6 Reasons a Health Spending Account is Better Than Health Insurance
For small business owners in Canada, a Health Spending Account (HSA) offers a compelling alternative to traditional health insurance. Here are the top six reasons to consider an HSA over traditional health insurance:
Comparison Table
| Feature | Health Spending Account (HSA) | Traditional Health Insurance |
|---|---|---|
| Premiums | No monthly premiums; pay only for incurred expenses with a fixed yearly administrative fee. | Requires monthly premiums regardless of usage, often increasing annually and influenced by age. |
| Eligible Expenses | Covers a wide range of medical and dental expenses without restrictions, including pre-existing conditions. | Limited coverage with restrictions such as annual or lifetime caps and special authorizations; may exclude pre-existing conditions. |
| Complexity | Simple structure with 100% coverage up to account balance; expenses are automatically tracked and updated. | Complicated policy guidelines detailing covered items, exclusions, deductibles, co-insurance, and reimbursement rates. |
| Deductibles and Co-insurance | No deductibles or co-insurance requirements; no limits on treatments or visits. | Frequently includes deductibles and co-insurance, typically covering only 50%-80% of expenses, with limits on treatments and visits. |
| Tax Efficiency | Employer contributions are fully tax-deductible; employee reimbursements are tax-free. | Premiums may be tax-deductible for employers, but employee benefits may be taxable. |
| Cost Control | Employers fund only actual health expenses incurred, allowing for better budgeting and financial planning. | Premiums are fixed and may increase annually, leading to unpredictability in costs. |
Choosing an HSA offers significant advantages in cost savings, simplicity, and flexibility compared to traditional health insurance.
1. Cost Efficiency - No Premiums
Traditional Insurance: Requires monthly premiums regardless of usage, often increasing annually and influenced by the individual's age.
HSA: Eliminates monthly premiums. You pay only for the healthcare expenses you incur, typically accompanied by a fixed administrative fee. You only pay for what you use.
2. Broader Expense Eligibility and No Pre-existing Condition Exclusions
Traditional Insurance: Covers limited medical expenses with restrictions such as annual or lifetime caps and special authorizations. Often excludes or restricts coverage for pre-existing conditions.
HSA: Offers extensive coverage for a wide range of medical expenses without restrictions on pre-existing conditions. Limits are set only by the available funds in your account.
The full list of eligible expenses can be found on the CRA website here.
3. Simplicity and Ease of Use
Traditional Insurance: Comes with complicated policy guidelines detailing covered items, exclusions, deductibles, co-insurance, and reimbursement rates, creating confusion around coverage eligibility.
HSA: Features a clear, straightforward structure. Covers 100% of eligible expenses up to your account balance, which is automatically tracked and updated by your HSA administrator.
4. No Deductibles or Co-insurance
Traditional Insurance: Frequently includes deductibles and co-insurance, typically covering only 50%-80% of expenses, along with limits on treatments and visits.
HSA: Has no deductibles or co-insurance requirements and places no limits on treatments or visits.
5. Tax Efficiency
Employer Benefits: Contributions to an HSA are fully tax-deductible for the business, reducing taxable income.
Employee Benefits: Reimbursements received through an HSA are not considered taxable benefits, maximizing the value of health coverage.
6. Cost Control and Predictability
With HSAs, employers fund only the actual health expenses incurred, eliminating the unpredictability of premium increases and allowing for better budgeting and financial planning.