HSA – Health Spending Account
Under the new laws business owners and those who have contract positions can deduct 100% of the cost of their medical treatment and the treatment of their family members from their income as business expenses.
Yes, indeed, such a possibility exists. And this program applies not only to family members, but also to parents who are financially dependent on us.
But let us look at things in order.
Everyone knows that a permanent job has certain advantages over a contract position: a certain degree of stability and group benefits at work. Of course, while working under a contract, one can pay less taxes by deducting business expenses from their income, split their income with the spouse, etc., but it would also be nice to have benefits as well, especially if you do not have to pay the full cost of these benefits yourself. Those who are running their own business, be it larger or smaller, are self-employed and realize that it is difficult to get group benefits. Most likely, you can count on private insurance programs.
You can certainly arrange for private insurance for the whole family, and, as a business owner, you can get group benefits for your company. But even if you have all that, it is often an unpleasant surprise is that those benefits (and in particular, private family insurance plans) do not cover all medical services, particularly dental, and, in addition, coverage does not apply to adult children or to our parents. Questions arise on this topic, and the answer, unfortunately, is always negative. Now, the Health Spending Account (HSA) program can help in the above situations, but only to those who work for themselves (are self-employed), has a contract position or runs a business. You should consult with a financial advisor or an expert on tax returns, and ask about such a program. This plan can help, but not in all situations.
Let’s talk specifically about the program, how it works and what are the differences between this plan and the usual group or private insurance programs.
You create a special account in an organization that has the right to open such accounts, then decide how much money you will invest over a year, choose the frequency of investment (monthly, quarterly, semi-annually or annually) and start investing. All contributions made into the HAS program will reduce your annual income, same as the other business expenses. That is, everything that you contribute to this account helps you pay less taxes. If the family has any costs associated with medicine, you can pay for this service, then send the receipt as proof of payment to the company, and it will refund the amount you spent. You can also issue instructions and the company will pay for your expenses directly. The most important thing that you must remember is that compensation always occurs only within the amount you have already accumulated. This is a definite disadvantage, but it can be easily dealt with. If you feel that you have major expenditures coming up, you can make a large contribution and the money will be immediately available to you.
In this Health Spending Account program, almost any medical expenses for any family member, including parents, will be refunded. If a person needs to pay for dentures for his parents, which could cost a few thousand dollars, it’s probably good to know that they can be deducted from income as costs and so you do not have to pay tax on that amount. The same applies to implants, braces for the children, eye glasses, etc.
An important question is, how much money can be contributed to such a program.
There are restrictions. The government has adopted a rule, according to which the maximum that can be deducted in a year for private insurance contract costs and the Health Spending Account, which fits into this category, up to $1,500 for each adult family member and $750 per child under 18. For example: a family of 6 people, dad, mom, their parents, and two children aged 15 and 20 may contribute $8,250 to such a plan (5 adults at $1,500 each, adding up to $7,500, plus $750). The question of choosing the amount one wishes to contribute to this account must be treated seriously. If you contribute $2,000 in a year, but spend $3,000, that means that you will receive $2,000 from the company in the form of reimbursement in the current year (the anniversary of the contract to be counted from the date of signing of the program), and the remaining amount of $1,000 you will receive in the following year, when you contribute the next $2,000. You will receive a refund of $1,000, leaving only $1,000 for the next fiscal year. While contributing a large amount at once, you need to be very careful, because the money must be spent within 2 years. If this does not happen, that is, you still have money in the account, then, unfortunately, it will disappear, evaporate. This can happen if the business is registered in your name – as a sole proprietor, or the business is registered as a partnership, or if you just work for yourself or have a contract position.
If you have a registered corporation, there are no limitations on the amount that can be contributed in a year, and no requirements as to how long the money can remain in the account.
By the way, large companies can open such plans for their employees. Surely, contributions to HSA for their employees will benefit the companies as it will reduce taxes.
How much does it cost to open a Health Spending Account?
Opening such an account is easy, and it’s free, but you do have to pay to maintain it. The company, through which such a plan is opened, will charge 10% of the amount contributed for administrative services plus there is a federal tax and insurance tax (a total of approximately 11%). These administrative costs are also deducted from your income, i.e. they reduce your taxes and must be included in the amounts you are allowed to write off as mentioned above – $1,500 and $750. Why do you need to know this? In order to decide whether such a plan is necessary in your specific situation or not. If, at the end of the year, you pay taxes to the government, it is worth considering. The minimum tax rate that you have to pay is 21%, so that even with the 11% administrative cost the benefit is obvious. However, if, as a result of the high cost of doing business, you do not have to pay taxes, then there is no need for an HSA, you have successfully reduced your taxes without it.
What distinguishes the Health Spending Account program from conventional medical costs, which are taken into account at the time of filing tax returns? Is it the income tax? Medical costs always become deductible starting only at a certain level – 3% of the salary or $1,840, whichever is less. It turns out that not all of the costs help you reduce your taxes. But most importantly, tax reductions only occur at the level of 21% of the deducted amount. While a Health Spending Account helps to reduce taxes “off the top”, the top tax rate (see figure), which may be more beneficial for some, since the tax rate for certain income levels reaches 30%, 40% or even higher.
What distinguishes an HAS from an RRSP? Contributions to a Health Spending Account (HSA) allow you to reduce taxes, same as contributions made to an RRSP. However, by contributing to an RRSP, you simply put off the payment of taxes for the future, while an HSA allows you to make a contribution today, which can be deducted from the taxable amount earned and you can stop thinking about taxes once it’s done.
