A Health Spending Account (HSA) / PHSP can be used on its own, or combined with traditional health insurance.
PreTax Health HSA is often used stand-alone: but if you already have some insured health benefits, such as Blue Cross, PreTax Health will continue to save you money.
If you have a health insurance plan (such as Blue Cross Personal) that requires you to pay your premiums out-of-pocket, you can even claim those insurance premiums back on your PreTax Health Spending Account. The more you can claim back through your PreTax Health Spending Account, the more money you’ll save.
Your insurer likely isn’t paying 100% of every medical expense, still leaving you with out-of-pocket expenses. They usually exclude certain types of drugs, physio, and so forth; and will only cover a percentage of dental, up to a point. Anything they don’t pay for, you can claim via PreTax Health, as long as it’s an eligible expense under the tax laws.
The PreTax Health Spending Account Employer Benefit
It’s sometimes tricky to understand how a company can save money by spending money on health benefits.
Let’s consider the case of our client Peter:
Peter runs a small Alberta-based consulting company, and as he demonstrates, he is paying around $3,000 per year out of his pocket (toward Blue Cross premiums and other medical expenses).
Somehow, that $3,000 has to find its way into his pocket in the first place. One way is for his company to pay this to him as part of his salary or income; in which case it’ll have to be around $4,300 (assuming 30% is going to CRA, the 70% left over will be $3,000).
The other way is to claim it via PreTax Health, in which case the company will have an expense of $3,300: $3,000 to reimburse the claimed amount, plus a 10% admin fee that ensures the legality of the transaction.
With PreTax Health, Peter’s created an extra $1,000 in his company almost “out of thin air”, which he can now apply back toward his business.