In our FAQ we briefly discuss the difference between the PreTax Health HSA and Health and Welfare Trust such as Benecaid. The following are more details on the specific differences:
First, we should note that the types of claims allowed by the CRA under a HWT and an HSA are identical. The similarities end there.
A Health and Welfare Trust (e.g. Benecaid) has the following attributes:
1) The employer makes a fixed contribution (in real dollars) into the trust.
2) Contributions are made on a regular basis (e.g. monthly, quarterly)
3) Contributions are made on behalf of each employee.
4) The contribution level/payment plan must be decided in advance, and typically cannot be changed during the year except in special circumstances.
5) Contributions into the trust typically cannot revert back to the employer; instead, the main way the funds leave the trust is to be claimed by employees to reimburse medical expenses.
6) Unused contributions per employee keep rolling forward indefinitely (although as time passes, older claims may become ineligible for reimbursement).
By contrast, PreTax Health implements a pure Health Spending Account PHSP (which is only available to incorporated companies). This has the following attributes:
1) There is no fixed contribution required (i.e., there is no monthly or regular fee). The employer does NOT need to make any regular contributions (in real dollars) into the plan. Instead, the employer specifies a “benefit limit.” This grants the employee a certain value of “credits” in respect of the particular benefit year. This controls the maximum extent of claims the employee can make during the year (for him/herself and any dependents). IT IS ONLY ONCE THE EMPLOYEE ACTUALLY CLAIMS AGAINST THAT LIMIT (and the claim has been adjudicated), that the employer needs to submit real dollar funding.
2) The PreTax Health HSA is far less costly for companies than Health Trusts (e.g. Benecaid). Rather than paying a contribution per employees, a percentage on claims, and misc. transaction fees, PreTax Health only charges one admin fee on claims that are processed and paid i.e.,10% (plus GST/HST on the admin fee) e.g., for a $500 dentist claim in Alberta the admin fee would be $50 Plus $2.50 GST, or $52.50
3) The funding required by the PreTax Health HSA is only to cover the actual approved amount of the claim plus the administration fee. The employer may choose to submit funding in advance of claims – companies who choose to do this do so for their convenience and to reduce the turnaround time for payment of claims.
4) The employer specifies a “benefit limit” for each category of employee (e.g. Executives, Full Time Employees, Part Time Employees, etc). All employees within a benefit group (as defined by the employer) receive the same benefit limit.
5) While benefit limits control the extent of claims that can be made during the year, the employer has the flexibility to adjust the benefit limit for any category AT ANY TIME (they can log in securely from anywhere and change it in real-time).
6) Any real-dollar funding the employer has advanced, that is not required to reimburse actual claims to employees, can be refunded to the employer upon request or carried forward in different ways.
7) At the end of a benefit year, there are two carry forward options for dealing with the unused “benefit limit”:
a) Credit Carry Forward – means that these unused credits from the year’s allocation get carried forward for one year, so that each employee in the new benefit year will receive their new benefit limit PLUS these credits. For example, if an employee is given an annual benefit limit of $3000 and only claims $2500 in each year, then every year the unused $500 will be carried forward to the next year, effectively giving the employee a $3500 benefit limit for each subsequent year. Against each year’s limit, the employee can only claim the medical expenses from that benefit year.
b) Expense Carry Forward – means that any unused credits from the year’s allocation are forfeit (recall though that this is not real dollars). However, in the new benefit year, the employee can continue to claim medical expenses both from the new as well as from the prior year. For example, each benefit year the employee gets a brand new benefit limit of $3000, but can still claim expenses that occurred in the previous year.
Each company must choose either “Credit Carry Forward” or “Expense Carry Forward” — Canada Revenue Agency does not allow both at the same time.
Generally speaking, Expense Carry Forward works the best for small companies, since (a) the employer can change the benefit limit at any time as needed, and (b) this affords employees more opportunity in when they can claim for medical events.
While an HWT and an HSA can both achieve tax efficiencies for your company and employees, they are very different types of plans.
Many of our PreTax Health customers have moved from an HWT because of the cost savings, control and flexibility that they realize. If you currently have an HWT and you wish to switch there are a few things worth noting.
1. Your enrollment with PreTax Health counts as your company’s first HSA enrollment, as you did not have a pure HSA before. You can signup as any new customer would from this link:
2. We will waive the one-time enrollment fee ($99/company) if you switch from an existing HWT to PreTax Health.
3. We cannot deal directly with the HWT (e.g. Benecaid) on your behalf. Specifically, we cannot summarily “transfer out” any real dollar contributions remaining in your HWT. You will have to arrange for cancellation of your plan with your HWT provider.. An HWT will typically not release the remaining funds back to the employer (since in the HWT they are held in trust). However, if you advise us the amount of the funds remaining with Benecaid, we can provide you with a “funds transfer request” form, that you can then forward to the HWT. This form formally requests the HWT to transfer the remaining funds to your new PreTax Health Spending Account. We cannot guarantee, however, that the HWT will honour the transfer request.
As always, we are very interested in any comments or questions you have.
The PreTax Health Team