Traditional Employee Health Benefits Plans vs. Health Spending Accounts
By Simply Benefits Marketing
November 17, 2020
The world of employee benefits can seem overwhelming, confusing, and daunting, especially if you are a small business owner.
We’re here to help navigate you through the world of insurance, and introduce you to two forms of health coverage: traditional benefits plans, and health spending accounts.
Once you finish this article you’ll have all the information to decide which plan type is best suited for your employees and budget.
First things first. You probably have already heard of traditional employee group benefits plans. These are common in mid-large businesses and these types of plans can include a range of benefits like Long-Term Disability and Paramedicals (massage, physiotherapy, etc).
Although they are more expensive, they offer more coverage and offset some larger health expenses that your employees would not be able to afford otherwise.
Traditional Benefits Plans
Here is how the process works for traditional benefits plans:
Step One: Find an Advisor
Advisors help design the perfect plan for you, get pricing, and negotiate rates with insurance carriers. The good news: you don’t pay advisors directly. They earn a commission based on if you enroll in a benefits plan. Think of a realtor, it’s a similar process.
Fun Fact: If you don’t have an advisor then our team here at Simply Benefits can connect you with an awesome one!
Step Two: Design a Benefits Plan
With traditional employee benefits plans, you can choose to include:
Life Insurance (dollar amount paid to employees’ dependents/families if they die),
Accidental Death & Dismemberment (usually sold as an add-on to Life Insurance that’s also paid out if the death was an accident or an employee loses their sight, hearing, limb, etc),
Dependent Life Insurance (paid out to employees if a family member dies),
Short-Term Disability (salary coverage if absent from work due to minor illnesses/injuries, etc),
Long-Term Disability (salary coverage if absent from work due to major illnesses/injuries, etc),
Critical Illness (immediate payout to help cover medical or travel costs for major illnesses such as cancer, stroke, etc),
Prescription Drugs (coverage for drugs prescribed by a doctor)
Out of Country (covers unexpected medical services and treatments while traveling).
Pricing for traditional benefits plans is based on many factors including age, demographic, etc, and also varies depending on the benefits included. Some benefits are more affordable, like Life Insurance, and some are more expensive, like Extended Health Care (which includes Paramedicals, Major Medical, Drugs, Vision, and Out of Country).
Step Three: Enroll and Onboard Employes
By this step, you and your advisor would have decided on a plan design and pricing, and signed the dotted line. Now, your employees can begin enrolling and using their benefits. In most cases with traditional plans, you’ll pay a set monthly premium (fee), no matter how many claims (receipts/reimbursement requests) are submitted by your employees.
Fun Fact: At Simply Benefits we have made onboarding, enrolling, managing, and using benefits 100% digital from start to finish.
To tie everything together, let’s look at the pros and cons of traditional benefits plans.
Set monthly premium, you will always know what you’re going to pay that month.
Traditional plans cover large expenses for employees like life insurance, disability, critical illness, etc.
Employees can pay a percentage of some benefits like Drugs, Paramedicals, Dental, and Vision to lower your monthly premium.
Higher maximums for each line of benefit, so employees can claim more expenses.
A more diverse range of benefits covered.
Costs are significantly higher compared to health spending accounts.
They are time-consuming for business owners to manage.
They can be complicated, and take time to set up.
There is not as much flexibility compared to health spending accounts.
Health Spending Accounts
Health Spending Accounts (HSA) have been increasingly popular in recent years for their flexibility in comparison to traditional benefit plans. They’re a great, tax-free benefit for small businesses to offer their employees, without breaking the bank.
Health Spending Accounts act differently than traditional benefits plans because they have a set annual maximum dollar amount that employees can use, and employers only pay for what their employees claim.
All claims are reimbursed at 100%, so employees don’t have to pay partial amounts of their expenses.
Here’s how the process works for health spending accounts:
Step One: Find an Advisor
This step is basically the same for Health Spending Accounts. Your advisor will connect you with an awesome carrier that offers flexible Health Spending Accounts.
You should consider carriers that provide digital benefits management because it makes monitoring health spending accounts far easier for your employees.
Fun fact: Simply Benefits offers a 100% digital online platform that allows employees to manage their benefits digitally. Employees can easily and quickly check their health spending account usage anytime!
Step Two: Decide on a Yearly Amount
With Health Spending Accounts, you will have to decide on an annual dollar amount that each employee will receive. For example, $1,000 for the entire year.
The amount you choose will be a good reflection on the maximum that you might spend on benefits, but you only end up paying for what your employees use each month.
So, if an employee only ends up using $500 dollars in the year, that is all you will pay for that employee, plus, it’s tax-free.
Depending on the size of your business, your advisor will help you decide what amount will fit you best.
When it comes to coverage, it’s important to note that health spending accounts typically don’t cover benefits like Short-Term, Long-Term Disability, or Life Insurance. However, they cover many extended health benefits.
The complete list of accepted services for health spending accounts is defined by the CRA (Canada Revenue Agency), and it changes from time to time. Here are some standard services that are covered:
Glasses and Eye Exams
Dental Services (check ups, cleanings)
The great thing about Health Spending Accounts is that employees are able to claim 100% of the cost of these services, even expensive ones!
Employees will have the freedom to pick which medical services are important to them while also being completely covered.
Step Three: Enroll and Onboard
At this point, it’s time to onboard your employees. This process usually looks similar to traditional health plans.
The only difference is that now, you’ll only pay for what your employees use. You won’t have to worry about monthly premiums or taxes!
Now, let’s look at the pros and cons of Health Spending Accounts.
Tax-free and cost-effective especially for small businesses.
100% coverage instead of coinsurance.
Flexibility for employees.
Easy to manage and set up.
You won’t know 100% what you’ll be paying every month for benefits, it will vary depending on what your employees use.
Might miss out on some coverage for extra benefits like Life Insurance or Disability Insurance.
Employees can only use the amount that is in the account (there is a limit).
Employee benefits should fit your business, not the other way around.
While traditional benefits plans may be the best option for some businesses, Health Spending Accounts serve as a cost-effective option for businesses that can’t afford traditional plans, or just want more flexibility.
Hopefully, you now have a better understanding of what benefits will best suit your business. If you have any more questions, reach out to us at email@example.com.