For incorporated businesses with 1-20 employees, a Health Services Account is more cost effective than a traditional benefit plan.
What is an HSA?
A Health Services Account allows you to expense all of your medical, health care and dental costs (for you and your employees) through your company. In 1988 CRA (Canada Revenue Agency) stated that if your medical and dental benefits are administered through a third party arms-length administrator, they can be 100% tax deductible to your company. These benefits are also tax free to your employees. This means with an HSA you are able to have an approved third party insurer administer your benefits plan and you have the maximum tax savings possible.
The key advantages to smaller businesses
- Much more cost effective and practical for smaller businesses>
- You can “pay as you go”, only paying premiums on those claims actually made, and the premium is only 10% of the amount claimed (not 42% as in traditional plans).
- Expenses (Claims, Administration Fees and Taxes) are a 100% business deduction for the Employer.
- You can set a cap on the amount that each class of employee is eligible to claim. e.g. You may set a higher annual claim limit for owners and executives than for front-line staff.
- You control the total annual spending on benefits and whether you want to increase the limit, not the insurance company.
- A much broader range of health expenses is covered: To find out what’s covered, click here
- Each individual employee can spend his or her annual claim limit on the health services they need or prefer.
- You make advance payments on behalf of Employees, for Health and/or Dental expenses, and the insurer will process all claims directly from the employees up to their preset limits.
- Eligible Claims are reimbursed to the Employee (must be a bona fide employee and not just a shareholder or unincorporated owner), and are non-taxable benefits for the Employee.
What does a traditional health and dental plan really cost?
For smaller businesses, traditional benefit plan premiums can be a disproportionately large and growing expense that you have to pay every month, whether you make claims or not.
Here’s why: To determine your business’ premium, insurance companies use something called a “Target Loss Ratio” and it is usually around 70%. In other words, they expect to pay 70 cents in claims for every $1 they collect from your company in premiums. This means that you are paying $1.42 for every dollar you get in benefits. If you exceed the target loss ratio, you may get a huge premium increase at your next renewal. And with traditional insurance, you pay a monthly premium even if you never make a claim.
What does a traditional health and dental insurance plan cover?
With a traditional plan, if you have a claim there is a good chance that you will still have to pay a deductible or co-payment and a run up against a dollar limit on each type of benefit; meaning you and your employees are rarely covered 100% for services you need. For example, you may have 100% dental coverage but only on scaling, cleaning, fillings, examinations and polishing. If you need a crown or some other specialty item you are only covered at 50%. What if your child needs braces? Is he or she fully covered? Often not. And what if some of your employees prefer to use their benefits for chiropractic or massage, while others need extensive coverage for prescription drugs or dental? Your employees may run up against the limits per service inherent in traditional plans.