A Health Spending Account (HSA) is a flexible, tax-efficient way for business owners to pay for eligible health and medical expenses for themselves and their employees through the business.
In this guide, you’ll learn what an HSA is, how it works, who qualifies, and how to choose the right provider.
What is a Health Spending Account (HSA)?
A Health Spending Account is an employer-funded account that provides employees with a set amount of money each year to pay for medical expenses.
Unlike traditional health insurance, an HSA has no premiums, deductibles, or copayments. Employees choose how to spend the funds based on their individual needs, and every eligible expense is reimbursed in full until the balance is used.
HSAs are also highly tax-efficient: contributions are 100% tax-deductible for the business, and reimbursements are received 100% tax-free by employees.
How does a Health Spending Account work?
A Health Spending Account reimburses employees 100% tax-free for their eligible medical expenses until their yearly balance is used.
Unlike traditional insurance, an HSA doesn't have any restrictions by category or type of expense. Employees can choose how to spend their funds based on their individual healthcare needs.
Who is eligible for a Health Spending Account?
Health Spending Accounts are available to incorporated business owners and their employees.
At Olympia Benefits, we offer two different types of Health Spending Accounts:
Small Business HSA
Designed for incorporated business owners and their dependents (no arms-length employees).
You qualify if you:
- Own an incorporated business
- Have T4 income
- Have medical expenses
- Have one or more arm's length employees
Group HSA:
Designed for corporations with employees.
You qualify if you:
- Own an incorporated business
- Have one or more arm's length employee
In short: If you’re incorporated, you can typically set up a Health Spending Account, whether you’re a solo business owner or have a team.
Not sure where you fit or if an HSA is right for you? You can always reach out to us at 1-888-668-8384 or info@olympiabenefits.com.
What are HSA eligible expenses in Canada?
Eligible HSA expenses in Canada are determined by the Canada Revenue Agency (CRA). A wide range of health and dental expenses are eligible through an HSA, such as visits to medical practitioners, prescription medications, vision care, dental treatments, and medical devices.
Common eligible HSA expenses include:
- Visits to qualified medical practitioners (including chiropractors, physiotherapists, dermatologists, and speech therapists)
- Dental care, including braces and Invisalign
- Vision care, including prescription glasses and LASIK eye surgery
- Prescription drugs
- Massage therapy
- Medical equipment and devices
All eligible expenses are reimbursed at 100% of the cost, up to your annual HSA balance.
Can you claim insurance premiums through an HSA?
Yes, premiums contributed to a non-government insurance plan, including a spouse's plan, are eligible expenses through an HSA.
See the full list of eligible expenses through an HSA.
How to choose a Health Spending Account provider?
Choosing the right Health Spending Account provider comes down to service, transparency, and ease of use.
Here's what to look for in an HSA provider:
Credibility and expertise:
Choose a provider with proven experience in Health Spending Accounts and a strong understanding of CRA guidelines. A knowledgeable provider can help you stay compliant and make confident decisions about your plan.
Turnaround time:
The best HSA providers offer a simple claims experience, with quick reimbursements (typically through direct deposit). This makes it easy for employees to access their benefits without delays and ensures they are not waiting weeks for reimbursement.
IT infrastructure:
A modern HSA provider should offer a secure, easy-to-use online platform for submitting and tracking claims. A strong digital experience reduces administrative work and makes managing an HSA simple for both employers and employees.
Transparency:
Look for clear, upfront pricing with no hidden fees. A transparent HSA provider will clearly explain how costs are calculated, so you always understand what you’re paying and why.
Why choose Olympia Benefits for your HSA?
With more than 25 years of experience with HSAs, Olympia Benefits is built around these principles. Our digital platform makes it quick and easy to submit claims, with reimbursements typically processed within 2-3 business days.
We've processed millions of claims for business owners and their employees, helping Canadian businesses provide flexible, tax-efficient health benefits with confidence.
FAQs
What happens to unused HSA funds?
Most HSA providers allow a one-year rollover, meaning any unused funds from the current year can be used in the following year. After that, any remaining balance from the original year is forfeited.
This means that you have up to two years to use your HSA funds before they expire.
The forfeited amounts in an HSA still belong to the plan owner and can be withdrawn at any time. HSA funds that are not used by the employee are returned to the employer.
Can dependents claim expenses through an HSA?
Yes, dependents can claim expenses through an HSA and share the account’s annual limit.
Eligible dependents typically include:
- Your spouse (including common-law partner)
- Your unmarried, unemployed dependent children (including biological, adopted, and stepchildren)
To qualify, dependents must:
- Be under age 21 (or age 25 if they are full-time students)
- Be claimed as dependents on your personal tax return
Can an HSA be backdated?
No, an HSA cannot be backdated. The effective date of an HSA is the date that you sign up for the plan, and you can only submit claims on or after the effective date.
When can I close an HSA?
The employer can terminate an HSA plan at any time. There are no costs associated with terminating a plan.
Can you use an HSA alongside a traditional insurance plan?
Yes, you can hold both a traditional insurance plan and an HSA at the same time. In fact, premiums and other associated costs paid in a health insurance plan can be claimed through an HSA. This means that you can make your insurance premiums tax-free.
Can I claim an expense using both an HSA and insurance?
No, you cannot claim the same expense through both an HSA and insurance. Only portions that are not reimbursed by your insurance can be claimed through an HSA.
Should I claim through insurance or my HSA first?
Your HSA should be the last payer. First, claim your medical expense through insurance. If it is not eligible, you can then claim through your HSA. If there are any co-pays, co-insurance, or deductibles through your insurance, you can also claim them through your HSA.
Do I need a medical checkup to qualify for an HSA?
No, you do not need a medical checkup to sign up for an HSA. You can sign up even if you have pre-existing conditions.
What is the limit on an HSA?
The claim limit for an HSA in Canada is $15,000/year per enrolled employee.
In a group HSA plan, the employer can set custom limits for each classification of employees, ranging from $250 to $15,000. The lowest classification limit must be no less than 10% of the highest classification limit.
For example, an employer could offer managers $10,000/year, full-time employees $5,000/year, and part-time employees $1,000/year.
Have questions or want to see how an HSA would work for your business? Contact Olympia Benefits at 1-888-668-8384 or info@olympiabenefits.com.
Disclaimer: This content is provided for general informational purposes only and does not constitute financial, tax, legal, insurance, or medical advice. Olympia Benefits Inc. makes no representations or warranties, express or implied, regarding the completeness, accuracy, reliability, and suitability of the information contained herein. While reasonable efforts are made to ensure the information is current, the applicable laws, regulations, guidelines, and administrative practices may change from time to time, and may also vary based on individual circumstances. Readers should conduct their own research prior to opening a Health Spending Account.
