How can an incorporated company benefit from the PreTax Health Spending Account?

  1. Costs for medical benefits provided to employees (or employee-owner and immediate family) come out of pre-tax earnings thus reducing overall taxable income.

    Example: If a company earns $200,000 in a given year and spends $20,000 on health benefits for its employees then taxable income is reduced to $180,000.

    In addition, the benefit is tax-free for the employee.
     
  2. Employees always have out-of-pocket medical expenses, even if they have a traditional monthly insured plan.

    If you are not providing them with a Health Spending Account, they are using their after tax money (eg salary) to pay these out-of-pocket expenses. Since they have to pay tax, this means you have to pay them *more* in salary, than you would have had to pay to the Health Spending Account to reimburse those expenses tax free.

    In fact, we estimate that without a Health Spending Account, companies effectively overpay $3 to $4 per employee per day to Canada Revenue Agency -- money which cannot be recovered in any other way, except by a Health Spending Account. (Some people believe you'll get it all back when claiming it on your personal tax return -- this is incorrect).
     
  3. If a small corporation subscribes to a traditional monthly health benefits plan, typically for every $100 incurred toward a plan on average only $70 will be paid back to the employee, especially for routine expenses. On the lower end, health care insurance providers actively work to maintain a 30% margin, and the more your employees claim, the higher the group premium will become. In addition, the insurer places many restrictions on what is covered and the percentage coverage (for example, they may only pay the employee for 70% of dental claims up to a certain amount per year).

    While a traditional monthly health plan can offer good protection against catastrophic events (i.e., with Accidental Dental coverage, coverage of premium prescription drugs, and private nursing care), on the smaller end these plans are not cost efficient for scheduled health care services.

    With Pretax Health - Health Spending Account there is no monthly fee; a company only pays for the actual health care expense incurred. The full benefit of the health care expenditure goes to the employee vs. 30% or more going toward an insurance company's profit. For smaller corporations the net saving can be 20% (30% less the traditional 10% admin fee charged by Health Spending Accounts). In addition, with PreTax Health, the smaller incorporated company has complete control on setting the expenditure limit it is willing to support - the system even reminds the user when the health balance is below a certain threshold and needs to be topped up.

    Under a Health Spending Account essentially any legitimate health care expense is 100% covered (as long as it is listed by Revenue Canada as an eligible expense). Visit our 'Resource Center' and click on the link to view a comprehensive list of all the health care services covered by a Health Spending Account.
     
  4. A Health Spending Account is viewed by employees as a valuable employment benefit - it can contribute to employee satisfaction and encourage employee retention.
     
  5. For organizations, especially larger ones, who have a monthly health benefits plan in place, a Health Spending Account is very complementary.

    There are at least three reasons for this:
    • many expenses only partially covered by a traditional monthly health plan can be reimbursed by an HSA
    • non-traditional coverage that is not accessible through a traditional monthly health plan is often 100% reimbursable with an HSA
    • if an employee has unused HSA expenses, and their spouse has a traditional monthly plan with another company, both the monthly premiums and the uncovered expenses from the spouse's plan can be run through the employee's HSA.

 

For more detail on BENEFITS you can derive from a Health Spending Account click on the 'Benefits' section of our site, or review our Free Report entitled "How to provide Unrestricted Health Care and Save your Company 20%"