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Flexible Spending Accounts

Flexible spending accounts are a fixed annual credit employees can direct toward what they actually need, whether that’s medical gaps or wellness spending, with a hard ceiling on what the employer pays.

Health Care Spending Accounts (HCSA)

A fixed dollar amount set aside per employee each year, and the employee can use it to cover health and dental costs that their benefits offering doesn’t fully pay for as long as it’s CRA eligible. It could also be used for co-insurance and deductibles.

To be eligible, the claimable expense must be a real medical expense deemed eligible by the CRA. This is the same list the government uses for the medical expense tax credit.

Health Care Spending Accounts are rapidly growing as a trend in the industry. We are seeing this appear in traditional insurance plans more over the past years.

Lawyers, business owners, and other incorporated professionals often set up an HCSA for themselves and their families, running personal medical costs through the corporation tax-efficiently.

Example

James’s plan covers 80% for basic dental. He has a $500 HCSA offered by his employer. The HCSA picks up the rest, so a larger bill does not make a large dent in their wallet.

Cost

Actual claims paid out, plus the provider’s admin fee, is the total cost that the employer is paying. The provider simply charges for processing the claims and running the portal.

PRO

Flexibility is the main forte of the HCSA. Employees choose what actually matters to them. It’s tax-efficient, fills gaps that their base plan leaves open, and gives employers a clear ceiling on cost.

How it works

The insurer administers all claims, and you only pay for what your employees actually use, plus an administration fee. Because the insurer handles claims, you can be confident every claim follows CRA guidelines and your employees’ privacy is protected. Allotments renew each plan year and can be adjusted as your employer needs change.

Taxable Spending Accounts (TSA) / Wellness Spending Accounts (WSA)

Like an HCSA, there is a set dollar credit that is spent by the employee. The difference between an HCSA and TSA is what it can be spent on and how it’s taxed.

Instead of having the expense being eligible under the CRA, there is no list associated with the taxable spending account unless the employer creates one. The benefit can support the employee in almost any manner that fits the company’s culture, from gym memberships, sporting gear, professional development, home office setup, childcare, etc.

The major trade-off would be that it’s not a recognized medical expense. Therefore, the credit counts as taxable income. This is the “taxable” nature in the name. Most employers pair it with an HCSA, so tax-free medical dollars are flexible dollars and can each do their own job.

Example

Jonathan spends his $500 credit on a bike helmet and yoga classes. Sam spends his on an office chair. Same account, totally different use.

Cost

Actual claims paid out, plus the provider’s admin fee, is the total cost that the employer is paying. The provider simply charges for processing the claims and running the portal. Same as an HCSA.

PRO

Flexibility and there’s no medical expense restricted list. Employers shape it to fit their culture, and it pairs cleanly with an HCSA. Employees do value it even if they know it’s taxed.

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