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The power of Health Spending Accounts

Health Spending Accounts (HSA) are often left unutilized. Danielle, our reader, wants to learn how to make the most of hers. Financial expert, Guirlene, takes her and us through how to maximize the financial and health benefits of a Health Spending Account.


The question

Hi Experts,
I’ve finally gotten on the other side of a period of hard times financially. Getting through it has motivated me to look at other ways I could optimize my finances. It dawned on me recently that my Health Spending Account through work is an area of finances I could tap into better. I’m just not sure how. Any practical tips?

Thanks, Danielle T.
Charlottetown, PEI

The answer

Hi Danielle,

Congratulations on navigating through your financial challenges! Optimizing your Health Spending Account is a great way to further enhance your financial stability. I will dive deeper into unlocking financial wellness through the power of an HSA. Here are some practical tips to help you make the most of your HSA.

A HSA is an incredibly useful financial tool that all working Canadians should try to utilize. It plays a role in covering additional medical expenses like:

  • Prescription drugs
  • Medical practitioners (Podiatrist, Chiropractor, Psychologist etc.)
  • Dental care
  • Vision care
  • Paramedical services (Naturopathic, Acupuncture, Physiotherapy etc.)

Use your health spending account to cover the cost of preventive care services such as annual check-ups, vaccinations, and screenings. Investing in your health now can help you avoid more significant expenses down the road. These are all necessary in not only keeping you healthy but also providing peace of mind when it comes to unexpected bills arising from costs extending beyond what your employee benefits plan offers. 

ABC’s of an HSA

An HSA is a group benefit that reimburses you for medical expenses that you may have to pay (alongside your benefits plan). An HSA is helpful in covering other areas of your medical plan when you exceed its balance. It is also important to know that HSAs are administered within Canada Revenue Agency (CRA) guidelines and must conform to Private Health Services Plan rules. 

One major benefit of HSAs is their ability to significantly increase savings. Did you know that traditional insurance plans can charge as much as a 25% fee? With an HSA, you can combine your HSA with other benefits (dental plan, vision plan, medical plan etc.) should you need to do so. For example, if you want to get a standard dental checkup and your regular insurance coverage balance is $0, your HSA can be used in combination with that dental checkup. This applies to a variety of medical expenses including ones not covered in traditional health insurance plans.

Another big benefit to HSAs is that they are simple to manage. They follow a pay-as-you-go format. There are no associated fees. Once a claim has been approved, you will receive an e-transfer! No fuss or hassle. It is like a personal spending account but for your personal health instead!

Lastly, some health spending accounts offer flexibility in terms of what expenses are covered. Look into whether your plan covers items such as over-the-counter medications, certain medical devices, or alternative therapies.

Tax savings and beyond

Did you know that HSAs are 100% deductible for employers and 100% tax-free for employees? This means that employees are not taxed when using an HSA and employers can lower their taxable income, it is a win-win for everyone!

However, it is important to know that there are limitations to an HSA in terms of what you can use it for. For instance, you may use it on any valid medical expense like laser eye surgery or buying medicine prescribed by a physician, but you cannot buy things like a Fitbit or a gym membership. 

Consider contributing the maximum amount allowed to your health spending account. This can help you save on taxes, as contributions are typically made with pre-tax dollars. Keep track of your medical expenses throughout the year. This will help you stay within your budget and ensure you don’t miss out on any eligible expenses. 

It is also important to note that while an HSA is incredibly useful, there are some tax schemes to be aware of. You can learn more about the specifics on the CRA website. Keep all receipts and documentation related to your medical expenses. This will make it easier to substantiate your expenses if you are ever audited.

Maximizing your HSA

If you have not already, contact your Human Resources (HR) professional. Ask them things like what is covered and what is not, submission deadlines for claims, as well as carryover periods. This is a great time to make sure you understand where to check your HSA balance too. Taking the time to thoroughly understand the details of your health spending account is very worthwhile.

Don’t be shy when it comes to your HSA. Use up your HSA account each calendar year. This is especially important if the balance resets every year. Many health spending accounts have a “use it or lose it” policy, meaning any unused funds at the end of the year are forfeited. Plan your expenses accordingly to avoid losing out on any money.

Did you know that being in debt raises the chances of having depression and anxiety? Many Canadians tend to forget that mental health and financial wellness are closely connected. This leads to less frequent check-ups and not taking advantage of health care plans offered by their companies. An HSA is another convenient and hassle-free tool that all Canadians in the workforce should utilize to its full potential. Not using it is like throwing away a free benefit.

Conclusion 

As an employee, make sure to ask questions to your employer about the benefits that they offer. Verify the balance, carryover amount, etc. Additionally, make sure you remember to use the account. Many Canadians do not take advantage of their insurance plans or HSAs. Save yourself from a lifelong road of mental and physical health issues, while also saving money against those costly medical bills by using your benefits every year. By following these tips, you can make the most of your health spending account and continue your path to financial wellness.


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