3 Reasons Why You Should Consider Getting a Healthcare Spending Account (HCSA) for Your Small Business
In large corporations, having a Health Care Spending Account (HCSA) in British Columbia is a common occurrence. It’s usually part of a comprehensive healthcare benefits plan. However, many small and medium businesses often don’t offer healthcare spending accounts, which can be detrimental to both the business and its employees.
Many business owners think Health Care Spending Accounts are too costly and don’t provide enough coverage — however, this is actually not the case. A
Health Care Spending Account (HCSA) can be a useful benefit for small and medium-sized businesses — not just large corporations.
What is a Health Care Spending Account in British Columbia?
In organizations that have a comprehensive healthcare benefits plan, a Health Care Spending Account (HCSA) provides supplemental coverage for items that are not covered by traditional group benefits programs. However, a Health Care Spending Account can also be offered in organizations that do not have a group health plan. Areas a healthcare spending account covers include:
- Prescription medication
- Professional services such as chiropractors or physiotherapists
- Eyeglasses or contact lenses
- Laser eye surgery
- Hearing aids
- Fertility treatments
- Insulin and injection pens
- Dental expenses
- Dentures and dental implants
- Cosmetic surgery
- Home care
- Home renovations when medically prescribed
The list is long, and varies between Health Care Spending Account providers in British Columbia. However, this example list shows that a Health Care Spending Account covers a wide range of medical expenses.
Why should your small business get a healthcare spending account?
1. Improve your personal financial situation
A Health Care Spending Account (HCSA) is a wise choice for your small business, even if you don’t have any employees. You can use a Health Care Spending Account just for yourself! It’s an opportunity to write off medical expenses for yourself which you cannot do with your personal tax return.
When you have a Health Care Spending Account (HCSA), you can deduct 100% of your medical expenses. Compare this to a personal tax return, where you can only deduct a portion of medical expenses.
The best way to determine whether a Health Care Spending Account can save you money on a personal level is to look at your annual healthcare costs over a few years. If those costs are typically covered by most healthcare spending accounts, this may be a good option for you. However, if your medical expenses are for items that are not covered, then you may have to look at other options.
2. Improve your employees’ financial situation
Employees do not pay tax on any contributions they make to the healthcare spending account or on any eligible expenses related to the healthcare spending account. This upfront tax savings makes the healthcare spending account a powerful financial tool for employees.
In order to see tax savings from using a HCSA, families typically need to have medical expenses above $2,302 (2018) or 3% of their income per year, and have a marginal tax rate greater than 20%.
By offering a healthcare spending account for employees, small businesses can showcase their commitment to the health and wellbeing of their team and their families. This can help attract top talent to the business, and increase employee retention and loyalty rates. This in turn can help the business save on recruiting, hiring, and onboarding costs if the employee turnover is low.
3. Improve your business’ financial situation
While the savings to the business owner and the employees can be significant with a healthcare spending account, they are also important to the business itself. Here are some of the financial benefits to the business:
- The business receives a tax deduction on any contributions to the healthcare spending account.
- The business has more clarity with a healthcare spending account because they can select the contribution amount. In addition, they can select the cap for employees. Once that cap has been reached, the healthcare spending account is maxed out. This is different from a traditional group health benefits plan where the claims and related costs can be unpredictable.
- Premiums for traditional group health benefits vary based on usage. However, with a HCSA, this is not the case.
- Businesses only pay for what the employer or the employees have actually used within the HCSA. With traditional group health benefits, businesses pay regardless of the use.
Navigating the accounting and bookkeeping nuances of a healthcare spending account are complex and require a professional’s expertise. It’s important to make sure the tax and deductions considerations are done correctly at every step.
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