Health Spending Accounts For Canadians Explained

Sarah Mitchell

By Sarah Mitchell

October 19, 2021

A Health Spending Account (HSA), also known as a Health Care Spending Account (HCSA), is an individual account with a fixed dollar amount used by employees and/or their eligible dependents for reimbursement of health and dental-related expenses not covered under provincial health insurance or other group benefit plans sponsored by the employer. 

Why Offer an HSA?

In Canada, HSAs are tax-free in most cases (with the exception of Quebec), meaning employees and covered dependents use pre-tax corporate dollars, from an HSA 'bank', to pay for medical bills that would normally be an out-of-pocket expense.

HSAs are an effective way to give employees more flexibility in how they use their benefits as the scope of what can be reimbursed is much broader than what is typically covered under a traditional plan.

Eligible Expenses

Expenses that can be claimed through an HSA are dictated by the Canada Revenue Agency (CRA) and are the same as the medical expenses that could otherwise be claimed on an individual's tax return.

Here are examples of expenses that can be claimed through an HSA:

  • Prescribed medications not covered by the traditional plan or above the plan maximum
  • Eye care services such as exams, prescription glasses, contacts, or laser eye surgery
  • Paramedical services provided by eligible licensed medical practitioners (see eligible practitioners
  • Dental care not covered by the traditional plan or above the plan maximum
  • Full-time home care or home modifications for medical conditions
  • Prescribed medical supplies, equipment, and devices (see eligible supplies
  • Diagnostic and rehabilitation services
  • Medically-required travel expenses such as ambulance services

It's important to know there is no insurance protection for catastrophic expenses or out-of-country coverage with an HSA. A traditional group benefits plan can provide this.

HSA Options

An HSA can be offered by the employer in two ways: on a stand-alone basis, or as part of a group benefits plan. The financial responsibility of the employer and employee varies depending on the implementation of the HSA.

Stand-alone HSA (aka Private Health Services Plan/PHSP):

  • A stand-alone HSA/PHSP is a flexible option for self-employed and small businesses. 
  • The account is typically fully funded by the employer.
  • The employer determines which group(s) of employees (aka Classes) are eligible and how much they will invest in the employee's HSA 'bank' at the beginning of each year.
  • Each member of a class receives the same fund amount  (e.g. All managers in the Management Class receive $1,000 in their HSA 'bank' per year. All employees in the Non-Management Class receive $500 in their HSA 'bank' per year).
  • A valid HSA must conform to CRA Private Health Service Plan rules.

HSA as part of a group benefits plan:

  • Employees must first submit any medical expenses through their group benefits plan. Any expenses not covered can then be submitted through the HSA.
  • The HSA is typically funded by the employer to ensure it's most tax-effective but it can be funded by both the employer and the employee.
    • However, any employee contributions are deducted from the employee payroll on an after-tax basis thereby eliminating the tax advantage of an HSA - which is why HSA's are most commonly funded by the employer.

In both cases, the HSA 'bank' balance decreases as claims are reimbursed until the balance reaches zero.

Unused HSA Funds

The employer has these options for handling unused funds and/or expenses at the end of the year:

  1. The employer can choose to allow/disallow any unused funds or unused expenses to roll over into the next plan year.
  2. If rollover of unused funds is not permitted, they will be forfeited and returned to the employer.
  3. If an employer allows unused funds to rollover to the next plan year, they can set a maximum rollover amount with the condition that any unused funds will be forfeited and returned to the employer at the end of year two - funds can't be carried over perpetually.

HSA Taxation

  • Employer funds + administration fees are both tax-deductible business expenses for employers.
  • Employee expenses submitted and reimbursed through an HSA are reimbursed to the employee tax-free.
Note: Please consult CRA for taxation as rules can change at any time.

HSA Administration Fees

  • Most insurance companies provide HSAs and charge an administration fee to manage the cost of administering claims. These fees can range up to 16% of the paid claims (Simply Benefits charges a low admin fee of 7%).

How Members Submit an HSA Claim

In the Simply Benefits platform, we make it easy for members to submit standalone claims through their HSA. See how:

Quick Tip: In the Simply portal, for members that submit a claim through their traditional plan first, they can submit any unpaid amount instantly (in one claim) through their HSA by choosing the Top Off option(see screenshot below). Members are typically are reimbursed within 48 hours.

Claim Top Off - iPhone

Not to be Confused With a Lifestyle Spending Account (LSA)

Though they may sound similar, a Health Care Spending Account and a Lifestyle Spending Account (LSA) operate differently. Unlike an HSA, an LSA is considered a taxable benefit. The employer decides what lifestyle expenses will be reimbursed, and after-tax dollars are used to cover the products and services. Commonly reimbursed expenses are non-medically required products and services that fall under categories such as:

  • Health (ie. massage units, vitamins and supplements, weight loss programs)
  • Cosmetic (ie. teeth whitening, cosmetic dermatology, hair replacement) 
  • Fitness & Sporting Goods (ie. gym membership, ski passes, fitness trackers)
  • Alternative Practitioner (ie. meditation classes, aromatherapy, reflexology)
  • Personal (child daycare services, parking pass, legal fees)
  • Other (elder care, spa services, veterinary fees)
Watch how easy it is for members to submit an LSA claim through Simply Benefits.

