What is a Health Spending Account (HSA) and why do I need one?

Health Spending Accounts (HSA) are a great supplement to a traditional health and dental plan, and in many cases can actually save you money. An HSA is a tax-free allowance given to employees that they can use for health and dental expenses of their choosing. The CRA’s list is extensive and also allows employees to claim unpaid portions of claims from traditional plans such as co-insurance amounts and deductibles.

Let’s look at an example with Bob. Bob is an employee at ACME Products and his employer provides a traditional plan as well as an HSA of $1,000 each year. Bob’s traditional plan covers up to 80% for physiotherapy and there is a 50$ annual deductible. Bob goes to his physiotherapy appointment which costs $200. He claims the appointment through his traditional benefits plan and is reimbursed only $120 of the $200 dollar claim ($200 minus the $50 deductible, then 80% coverage of the remaining $150). Bob then takes his Explanation of Benefits (EOB) from his traditional plan and submits it to his HSA by taking a photo on his smartphone. Within a few days, the unpaid $80 (the $200 claim, minus $120 paid by the traditional benefits plan) is reimbursed directly to his bank account. Bob’s traditional plan doesn’t cover glasses or contact lenses so Bob chooses to use the remaining $920 in his HSA to purchase a pair of prescription glasses.

As you can see from the example above, employees have the choice of how to spend their HSA and can allocate it to their health priorities as they see fit.

So what makes an HSA different?

Employers only have to pay for amounts their employees use, plus the administration fee. Therefore if employees don’t use their HSA allowance, there is no cost to the employer. This differs from a traditional benefits plan since the monthly premiums are paid even if the plan goes unused.

HSAs also have a fixed cost ceiling. There are no “rate renewals” like you see with traditional plans. Therefore the maximum cost is the total employee allowances plus administration fees. There are no rate increases, trend factors, or reserves so you always know what the maximum liability is each year.

HSAs are a great addition to a benefits plan, or a great starting place if you’re not quite ready for a traditional plan.

Reach out to a Nü Benefits advisor to learn more!