Health and Wellness Spending Accounts: Why you should add one to your benefits package.
As the benefits landscape changes and evolves, there are two things that are becoming more and more popular in employee benefits: health spending accounts (HSAs) and wellness spending accounts (WSAs). At Benavise, we get lots of questions about HSAs and WSAs; what they are, how do they benefit both employers and employees, and what’s the best way to integrate them into your plan? We’re here to answer some of your questions to get you started.
What is a Health Spending Account (HSA)?
A health spending account, also known as a health care spending account (HCSA) is a non-taxable employee benefit that provides flexibility in covering specific, CRA defined health services, like dental, ambulance, crutches, optometry, medications, health devices, and more. A health spending account normally covers the same types of health products and services that can be covered by traditional health coverage in your group benefits plan; however, the scope can be more wide than traditional coverage.
Most company’s use HSAs in one of two ways; they either add them as a supplement to traditional group health benefits, or replace traditional health benefits completely.
In the first case, if, for example, your traditional health benefits coverage pays 80% of employee costs for dental services, an employee can use their health spending account to cover the other 20% of costs, or cover their annual deductible, if there is one. If the employee has an annual dental maximum, and they reach it; they could also use their HSA to cover additional costs that year.
If you entirely replace traditional group health benefits with an HSA, then employees simply use their HSA for any eligible health services they use, up to the maximum available in their account.
Employers decide how much to put in the HSA annually, but pay only what employees actually use.
What is a Wellness Spending Account (WSA)?
A wellness spending account (WSA) or sometimes called a Personal Spending Account (PSA) is a taxable benefit that provides financial support for some wellness and other expenses that don’t fall under traditional group heath coverage plans. Like with a health care spending account, an employer decides how much a wellness spending account includes annually. An employer can offer a pre-defined plan from their benefits provider, or determine which specific benefits to include.
Typical benefits can include items like gym memberships, daycare or elder care, public transportation, fitness equipment, health programs and other taxable benefits not covered under an HSA. It could also include professional development like courses, computer equipment, books, and conferences, or even financial services, and more.
Employees use their wellness spending account however they wish, spending money from their total available amount according to their priorities, interests, and needs. Since WSAs are taxable, whatever amounts employees spend annually must be included in their total earnings for tax purposes. For employers, WSA is a tax credit.
Why do employees like Health and Wellness Spending Accounts?
Flexibility. Flexibility. Flexibility. This is the number one feature of health and wellness spending accounts. With spending accounts, employers can plan to allocate the same amount of money towards employee health benefits as in a traditional plan; but employees can reap more rewards from this type of benefit, either by covering their co-payment, or choosing to use their benefits on the things they want and need most.
Providing staff with the flexibility of an HSA, and/or WSA leads to happy, empowered employees; these are very attractive perks to have in your benefits plan.
In a traditional plan, limits are defined for various categories; some staff may not have any need at all to access certain benefits, or need more of one specific benefit. With a health or wellness spending account, employees can use their benefits money exactly how they want.
How can health and wellness spending accounts help companies save money?
Health and wellness spending accounts provide employers with more control over their benefits costs. With traditional benefits, employees have maximum spending amounts in a variety of different categories. While this means there are certain checks and balances in place to control employer costs, the maximum possible employee spend could be quite high; employers could be caught off guard the following year with big rate increases if their employee usage exceeds expectations. With health and wellness spending accounts, employers can provide a popular, attractive benefit while still keeping potential maximum costs low.
Employers have the ability to define exactly how much employees will have available each year in their HSA or WSA. In some cases, for companies who offer both, they can define a total annual amount that covers both the HSA and WSA; Employees then choose annually how much of the total cost should be in each separate account. When staff allocate how their money is divided, typical usage statistics can give employers a good idea of what the overall cost to the company will be; typically, employees use around 90% of their wellness account funds (because most likely they already have a plan in place for how they will use this benefit), while health spending accounts have a 40-60% usage rate (or higher when employees have been educated about how to use their HSA).
Employers can also decide whether amounts can be rolled over to following years, or if they expire at year end.
Setting up a WSA through an insurance provider can also just save time and administrative costs by consolidating various existing taxable benefits under your WSA.
What can a Health or Wellness Spending Account cover?
Many group insurance providers offer HSAs and WSAs, and may vary on what types of benefits are included in their set plans; however, all plans will include only those things that the CRA defines as eligible benefits. For HSAs, CRA defines a list of non-taxable health benefits which could be covered.
For WSAs, the CRA defines a list of taxable benefits that can fall into this category.
Benefits providers may also work with employers to tailor their HSA, or WSA to cover specific benefit that fit with a company’s culture and/or priorities for employee support.
Some added bonuses of health and wellness spending accounts
When your company provides a health or wellness spending account, you’re providing a benefit that empowers your staff. As we mentioned, it also gives them flexibility. With this flexibility and empowerment, staff have a good incentive to really learn about their benefits in order get the most out of them. Staff who learn more about their benefits will have a better idea of free resources already in your plan. This knowledge can help them prevent health issues, and can manage their health and happiness better. This can add up to great benefits for the employer like reduced absenteeism and increased employee productivity and engagement.
Providing staff with a way to pay for fitness and other healthy lifestyle choices can also lower your employees’ risks of developing more serious health issues; this can avert health expenses or disability claims that could otherwise impact your group benefits plan.
And most of all, these attractive benefits make your company more competitive for job seekers. Being able to attract and retain high-performing employees can be invaluable for your business growth and success.