What is the difference between a Health Spending Account (HSA) and a Wellness Spending Account (WSA)?
Many companies are offering these benefits but which is more important and where do they differ? This article is useful for both an employer looking to provide either plans as well as employees who are using them.
Other Names for HSA and WSA
Health Spending Account (HSA) is often referred to as a Private Health Services Plan (PHSP). These names are used interchangeably and usually mean one and the same thing. For ease of reading, I will refer to these plans as a Health Spending Account (or HSA) for the rest of the article.
Additionally, a Wellness Spending Account (WSA) is also known as a Health and Wellness Plan (HWP) or Lifestyle Spending Account (LSA). For the purposes of this article, we will refer to these plans as a Wellness Spending Account (WSA).
What is the purpose of these spending accounts?
Both Health Spending Accounts and Wellness Spending Accounts are employee benefits. They are used by employers to improve employee satisfaction within the company. Ultimately, their purpose is aimed at different areas. A Health Spending Account supports employees on medical expenses relating directly to health, hence the name Health Spending Account. Some commonly claimed expenses in an HSA include dental checkups, prescription drugs, physiotherapy, and prescription glasses. These contribute and impact the health of an employee.
On the other hand, a Wellness Spending Account encourages employee wellness and healthy living. These plans typically provide spending allowances for things like gym memberships, classes, relationship counselling, or that new pair of running shoes.
The other major difference between these spending accounts is tax based. WSA allowances are taxable for the employee. HSA allowances are non-taxable. This means WSA funds used up by an employee contribute to their yearly taxable income. This tax effect is likely minimal but still apparent.
What is eligible in a Wellness Spending Account (WSA)?
A Wellness Spending Account (WSA) is a taxable benefit. This means the amount used in an employee's WSA allowance contributes to their yearly taxable income. Unused dollars in a WSA plan do not add to an employees taxable income. Since WSAs are NOT a tax free benefit, its eligible expenses are not regulated by the Canadian Revenue Agency (CRA).
Each WSA provider develops their own list of eligible WSA expenses. Alternatively, the provider canwork with plan sponsors (employers) to determine eligible expenses.
Here are some common WSA eligible expenses:
Trail running shoes
Courses and textbooks
What is eligible in a Health Spending Account (HSA)?
A Health Spending Account is tax free allowance used for medical expenses. It's an alternative to traditional private health insurance and is typically more cost effective and affordable for a small business. The plan is administered by a private company like Olympia but regulated by the CRA due to it's tax implications. As a result, eligible HSA expenses are determined by the CRA.
Here are some commonly claimed expenses in an HSA:
How are eligible expenses determined in WSAs and HSAs?
As previously discussed, a Health Spending Account is a tax-free benefit. Therefore, eligible items are determined by the CRA. Providers of these HSA plans like Olympia Benefits are here to ensure that these plans follow the guidelines set forth by CRA.
On the other hand, a Wellness Spending Account is a taxable benefit. Therefore, eligible items are determined by the provider.
How does a Health Spending Account work?
An HSA is an employer sponsored benefits plan which allocates tax-free dollars to the employees to spend on CRA-specific eligible expenses.Employers determine classifications for each employee with set limits. This can be based on factors like job title, age, years at work, or anything applicable. Employees pay for medical expenses personally and then claim for reimbursement through the HSA. If eligible, the employee is reimbursed using their yearly HSA allowance. Employees cannot surpass their HSA limit but do not have to spend all the money either. As a result, employers have cost control over how much expenses they will spend on health benefits in a given year.
How does a Wellness Spending Account work?
A WSA will work similar to the HSA with the main difference being:
Allowance used in a WSA is added to an employee's taxable salary
Each employee is designated a limit as to how much they can spend in their WSA
The limits are separated through classifications (they are based on factors determined by the employer such as job title, years of experience, or anything applicable)
The total of all employee limits is the maximum expense an employer can incur over a plan year
The employer allocates the previously agreed amount into the WSA in equal monthly installments
Employees pay for the expense personally and then make a claim with the WSA provider
If the expense is eligible, then the employee will be reimbursed using their WSA allowance. The expensed amount is added onto the employee’s total taxable income.
Employees do not have to spend all of their WSA allowance but cannot claim over their limit.
Employees can only be reimbursed for eligible expenses that pertain to the WSA guidelines set by the WSA provider
No sunken costs, only pay what is used by employees and get unused dollars back
Can be built in with other insurance policies like disability and life
Tax free allowance for employees
Attract and retain top talent
Advantages of using a Wellness Spending Accounts:
Flexibility and choice for employees
Cost control and customization for employers
Restrict employee allowance spending to wellness related expenses
Attract and retain top talent
Promote healthy lifestyles among your employees
Additional incentive for employees to take care of their health
Differentiate your benefits package from competitors
Great add-on to an HSA
Most companies start out with a Health Spending Account first as it replenishes an employee's most basic needs of health care. As an additional incentive, a WSA provides a good extra tier of employee spending on things that matter like active lifestyles and healthy living. In today's competitive recruitment environment, we see an increase of companies offering both.
Learn more about tax-free health & dental benefits through a Health Spending Account:
Learn more about a Wellness Spending Account and its impact on employee morale: