If you’re a small business owner in Canada, you have access to a provincial health plan. But that doesn’t cover everything – and health care costs are on the rise.
There are several options to paying for these additional expenses. In this article, we identify these options and provide you with the tools to obtain the right kind of health insurance for your small business.
As a small business owner in Canada, it is prudent to carefully look into the seemingly complicated question of "how to get health insurance for my small business." Thankfully, there are only three methods to pay for medical expenses not covered by the province.
The first option is to use a traditional health insurance plan. However, many small business owners soon discover that insurance plans are very expensive, restrictive, and complicated. In fact, in most cases, small business owners will end up paying more in insurance premiums than the total cost of their medical expenses!
The second option for small business owners in Canada is to pay for their own medical expenses without insurance (out-of-pocket). By opting to "self-insure", the business owner is generally paying less than using traditional insurance, but will discover the tax consequences of paying for a medical expense personally (with "after-tax" dollars.)
The third option is a Health Spending Account (or "HSA"). In this case, the small business owner uses the HSA as a tax vehicle to convert personal medical expenses into legitimate business expenses. In the process, the person's businesssaves thousands of dollars in taxes. With no premiums, restrictions, and significant savings, the HSA has become the leading alternative for the self-employed to pay for personal medical expenses.
Simply put, Health Spending Accounts can stretch health care dollars, and may be one of the best-kept secrets when it comes to tax-free breaks.
Health Spending Accounts were first introduced in 1986 by Canada Revenue Agency (CRA), aimed at both business owners and employees at companies. Essentially, they are like a special savings account where a capped amount of money is deposited to be used exclusively for health issues, everything from dental expenses to eyeglasses, and is a non-taxable benefit for the employee.
The HSA can help Canadian family businesses deal with health costs and assist companies with multiple employees in focusing their health-care spending on their workers.
Further Benefits of an HSA
With HSAs, eligible medical costs are entirely paid for up to the funding limit. There are also no deductibles, co-payments or annual limits on particular kinds of services that some group health plans have.
For employers, HSAs provide cost certainty — they know up front how much their benefit costs will be. And if there are no claims from one employee, the business isn't out-of-pocket any cost (other than the setup fee and annual fee the administrator may charge).
With group plans, there's is usually someone who doesn't like what's covered and what isn't, or doesn't like the limits that may have been imposed. Some employees will want better drug coverage, while others might want better coverage for orthodontic work. With HSAs, each employee is able to choose how to spend their plan dollars.
Another benefit is that people with pre-existing health conditions may find it difficult to qualify for some group insurance plans. With HSAs, that's not an issue — all pre-existing conditions are covered. There is also no age limit.