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Health Care Spending Account

About Health Care Spending Accounts

Health Care Spending Accounts (HCSA) are gaining considerable popularity within the benefit industry. It is a tax-effective approach where an employee can use pre-tax dollars to offset the costs of deductibles, co-payment amounts and other expenses not considered eligible by traditional programs.

Employers find implementation of an HCSA program an effective method of offsetting the affect or reaction to cost-cutting plan changes. For example, if the employer implements a deductible, eliminates a benefit, or introduces a co-payment, in an effort to reduce the increasing costs to the plan, an HCSA program can be implemented. The employer may now assign a fixed annual dollar entitlement and employees then decide how they wish to apply those benefit dollars to suit their own specific needs.

Examples of Eligible Expenses
The HCSA benefit may be used to reimburse for such items as:

  • deductibles and coinsurance of traditional plan benefits
  • elective surgeries
  • orthodontia, dentures and dental procedures
  • laser eye surgery
  • MRI, CT scans and cardiographs
  • services from medical practitioners or hospitals
  • eye glasses
  • products required because of incontinence
  • bone marrow or organ transplants
  • drugs or medicaments that are prescribed by a medical practitioner or dentist and recorded by a pharmacist, used in the diagnosis, treatment or prevention of a disease or disorder; or
  • in vitro fertilization procedures.

For a complete list of eligible expenses, see the Canada Revenue Agency web site.

Premiums paid to another private health services plan, such as for emergency travel insurance, may be reimbursed through the HCSA. Medical Services Plan of BC (MSP) premiums are not eligible.

Employer Advantages
As employers determine the amount to be allocated to the HCSA, there are no surprises with respect to hidden benefit costs. Employers are able to budget such costs and the financial commitment is defined upfront. Contributions are a tax-deductible expense to the Employer.

Employers have more flexibility in plan design guidelines. These plans can be used to replace or supplement existing benefit plans.

Employee Advantages
Employees are pleased with the added flexibility of being able to direct their benefit dollars to meet their individual health care needs. For example, an employee who does not wear glasses, gains no value from a Vision Care benefit. However, if those dollars are allocated to an HCSA, they can be applied to expenses that are meaningful to that particular employee, such as vaccines or annual deductibles. All reimbursed claims are non-taxable.

Eligibility
An HCSA covers the plan member, spouse, and dependents. A dependent includes any person for whom the plan member could have otherwise claimed a medical expense tax credit under the Income Tax Act.

Employees may submit medical expenses on behalf of a dependent not covered under their regular plan, such as a dependent parent.

Terminated employees have 31 days to submit any claims to their HCSA, provided the expenses were incurred while they were employed and eligible.

HSCA Criteria
In establishing an HCSA program, an employer must consider the following:

  • The annual HCSA entitlement, and whether funds will be contributed annually, or quarterly.
  • Whether the HCSA plan is to have a one-year roll-over or forfeiture feature to dispose of unused account balances at the end of the year.
  • Plans can either include a one-year rollover of unused balances or a one-year roll-over of unclaimed expenses.

Roll-over of unused balances allows unclaimed funds contributed during one calendar year, to be carried into the next calendar year to be applied to current calendar year expenses. For example, if the entitlement is $300 per year, and at the end of the year, there is an unclaimed balance of $100, this $100 could be carried into the next calendar year. The account balance into the new calendar year would therefore be $400.

The alternative allocates one fixed entitlement per year, but allows expenses to be carried into the next calendar year for continued reimbursement. In this situation, any remaining unclaimed funds in the accounts are forfeited to the Plan, at the end of each year. For example, if the entitlement is $300 per year and a claim for $450 is submitted, the claim would be paid with the available funds from the incurred year’s entitlement and then carried into the new year for further reimbursement using the new year’s entitlement.

Canada Revenue Agency (CRA) prohibits plans from including both roll-over approaches. The same approach must apply to all employees within the Plan.

For More Information
To receive more information on this benefit, or to coordinate an HCSA arrangement, please contact the Marketing Department.

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