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Everything You Need to Know About Spending Accounts

By: Benefits by Design | Tuesday May 12, 2020

Updated : Friday December 30, 2022

If you are looking for a benefits plan that provides cost containment AND provides flexibility for employees, look no further than spending accounts. 

The spending account family includes two products: a Health Care Spending Account (HCSA) and a Personal Spending Account (PSA), also known as a Wellness Spending Account (WSA). With both products, employers determine a set amount to offer to employees for eligible expenses, providing some cost-containment for the benefits plan, while still providing choice to employees.

What is the difference between a Health Care Spending Account and a Personal Spending Account?

Health Care Spending Account (HCSA)

Health Care Spending Account (HCSA) provides coverage for eligible health and dental expenses. HCSAs can be a “top-up” to existing Extended Health Care (EHC) coverage or a benefits solution all on its own. 

HCSAs are part of an employee’s total compensation package and are non-taxable. As a result, an employee’s taxable earnings do not increase. Secondly, as a bonus, employers will be able to claim the cost of an HCSA (including taxes and administrative fees) on their taxes.

HCSA eligible expenses are determined by the Canada Revenue Agency (CRA)

Personal Spending Account (PSA)

Personal Spending Account (PSA), sometimes known as a Wellness Spending Account (WSA), is a taxable benefit. The CRA does not govern PSAs, so employers can choose what items are eligible for coverage. PSAs are used to provide additional health and wellbeing options and “perks” aimed at keeping employees happy and healthy, such as gym memberships, childcare, hobbies, and more!

Learn more about HCSAs and PSAs with this downloadable info sheet!

Download the HCSA/PSA Comparison Sheet (PDF: 5,596 KB)

Shifting Demographics and the Future of Work

Firstly, defined contribution plans — plans that have a defined cost to them — have been increasing in popularity for one big reason: the workforce is changing. There are now five different generations in the workforce, all with different wants and needs from their benefits plan. For instance, Millennials now constitute almost half of the workforce and are projected to make up 75% of the global workforce by 2025. 

As more Canadians continue to work past the traditional retirement age of 65, Canadian workplaces are becoming more diverse. Traditional, one-size-fits-all benefits plans just aren’t cutting it anymore. 

Spending Account solutions allow employees to take control over how they spend their benefit dollars.

Benefits by Design’s Standalone®

Understanding the needs of a changing workforce, Standalone was born out of a desire to help working Canadians gain greater access to the benefits they want and in response to increased demand for choice and flexibility in benefits plans. 

Our Standalone product contains HCSA, WSA, or a combination of the two. These spending accounts are open to any incorporated company, with no restrictions on the numbers of employees, hours worked, or a minimum premium requirement.

Minimal eligibility requirements. Standalone is available to any incorporated company, regardless of the number of employees or hours worked. A solution for small businesses who may not yet qualify for traditional, fully insured benefits.

Cost Containment. Standalone allows employers to control costs by setting an allotment per employee.

Tip: For additional cost containment, employers can also determine how quickly employees can utilize their total allotment by setting annual, semi-annual, quarterly, or monthly limits.

Fully Digital Experience. Standalone provides a fully digital experience, allowing quick claims submission, plan member information updates, reporting, and more.

Combine a Spending Account with Pooled Benefits

Canadian employers are becoming increasingly creative with their benefits solutions to accommodate the five different generations in the current workforce. As a result, we’re seeing increased interest in spending accounts in the marketplace at large.

Employers can make plan amendments or additions to their existing benefits plan. By combining Standalone’s Spending Account solution with pooled benefits, they can create a unique plan that has something for everyone!

Spending Account + Group Travel

Group Travel Insurance is often embedded in an Extended Health Care (EHC) benefit. As spending accounts become more popular, there is a need for a travel insurance product that exists outside of the EHC benefit.

Through our group travel solution, AwayCare, Standalone groups can add group travel insurance for a more comprehensive plan.

Spending Account + Employee Assistance Program

It’s critical for employers to have a program in place to help employees deal with life’s ups and downs.

An Employee Assistance Program (EAP) provides access to accredited professional support, resources, and assistance for about the price of a cup of coffee a day.

Spending Account + Critical Illness Insurance

Critical Illness (CI) Insurance covers plan members and their dependents for unexpected serious illnesses from a pre-determined list of conditions. Employees receive a lump sum payment upon the diagnosis of one of the covered conditions.

6 Differences between a Traditional Insurance Plan and a Health Care Spending Account

Spending Accounts: A Solution for Small Business

We’ve found spending accounts particularly popular as a small business benefits solution for a couple of key reasons:

Spending Account Claims Submissions Deadlines and Carry-Forward Rules and Options

Are you interested in learning more about spending accounts? Let us help you!

Contact us