Choosing the Right Plan
In group benefit programs, two primary approaches stand out for providing coverage for healthcare expenses: Insured Benefits and Health Spending Accounts (HSAs). The choice between these options depends on factors such as risk management, budget, and employee preferences.
Insured Benefits function like a subscription model where employers pay a monthly premium for coverage of defined risks such as prescription medications, medical services, disability, and more.
In contrast, HSAs operate like a bank account funded by the employer. These funds are used for specific medical services as defined by the Canada Revenue Agency (CRA). HSAs also come with an administrative charge for each claim.
While both options aim to promote employee well-being, they differ in structure and delivery. Insured Benefits offer a structured and predictable coverage model with defined limits. HSAs, on the other hand, provide a lump sum from the employer to each employee to manage their healthcare funds according to CRA medical expense rules.
Ultimately, the choice between Insured Benefits and HSAs depends on the employer’s approach to healthcare coverage and the needs of its workforce.
Insured Benefits vs. Health Spending Accounts
Insured Benefits
Characteristics
- Insured benefits operate similarly to a subscription service, where the employer pays a premium to the insurance provider. In return, the insurance company covers specific related expenses for employees and their dependents.
- Insurers provide the financial backing to pay claims.
- An insured benefit plan is customizable, offering different coverage for different classes of employees. optional coverages beyond solely health and dental, such as out-of-province travel, disability, critical illness.
- Insured benefits typically use a cost-sharing arrangement, distributing costs between the employer and employee.
- All costs are included in insured benefit premiums, eliminating the need for additional administrative fees for processing claims.
- Insured benefits may have limits for the amount covered in a calendar year. Employees must rely on their own resources to cover additional healthcare expenses until the limits reset each year.
- Insured benefits reset annually and do not carry over unused amounts.
- Employees are enrolled using employee application forms.
- Insured benefits are administered in accordance with an insurance contract between the employer and the benefit provider.
- Insurers periodically review premiums to ensure the benefits remain effective in providing coverage for employees (renewals).
Health Spending Accounts
Characteristics
- HSAs are similar to a bank account, with each employee and their dependents having a designated amount to spend on eligible expenses following CRA guidelines.
- Employers fund HSAs to cover claims.
- An HSA provides coverage for out-of-pocket medical expenses based on the funds available in the account.
- HSAs are typically solely funded by the employer, enabling employees to use them for eligible healthcare expenses.
- Administrative fees for processing claims or annual charges may apply to HSAs, deducted from the total amount and impacting available funds for claims. Specific fees vary among providers and plans. HSA is typically funded solely by the employer
- Once HSA funds are depleted for the calendar year, employees must use personal resources for additional healthcare expenses until the next contribution period.
- HSA plans may permit employees to carry over unused funds for up to two years, with any excess funds beyond this limit possibly forfeited at the end of the plan year to either the insurer or employer.
- CRA requires a formal employment contract incorporating the employer’s obligation to provide medical coverage.
- Health Care Spending Accounts (HCSAs) adhere to the Income Tax Act (Canada), with eligible expenses determined by the Canada Revenue Agency (CRA).
- Employers should periodically review contributions to account for inflation and rising healthcare costs, ensuring the HSA remains effective in providing coverage for employees
Understanding Health Spending Accounts or Insured Benefits
A Key Element to Consider
Unlike insurance, Health Spending Accounts (HSAs) are a form of private health services plan in the nature insurance however is not insurance. They offer an employer-funded benefit to cover medical expenses. The funds used to cover medical expenses come from an employer’s contributions, not from premiums paid
Frequently Asked Questions
Coverage Differences
Insured Benefits: These are traditional group insurance plans that provide specific coverage for medical, dental, vision, and other health-related expenses. Premiums are paid to an insurance company, which then covers eligible claims according to the policy terms.
Health Spending Accounts (HSAs): These are employer-funded accounts that employees can use to pay for eligible medical expenses not covered by their insurance. HSAs cover eligible claims as defined by the Canada Revenue Agency (CRA).
Cost Dynamics Predictable Premiums vs. Cost Control
Insured Benefits: Offer predictability in terms of premium costs but may be subject to annual increases based on claims experience.
HSAs: Provide more control over costs as employers set the contribution limits, but actual expenditures can vary based on employee utilization.
Understanding What’s Covered Under Each Option
Insured Benefits: The wellness portion of a group benefit program typically covers predetermined medical services and products such as hospital stays, prescription drugs, dental care, and vision care, according to the policy. Benefits can also be added to a group benefit program to cover additional risks such as disability and critical illness.
HSAs: Cover a wide range of eligible medical expenses as per CRA guidelines, which can include deductibles, co-pays, prescription medications, dental services, vision care, and other health-related expenses not covered by traditional insurance. However, an HSA itself does not include coverage for additional risks such as disability and critical illness, which would be insured benefit add-ons.
How Unused Funds are Managed
Insured Benefits: Typically, these have annual limits for coverage, and any unused benefits do not carry over to the next year.
HSAs: Often allow for the carryover of unused funds to the next year; however, the amounts do not carry over indefinitely and are eventually forfeited.
Benefits Tax Breakdown
Insured Benefits: Premiums paid by employers are tax-deductible business expenses, while benefits received by employees are generally tax-free.
HSAs: Contributions made by employers to HSAs are also tax-deductible, and reimbursements to employees for eligible expenses are non-taxable.