As the Canadian landscape evolves, so too must Canadian businesses. What was once a breeding ground for large conglomerates now fosters locally-owned organizations and startups ready to take the country and their piece of the market by storm. Regardless of the varied businesses on the scene, the need to attract and retain employees remains universal.
Traditionally, this is where employee benefits come in. Companies can offer their employees group insurance: where employers and employees cost-share a health benefits plan, paying a monthly amount into a pool, then drawing money from it when needed. Employers benefit from tax breaks in providing coverage and employees have health insurance for themselves and their families. This helps employers attract and retain healthy employees - but how these plans are defined is changing, quickly.
The Flexible solution - What is an HCSA?
Health Care Spending Accounts, or HCSAs, are defined-contribution plans where a yearly allotment of money is provided to employees for health and dental expenses.
An HCSA covers a wide variety of medical expenses – in fact, any item that meets the requirements for the Medical Tax Credit is eligible for coverage through an HCSA, according to the Income Tax Act. The conditions for HCSA coverage are set by the CRA and can be found online. Employees claim expenses approved by the CRA with the Health Care Spending Account up to the amount allocated as set by the employer.
What makes HCSAs different?
Traditional defined benefits plans are rated based on several things – the experience of the plan member’s claims (i.e., what they used the plan for in the previous year), as well as their demographics. The more the plan is used, the higher the cost of the plan. Additionally, traditional plans usually offer coverage like life and disability insurance, which help plan members during large health events. Unfortunately, most insurers require a minimum number of lives to issue these lines of insurance. While life and disability insurance can be offered alongside an HCSA, HCSAs do not have a minimum number of lives. This allows them to do things traditional plans cannot. An HCSA isn’t ‘rated’ at all – it’s a set dollar amount. This makes them easy to budget for. Employers simply calculate how much will be set aside each year for their employees and make sure they have that funding available. HCSAs are also free from some limitations traditional plans can have in that they don’t partially cap services - employees determine where they use their allocated funds.
How do companies bridge the old days with new products?
It’s as easy as painting by numbers - provide both. HCSAs can be auto-coordinated with a traditional benefits plan; they can automatically cover the cost of a deductible or coinsurance. For instance, if an employee has a 70% coinsurance on a $100 drug with a traditional plan, they’d usually only have $70 covered by their plan. If they auto-coordinate with their HCSA, the $30 they would have to pay could come out of their HCSA.
Employers benefit from a combined plan as well; HCSAs are a great way to protect traditional plans from big increases in rates. If the plan members are using a large portion of the plan, the employer could decide to take that away and include an HCSA instead, so the claims of those services don’t affect their claims experience for the year.
When employers have a combined traditional plan and an HCSA, they have the value of being flexible while still having health insurance in place in case there is a large health event. According to The Sanofi Canada Healthcare Survey (2017), “more members with health spending accounts believe their benefits plans meet their needs and are quality programs than those without.”
Take HCSAs into account
The landscape of entrepreneurial Canada is a work of art in progress – it’s ever-changing and covers a vast group of Canadians. The demographics of the business world are changing too; the need for flexibility is growing and the cost of benefits is rising. Health Care Spending Accounts are a tax-effective way to help soften those costs while providing flexibility for employees from every walk of life.
Darcy is a Regional Director at Benefits By Design, which offers innovative group insurance products and services to help working Canadians. Their company culture is pretty impressive, and Darcy is an example of how great company cultures support great people. She’s smart, curious, and genuinely interested in determining how she can help the people she works with. Darcy is such an active advocate that we suspect that she might end up in politics one day…