If Health Care Spending Accounts (HCSA) were a person, they would be the friend that pays for the rest of your coffee.
Confused? Imagine that your friend has given you a gift card to your local coffee shop. You order your drink (a cost of $5.95) and hand the gift card to the cashier to pay. The gift card puts $5.00 towards the cost of the drink, but that still leaves $0.95 – and you forgot your wallet! As you pat your pockets, your friend swoops in to save the day by paying the remaining balance. Between the gift card and your friend’s generosity, you paid nothing!
That’s the power of an HCSA.
What is a Health Care Spending Account?
A Health Care Spending Account (HCSA) is a non-taxable, defined-contribution plan where an employer decides on an amount to provide employees with for eligible health expenses.*
Hey, I saw that asterisk! What’s the fine print with medical expenses?
HCSA’s are regulated by the Canada Revenue Agency (CRA), who determine what expenses are eligible. The CRA has a long list of eligible expenses, but here are some common uses:
Ambulance services Cancer treatment Dental services Vision Care Medical cannabis
Crutches Fertility Treatments Hearing Aids Heart Monitoring Devices Pacemakers
How Can a Health Care Spending Account be Used?
HCSA’s can be used in a variety of ways, including, but not limited to:
#1. As a top-up to traditional benefits (co-payments) or when you have reached a maximum in coverage.
Imagine your dental care plan was 75% employer paid and 25% employee paid. If an employee required a root canal (at the cost of $1,000) their dental plan would cover 75% of that employee’s root canal ($750). But the employee would still be 25% (or $250) out of pocket.
That’s where an HCSA could come in. An employee could use their HCSA to pay the remaining 25% of the root canal.
#2. To supplement existing coverage.
HCSA’s can be used to augment your existing benefits coverage. For example, if your traditional plan doesn’t cover the cost of major dental expenses (such as braces), you can use your HCSA dollars instead!
#3. As an alternative to traditional benefits entirely.
Employers can truly invest in the HCSA model by exclusively providing benefits coverage through an HCSA. BBD’s Standalone® product follows this model.
You said HCSA’s are a non-taxable benefit. What does that mean?
This means that HCSA contributions from an employer to an employee are tax-free. If an employer allots $500 in an HCSA, that’s what you have to spend, rather than $500 less government taxes.
Meanwhile, those same contributions are 100% tax deductible for the employer. At tax time, employers can include their total HCSA spend (as claimed by employees) as a corporate tax deduction.
For example, if a company offers $300 to its ten employees, their max HCSA spend will be $3,000 ($300 x 10). If seven of those employees use all of their dollars, and three use none, the company will have paid out $2,100 ($300 x 7) as their actual spend. At tax time, the actual spend of the HCSA allotment (plus administration fees and applicable taxes) can be claimed as an expense.
This sounds a lot like a Personal Spending Account. What’s the difference?
The main difference between a Personal Spending Account (PSA) – also known as a Wellness Spending Account (WSA) – and an HCSA is what’s covered. PSA’s aren’t regulated by the CRA and employers can decide what is and isn’t covered. Additionally. PSA’s are a taxable benefit for employees and becomes part of their total compensation package.