We’re fortunate to live in a country that pays for much of its citizens’ healthcare costs. However, our system is far from perfect. There are many medical costs that we pay for out of pocket. Employers often believe that traditional group plans are their only options. That’s where the Health Spending Account (HSA) comes in. Learn about the benefits of this account and if your business is eligible.
Who Are HSAs For?
HSAs are for small business owners who want to offer their employees health and dental benefits. This account allows them to pay for all their employees’ health costs, with no taxes charged to the employee. Then, the business can deduct the amount they spent on employee healthcare from their gross business income. These costs become a business expense instead of a personal cost.
If the business is incorporated, then the employer and all employees are eligible to use an HSA. Unincorporated businesses can also be eligible if there’s at least one employee under specific conditions. Self-employed business owners and sole proprietors are not eligible for HSAs.
The Benefits of HSAs
Unlike group health plans, there are no annual limits or co-payments on some HSA services. Employees have the flexibility to spend their HSA credits however they wish. They could get prescriptions filled, glasses, braces, special treatments, and more. Employers don’t have to address disgruntled employees who need services not covered in the group plan. And, employees with existing medical conditions don’t have to worry about not getting coverage.
Employers get more transparency in their costs. They know upfront how much they’ll be spending on health benefits for the year. HSAs can also save business owners money on their taxes.
How Do They Work?
To use an HSA, the employer needs to set one up with a third-party insurer. The business owner must decide the amount to fund each employee each year.
When an employee uses a medical service not covered by public healthcare, they pay out of pocket and request a receipt. That receipt gets submitted to the third-party insurer for validation. Once it’s validated, the employee receives a cheque that includes the full cost of the service as well as any taxes paid.
The third part insurer will charge an administration and setup fee to the business owner. However, that fee is included in the amount the business can deduct from their gross business income, thus benefiting them come tax season.
Interested in Learning More About Health Spending Accounts?