Benefits and healthcare expenses are a factor in everybody’s budget, whether you add it in or not.
For those of us with employers, we often take the coverage for granted.
However, in each and every province, the truth is our “healthcare system” doesn’t cover everything, and when incurring medical expenses there are often surprises.
If you own a family business or an independent contractor, how do you deal with benefits coverage? What are your options?
It may surprise you to learn that, as an incorporated small business owner, you have 3 options to pay for medical expenses that are not covered by the provincial government.
The first option is to use a traditional health insurance plan (e.g., Blue Cross). However, many small business owners make the unwelcome discovery that insurance plans are expensive, restrictive, and complicated. In addition, many of these plans stop paying benefits at age 65.
The second option is to pay for medical expenses without insurance. By opting to self-insure and simply paying out-of-pocket, the business owner is on the right track, but soon realizes the tax consequences of paying for a medical expense personally (with after tax-dollars).
The third option is a Health Spending Account (or "HSA"). The small business owner effectively uses the HSA as a tax vehicle and converts personal medical expenses into a legitimate business expense. In the process, the business saves thousands of dollars in taxes. With no premiums, restrictions, and considerable savings, the HSA has become the go to alternative for small business owners to pay for personal medical expenses.
For somebody who is self-employed in any way, or runs his own corporation (even a holding company), an HSA is an option to allow you to save money towards healthcare expenses far beyond that allowed by the standard benefits plan. It can cover virtually all healthcare expenses through this account as long as you contribute sufficiently to cover them.
An HSA really works like a savings account, but one that can only be used to cover your healthcare expenses. For example, let’s say you spend $1,000 at a dentist, $200 on prescriptions, $100 for a massage, and $850 on orthotics.
Using a Health Spending Account, you would make your monthly or annual contributions to the account (let’s assume, $300 per month).
Then when you incur your expenses, simply report them online to your HSA provider for reimbursement. As long as you’ve contributed through the business, your funds will be quickly provided back to your personal account.
Note, while common expenses (such as dentistry) are generally covered by traditional benefits packages, they are seldom covered 100%. Moreover, specialty items such as laser treatment for skin conditions, certain medications, or therapies are rarely covered.
When reviewing healthcare needs, ther may be some issues that point you in the direction of considering a standard benefits package. If that’s the case, do your homework: ensure the coverage is sufficient, there are minimal age restrictions and that the type of coverage you need is all you are paying for.
If you do have special requirements, or are excluded from some items in the traditional benefits package, then look into a Health Spending Account. It's simply one of the best kept secrets of the insurance industry because of its flexibility and customization. Is your Canadian small business wasting money on health and dental expenses? Maximize your savings by using an HSA.