A Health Care Spending Account (HCSA) is a great option for employee benefits plans. It acts like a personal bank account for each employee's health care spending.
An HCSA is funded through monthly employer contributions. It gives employees the ability to withdraw funds to pay for their health and dental care expenses. An HCSA can be used to reimburse health-related expenses that aren’t covered by the employees' plan, or to top up their basic group benefits coverage.
With an HCSA, there are no sign-up fees or medical questionnaires.
Employers can choose to include an HCSA as part of a flexible benefits plan or a standard plan. Think of it as a defined contribution employee benefits plan.
How does a Health Care Spending Account work?
- Employers determine the limit for each employee
- At the end of the benefit year, unused balances are returned to the employer, OR can be carried forward for up to two additional years.
- Employers are only charged when a claim is paid.
- Although an administration fee and taxes are added to the claims, if there are no claims, you pay no fees.
- The costs of an HCSA (claims and administration) are a taxable deduction for the employer and a tax-free benefit to the employee.
- To make a claim, employees use a pay-direct card (drugs, dental) or claims forms (paper or email).
Why consider including an HCSA in your employee benefits package?
An HSCA can help employees pay for expenses not covered under group benefits plans (ie. dental orthodontics, hearing aids, prescription glasses, medical equipment rentals, etc.).
It provides employees with a way to top up payment for services that may not be fully covered by the benefits plan.
It offers a way to cover the deductible amounts for eligible services that employees would otherwise have to pay.
Any expense that qualifies for a medical expense tax credit under the Income Tax Act can be covered.
Plus, it's cost effective, for both the employer and the employee.
The credits in an HCSA represent dollars that are 'before federal tax'. With an HCSA, $100 of credits pays for $100 worth of medical expenses.
What can be covered by an HCSA?
PRESCRIPTION DRUGS – any prescription that was ordered by a medical professional and filled by a licensed pharmacist
DENTAL CARE – basic, preventative, major restorative, orthodontics, oral surgery and implants
VISION CARE – glasses, contact lenses, office fees, procedures and laser eye surgery
PROFESSIONAL SERVICES – paramedical services, such as massage therapy, physiotherapy, acupuncture, chiropractic, chiropodist, podiatrist, etc.
EXTENDED HEALTH CARE – ambulance use, aids to daily living (diabetic supplies, crutches, braces, slings, canes, etc., and any other aid prescribed by a licensed medical professional)