How To ChooseThe Right Health Spending Account
A Health Spending Account (HSA) is a tax free benefit that a corporation (as an employer) provides to employees and their dependents. Company owners are included if they are also employees of the company. A Health Spending Account can be used as a standalone plan, or, if you have an existing health insurance plan (e.g., Blue Cross), it will cover all the expenses and health care services these traditional plans do not cover. Some providers refer to an HSA as a Private Health Services Plan (PHSP). A PHSP is in fact an umbrella name for a contract or plan of insurance; it was a term coined by Canada Revenue Agency (CRA ).
The following seven criteria should be used in comparing the various Health Spending Accounts.
1) Complete payment flexibility and control. Some providers offer only a prepay or a pay-as-you-go option (funding each claim as it is submitted). There are still several legacy health care providers who charge a monthly fee for a Health Spending Account. Smaller businesses funding capabilities change frequently, especially in the start-up years. Flexibility should be a paramount consideration. It is best to select a Health Spending Account that provides both a prepay and a pay-as-you go option. Check carefully to ensure that you can change these options easily, and without penalty.
2) Carry Forward Options. Credit carry forward is emerging as a more common requirement for the larger providers. This option allows a company to carry forward left over, or unused, health care credits from one year to the next. Fewer providers offer an expense carry forward option. Expense carry forward allows left over allocated health care credit to be reset to zero, but provides the flexibility for employees to file forgotten claims up to one year late. Expense carry forward is a great option for smaller businesses where flexibility is the key. Always make sure that the Health Spending Account provider offers your company a choice of either of these carry forward options. Unfortunately few do.
3) Real-Time Online Convenience. The convenience of real-time functionality cannot be under estimated for a Health Spending Account, or for any business health care plan. Without real-time information on claim activity and available health funding, a designated company administrator is put in a position where they either need to track this information themselves, or regularly chase the provider to obtain this essential data. A system with real-time, online convenience will minimize the time for an administrator; time that can be used to re-focus on core business activities. Always ensure that the Health Care Spending Account system is a real-time, online system, and one with built-in security.
4) Real-Time Reporting. The Health Spending Account system should be capable of generating real-time management reports to allow a designated company administrator to track actual vs. budgeted health spending, current and outstanding claims by benefit category and department, etc. The degree of reporting flexibility should easily meet the current and future needs of the company. As mentioned in criteria 3), this type of functionality will minimize the time involved for the designated company administrator.
5) Funding Allocation. Ensure that the system has the capability to flexibility setup and change health care funding limits by benefit categories. For example, a company may setup different benefit categories for single individuals, individuals with family members, managers, executives, full-time, part-time, etc. Ensure this functionality is available in the Health Spending Account system and that it is easy to setup and change.
6) 100% CRA Compliance. A critical element is choosing a provider is to ask for verification that they are fully compliant with CRA (Canada Revenue Agency) rules for Health Spending Accounts. They should also be fully compliant with the Canada Health Act, especially with respect to privacy of employee claim information. Ask if the provider has had a professional accounting firm audit their practices for compliancy to ensure claims are being properly adjudicated based on CRA rules. Ensure that the provider’s processes protect the privacy of the employees health information (i.e., only the submitting employee, and the authorized adjudicator of the claims should have any visibility to the employees health care claim details). Without some due diligence a company risks a surprise tax reassessment. At the end of the day, the company is the one left accountable to the CRA.
7) Processes that minimize any reimbursement delays. Many provider still implement what is referred to in the industry as: ‘black out periods’. This refers to the period between claim periods where many providers restrict a company from submitting claims for up to three months. Claims for the upcoming year are held up until their system has sufficiently cleared all claims from the active or current period. This ‘black out period’ restriction is the result of legacy system that are still in place in a large portion of providers. These ‘black out period’ delays cause employees to be out-of-pocket for claims; it also puts additional burden on designated company administrators. Always check to ensure the chosen provider does not have any ‘black out period’ restrictions.
A final element is the reimbursement process is to ensure that the chosen provider supports both cheque payment and direct deposit. Many companies today support direct deposit for employee payroll because it is quick and extremely convenient. Reimbursements for Health Spending Account claims should be no different.
A Health Spending Account is a type of PHSP that is becoming as necessary as a bank account for Canadian incorporated companies. However, it is important to ensure that the plan your company selects meets at least all seven criteria outlined in this article. Why settle for anything less?
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