A Health Care Spending Account allows an employer to offer an effective benefit solution, while working within a budget. For ease, you may wish to think of this plan as a “pre-defined contribution” plan, as the cost is specified but the coverage is flexible.
The employer designates a dollar amount that each employee may use on any CRA (Canada Revenue Agency) eligible health and/or dental expenses, as defined in Subsection 118.2(2) of the Income Tax Act. This amount is pro-rated so that the employee receives an equal portion of the funds in monthly contributions throughout the year.
Through the Health Care Spending Account, employers are able to offer a “carry forward”. The carry forward allows employees, who did not use all of their allotted funds, to transfer the unused balance for an additional one-year period.
Meaning, should an employee have money left over at the end of year one, unused amounts may be carried forward into year two. During year two, the employee can use the carry forward funds and newly accumulated funds toward their current year expenses. If, at the end of the second year, any of the year one amount is STILL remaining, those funds are forfeited back to the employer.
Please note that forfeit amounts are considered taxable income to the employer upon return, as the employer would have received a tax deduction the year prior.
Out of Country Travel Insurance
Out of Country Travel Insurance, with Trip Cancellation, is an optional attachment to a Health Care Spending Account. This coverage is for Emergency Medical expenses that are incurred while employees or their dependents are outside of their province of residence, or outside of Canada. Out of Country is available in 30, 60 and 90 Day trip durations. The premium of the Out of Country coverage is charged over and above the Health Care Spending Account contributions.
Ask your Canwest Advisor about a Health Care Spending Account, or a Health Care Spending Account top-up plan today!
HCSA Feature Highlights
- Costs/ Expenses are known upfront Costs will only increase if there is a change to the designated benefit amount, or additional employees are added to the plan
- Employees may purchase Non-Provincial products, such as individual health and dental plans, with the funds in the HCSA
- Employees with pre-existing health conditions of high drug expended, who have been declined by other insurers, may still qualify for the Health Care Spending Account, without any health evidence
- The “Pro-Rated” coverage provides a certain protection to companies with a high turnover of employees
- Accommodates companies looking for a top-up to their traditional benefit plan
- Accommodates companies of any size, part time staff, contractors
- Benefit spending is flexible for each employee
- Benefits received by employees, from the HCSA, are tax free
- Contributions made by the employer are a tax-deductible business expense
Fund Accumulation & Claiming
As an employer makes monthly contributions to the employees Health Care Spending Account, the employee can access these funds, like a bank account, to pay for any eligible health and/ or dental expenses that are incurred by themselves or their active, eligible dependents.
A pre-determined contribution amount is deposited into the account on the first of each month that employee is active and eligible on the plan. As the months go on, these funds accumulate.
The employee is able to use their account funds, as they choose to cover health and/or dental expenses. Only by providing a paid receipt for an eligible service, will funds be paid to the employee though; employees cannot simply withdraw a sum from the account.
When an employee submits a reimbursement claim to their Health Care Spending Account, the claim is assessed for a) Eligibility and b )Available Funds. If the claim amount exceeds the funds that are currently available in the employee account, the available amount is first paid out. The claim then “pends” until additional funds are contributed, at the beginning of the next month. At that time, the claims is reassessed and any additional eligible amount is paid out.
This process of pending and reassessing claims will continue until a) The eligible claim has been fully reimbursed OR b) No additional funds are contributed to the account (Due to employee termination, or the end of the claiming year)
Employee Account Example
In this example there is a contribution amount of $100.00 being deposited into this employee account, beginning July 2017.
As each month passes, an additional amount is deposited, while funds are also being paid out, for submitted and assessed claims.
The “Running Balance” to the right reflects both the deposits going in and the payments going out.
At the end of “Year 1” (2017) there was a surplus in the account ($560.00). As their account holds a “Carry Forward” these funds are shown being transferred as an “Opening Balance” for “Year 2” (2018), where the deposits and payments continue to roll through the plan.
As shown with the January 2018 claim of $450.00, the funds are first drawn from the Opening Balance (or Carry Forward), when one applies.
At the end of “Year 2”, when there are still funds remaining: any amount that is still a carry-forward from “Year 1” is forfeited back to the employer - $30.00 in this example, and the unused amount accumulated for “Year 2” continues as a Carry Forward for “Year 3”.