A Health Spending Account is as Essential as a Bank Account
A Health Spending Account is as Essential as a Bank Account
A Health Spending Account is a Private Health Services Plan (PHSP) that provides a tax free benefit that a Canadian corporation (as an employer) provides to employee-owners, employees and their dependents.
A Health Spending Account can be used as a standalone plan, or, if you have a traditional health insurance plan (e.g., Blue Cross), it will take care of virtually all the health care expenses these traditional do not cover. In addition, you even can run your health insurance plan premiums through your Health Spending Account.
A Health Spending Accounts is as essential as a bank account for incorporated Canadian companies. Accountants will recommend a Health Spending Account, without reservation.
If you are a Canadian incorporated business without a Health Spending Account four key issues will continue to arise:
1) Employees (or employee-owners) need to use after-tax salary to pay for health care expenses, including those expenses not covered if they happen to have a traditional health insurance plan. This results in companies overpaying the Canadian Revenue Agency about $2 to $4 per day per person, the bulk of which cannot be recovered.
2) Only a small percentage (10% or less) of out-of-pocket medical expenses are recoverable by employees, at year end by claiming medical expenses on personal tax returns.
3) Employers may be required to provide a wage increase to cover employee benefit costs - from a tax perspective this is 30% to 40% more expensive than providing benefits via a Health Spending Account.
4) Employees are saddled with increasing health care costs, and limited access to the services. This can negatively impacting employee satisfaction / retention. What if competitive employers offer a Health Spending Account to help offset these costs?
For a small businesses (especially single owner businesses) a Health Spending Accounts is not a lot different, in principle, than the use of before-tax dollars to fund items like office expenses. If a company can use before-tax dollars to pay for everyday office expenses then why use after-tax dollars to pay for health care costs?
A traditional health insurance plan is only a partial health care solution for businesses. Not surprisingly, monthly health benefit plans are designed to yield a substantial profit (30%+) the Providers, especially when it comes to routine health care expenses.
On average, a small business will get 50% to 70% of the premiums they put in - the traditional monthly plans are designed that way, especially for the smaller businesses. And, if you claim more in one year, your premiums or limitations will normally increase to maintain that minimum 70/30 ratio. Many small businesses keep these plans to cover catastrophic events (i.e. accidental dental, private nursing care, etc) but a tax efficient solution is still essential to pickup all the remaining routine costs. The only way to
accomplish this is with a Health Spending Account.
There are at least seven advantages Canadian incorporated businesses can realize by putting in place a Health Spending Account. These include:
1) Paying for Health Care costs using your companies before-tax money
2) Minimizing overpayment of health care related taxes to Canada Revenue Agency
3) Minimizing out-of-pocket health care expenses.
4) Quick reimbursement for out-of-pocket expenses to owner-employees, employees,and dependents
5) Providing access to virtually unrestricted health care services (i.e., comprehensive coverage with no more artificial percentage limits).
6) Spending 30-40% less than on health benefits than the equivalent salary increase.
7) Improving employee satisfaction and retention. According to 2009 study sponsored by Health Canada 50% of employees prefer health benefits vs. the equivalent salary increase.
In today's competitive business environment is it any wonder why Canadian businesses are beginning to conclude that a Health Spending Account is as essential as a bank account.
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