Final Thoughts

Given the tax-free benefits, Health Spending Accounts are a great option for any business looking to provide their employees with health and dental benefits. Further, as new generations continue to enter the workplace, spending accounts are becoming increasingly popular. Stay on top of the trends with more information on the type of benefits that millennials want.

Consult with your benefits advisor before implementing an HSA or LSA into your benefits plan.

More Popular Posts...

Mandatory Employee Benefits in Canada

It has become very common for employers to provide their full-time employees with a benefits...

Paige Latimer

By Paige Latimer

August 27, 2021

A Guide to Taxable Benefits in Canada

Employee benefits can be broken down into two types: taxable and non-taxable - but what’s the...

Paige Latimer

By Paige Latimer

September 2, 2021

Top Employee Benefits Consulting Firms in Lower Mainland, British Columbia

Looking for an advisor to assist you with an objective evaluation of your group benefits plans?...

Simply Benefits Marketing

By Simply Benefits Marketing

October 26, 2021

Want blogs delivered right to your inbox?

Subscribe to our Monthly Benefits Blast.

Form title

Simply Benefits Inc. (“us”, “we”, or “Simply Benefits”) is committed to privacy and the protection of your information. By using Simply Benefits’s website, mobile and other applications, and related Services made available through the Apple App Store, the Google PLAY Store, or otherwise on the Internet (together, the “Simply Benefits Applications” or “Applications”), you acknowledge that you accept the practices and policies outlined in this Privacy Policy (“Privacy Policy“). Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms set forth in the Terms of Service and which incorporate this Privacy Policy by reference.

At Simply Benefits Corp ("Simply Benefits") we are concerned with safeguarding and protecting the privacy of your personal information.

In accordance with Canada's *Personal Information Protection & Electronic Documents Act* ("PIPEDA") we have established policies on how we collect, use and protect any information that you give us when you use our website or services.

What We Collect

Required Regulatory Information

Simply Benefits collects information needed to provide services and meet the regulatory requirements of our industry. When you open an account or sign up for services, we collect personal information which may include but is not limited to the following:

  • Your name and date of birth

  • Contact details

  • Nature of your employment or business

  • Details about your dependents

  • Demographics

  • Other information relevant to the services we provide

Passive Data Collection

We may receive passively-collected information through a variety of methods, including “cookies” to collect information.

What is a cookie?

Cookies are text files containing small amounts of information which are downloaded to your device when you visit a website. Cookies are then sent back to the originating website on each subsequent visit, or to another website that recognizes that cookie. You can get more information about cookies here.

Simply Benefits uses cookies to track and measure site performance and gather analytics on usage. This information is anonymous and is only used by Simply Benefits to measure and improve our site.

When sending e-mail we may use tracking pixels and urls to help us measure open rates for e-mails and link clicks. This tracking information is used internally only to help us provide relevant content and is never shared with any third parties.

Opting Out of Cookies

If you choose, you may set your browser to notify you when you receive a cookie, giving you the chance to decide whether or not to accept it.

Analytics And Marketing

We use analytics tools and other third party technologies, such as Google Analytics, to collect non-personal information in the form of various usage and user metrics when you use our online Sites and/or Services.

We also use online advertising to reach new potential clients and remarketing tools that allow us to target ads to specific groups of people who have previously interacted with WealthBar’s websites.

Google allows individuals to opt out of it’s advertising cookies from its ad settings page.

Google has additional information available about their Remarketing Privacy Guidelines, and Restrictions.

Where do we store it

Simply Benefits may use third parties to store and process data. Simply Benefits will ensure that such third party service providers have significant expertise with data and digital privacy. Simply Benefits will ensure that personal data is stored and transmitted in encrypted format using technology such as SSL. Third party data storage and processing providers may be located in the United States and as a result personal information may be subject to U.S. privacy law which may differ from Canadian privacy law.

How We Use It

The information we collect is used so we can communicate with you, provide benefits and insurance management services, improve our products and services, and meet our regulatory obligations.

We share only the information which is reasonably required in the normal course of business with third parties such as our custodians, securities regulators, auditors, legal counsel, or law enforcement agencies, to enable them to fulfill their obligations to Simply Benefits and our clients. We may also disclose your personal information to third-party service providers, affiliates and agents in order to assist us in providing the services you requested and to fulfil the purposes for which your personal information has been collected. Outside of this we shall not sell, distribute or lease your personal information to third parties unless we have your permission or are required by law to do so.

How We Protect It

We are committed to ensuring that your information is secure. In order to prevent unauthorized access or disclosure, we have put in place suitable physical, electronic and managerial procedures to safeguard and secure the information we collect online. In the event that we share your personal information with third-party service providers, affiliates and agents, these parties will be required to adhere to strict confidentiality obligations and practices.

If you have a question, concern or complaint about our privacy policy, please send your comments and your contact details to our Privacy Officer in writing to the following address:

Simply Benefits Corp.

601-460 Doyle Ave,

Kelowna BC

V1Y 0C2

product@simplybenefits.ca

If you believe that any information we have on file for you is incorrect or incomplete, please write to or email us as soon as possible, at the above address. We will promptly correct any information found to be incorrect.