What are the Benefits of Healthcare Spending Accounts?
June 20, 2022
Healthcare Spending Accounts or HAS are beneficial for both private individuals and businesses (employers and employees). It enables small business owners and sole proprietors to offer a flexible healthcare plan for their staff while they save on their taxes. As an employee, you will be allowed to pay for the expenses that are not covered by your provincial medicare plan. If you want to know more about HSAs and how they work, this blog is the right place for you. Read one to find out more.
Understanding HSA accounts
You can look at HAS accounts as a form of an insurance account that provides reimbursement for eligible healthcare expenses. These accounts are well-known for their triple-tax advantage and the contributions made are pre-tax. Your investments grow tax-free, not to mention, that the withdrawals that are used for qualified healthcare expenses are also not taxed. The claims that are submitted are reimbursed similarly to a conventional benefits plan, and setting it up is quite easy. You will not have to pay any monthly premiums as well as co-pay deductibles. You will also not have to worry about hidden costs and complex policies.
How do Healthcare Spending Accounts work?
HSAs are cost-effective compared to traditional health policies. The way this type of account works is very straightforward:
Your employer defines the coverage limit and funds the HSA by depositing a specific amount.
For any medical treatment, you will have to pay the expense out of pocket at first and then you can file a claim to receive the reimbursements tax-free.
The claim will be paid from the employer-funded account and with the reimbursement that you receive, you will not have to disclose it as a form of taxable income.
If you are an employer, you should know that you will not have to pay any monthly premiums- just the 8% fee.
The many advantages of an HSA
Some of the advantages that you get out of an HSA are as follows, have a look:
Increase employee satisfaction: While traditional insurance plans come with several limitations, co-pays and restrictions, HSAs don’t. You can allocate a part of your balance in the account towards a health category you really need while the unused balance can be forwarded to the next year. Pre-existing medical conditions as also covered under this plan.
Savings: There are no set-up or maintenance fees, only the 8% plus taxes of the approved claim amount. The funds available in the account will not be spent unless any claim is made. You can allocate more towards employee benefits and less towards fees.
No renewal shock : As an employer, if you have invested in a group plan, then your premiums may grow annually. This may put a strain on the company’s finances, and you may find yourself reducing the coverage amount to avoid a premium increase. In contrast, if you invest in an HSA policy, you will only have to pay the 8% administrative fee over and above the claim amount.
What is covered under HSA?
A wide range of medical expenses are eligible for coverage under the umbrella of HAS, these are:
Physio and massage therapy treatments
Laser eye surgery, contact lenses and glasses
CPAP machines, orthotics and hearing aids
Nursing care expenses
Numerous dental services
Out-of-country expenses while travelling
Under the Income Tax Act, any item that qualifies for Medical Tax-Credit is eligible for coverage through an HSA.
Who can use the HSA funds?
The money available in your account can be used for qualified healthcare expenses for yourself and anyone who is tax dependent. This means, your spouse may have coverage through their own employer, but you can use their funds for any of their medical treatment costs.
The bottom line
Sole proprietors and small businesses can set up an HSA as an alternative to a group health plan or to supplement it. All covered medical expenses are paid in full till a prescribed limit, and there are no deductibles and co-payments. Any employer can write off a medical expenditure as a business expense and save on their taxes, while the employees receive the benefits completely tax-free. We hope this post has given you a fair understanding of what Healthcare Spending Accounts are and how they work. If you would like to read more interesting topics like this, keep an eye on this space.