It is an interesting program, but it cannot compare with the insurance coverage provided at work as a group benefit, or even with private insurance. If something were to go seriously wrong all of a sudden, then, for example, you can pay as much as necessary for the drugs, and so on, while with an HSA program you can only spend as much as you yourself have contributed to this account. These programs are not mutually exclusive, they just work differently. And you need to get some competent advice before making a decision. Although, there is a way to combine both a Health Spending Account and an insurance program. A company called Benecaid Health Benefits Solutions Inc., which provides such a possibility in opening a Health Spending Account, has signed a contract with an insurance company to enter into an insurance contract within an HSA.
Several issues that may be a concern.
How well is my money protected?
The company opening an HSA is called Benecaid Health Benefits Solutions Inc.
Benecaid is a Canadian financial services company that brings together accountants, lawyers and small business owners. Working on Benecaid Plan, they create it so that it meets the standards of Revenue Canada’s (CCRA) Income Tax Act. Benecaid keeps all of its assets at CIBC Mellon Global Securities Services Company, and for added protection all funds are regularly audited by two independent companies. Benecaid acts as an HSA administrator, guaranteeing that your private plan will work without a hitch.
What happens if all the money accumulated in an Health Spending Account is not spent?
The money contributed during the first year and not entirely spent is not lost – it can be spend in the following year. In some cases, you can save up thousands of dollars with the cost of future medical treatment in mind.
How often should I make contributions to my Health Spending Account?
Under the Health Trust rules, contributions can be made monthly, quarterly, once every six months or once a year – as you prefer.
What medical treatment costs will an HSA cover?
In addition to traditional medical expenses, such as the cost of dental treatment, doctor-prescribed drugs or an eye exam, an HSA can be used to cover the cost of an orthodontist for the whole family, cosmetic and restorative dentistry, laser eye surgery, cosmetic surgery, and even to pay for long term care for older family members.
Your Health Spending Account covers everything you’d expect … and even more!
And much more …
What happens if I have unexpected expenses that exceed my annual contribution?
Along with the fact that HSA is an effective plan in place to better cope with expected and budgeted for medical expenses, it may happen that, due to some accident or illness, the costs will exceed the amount of money in the account. It is for this reason that Benecaid contracted with the insurance company that enables it to offer additional coverage for drugs and health insurance. Using this service, Benecaid can meet the additional needs of its customers.
Additional payments for drugs and health insurance.
In case of a serious illness, all of the funds in an HSA can be spent on drugs. If, however, you have insurance coverage inside an HSA, all drug costs will not be paid using the money in the HAS, which you yourself have been contributing, but using the insurance coverage limit for drugs ($7,500 per year). Only in this case there is such a concept as the “Deductible.” The table shows that our deductible per person is $250, which means that you have to pay the first $250 from your HSA account, and then the insurance company will pay for the drugs as much as necessary, until recovery. Adding health insurance and the cost of drugs to their HSA account, the account holders will have the freedom to spend the money in a way that would best meet their needs. Also, one is always more at ease knowing that one has traditional insurance coverage as well.
Private health insurance, which refunds medical expenses not covered by OHIP and the cost of drugs, is available to anyone who fills out a questionnaire with medical questions.
|Monthly payments for additional coverage||Deductible (per year)|
Below is a list of services in the insurance program, which is a supplement to the HSA program.
|Available benefits in additional coverage||Maximum
|Glasses or Contact Lenses||$150||$600|
|Physiotherapy||$300 per year||$1,200|
|Massage||$300 per year||$1,200|
|Chiropractor||$300 per year||$1,200|
|Orthopedist||$300 per year||$1,200|
|Naturopath||$300 per year||$1,200|
|Nutritionist||$300 per year||$1,200|
|Osteopath||$300 per year||$1,200|
|Speech Therapist||$300 per year||$1,200|
|Psychologist||$300 per year||$1,200|
|Devices for people with hearing loss||$500||$2,000|
|Room in a hospital (double occupancy)||$200 – per day, max $6,000||$24,000|
|Dental Accident Treatment||$2,500||$10,000|
|Durable Medical Equipment||$1,500||$6,000|
|Travel Health Coverage (maximum 30-day trip)||$5,000,000||$5,000,000|
In addition to this coverage reimbursing the expenditures on doctors and drugs, one can also obtain Life Insurance, Accidental Death & Dismemberment Insurance, Critical Illness Insurance, and health insurance while traveling abroad (Travel Insurance).
Life insurance for the plan owner and his family members.
|18-34||$2.94||$5.88||$8.81||$2.10||Spouse – $5,000
Per Child – $2,500
|45-49||$10.01||$20.01||$30.01||$4.20||Spouse – $10,000
Per Child – $5,000
This contract allows you to open an insurance program without medical questions. This kind of insurance is called Guaranteed Issue Life Insurance. Here is how it works: if the insured dies after 2 years or later, the insurance amount is paid without questions immediately. However, if the insured event occurs before 2 years are up, the insurance policy amount will be paid after verification of the fact that the death was not from an already existing problem.
|Accidental death & dismemberment|
|Coverage is $2,000,000 (maximum 30-day trip)|
Critical Illness Insurance. Insurance coverage of $20,000.
19 diseases covered by Critical Illness Insurance.
|Heart Attack||Multiple Sclerosis|
|Stroke/Cerebral Vascular accident||Alzheimer’s Disease|
|Coronary Artery Bypass Surgery||Motor Neuron Disease (ALS)|
|Kidney (Renal)Failure||Loss of Limbs|
|Major Organ Transplant & Failure on Waiting List||Benign Brain Tumor|
|Blindness||Loss of Speech|
This coverage is also issued automatically to anyone who wants without a single medical question. However, if the person was already sick with something, then further problems related to this illness will not be covered. That is, this insurance covers any new problems. And if such do arise, the insurance company will pay the total insured amount within 30 days after diagnosis