benefits

An FSA can enable your company to provide employee benefits without the high cost of traditional group insurance plans.

You and your business can enjoy the get to enjoy the benefits that FSAs provide, including tax benefits, attracting and retaining employees, reducing employee stress and helping you and staff to lead healthier lives.

How to sign up

You can have simple, flexible and affordable group benefits for your small business. With our Benefit Wallet you’ll be taking an important step towards healthier and more employees. Benefits are made easy and the process is simple. Don’t wait any longer, you can sign up in less than 10 minutes.