May 2008: by Dale R. Berg

Personal health spending accounts

When jobs are plentiful, and people are scarce, employers need to be creative and unique in their employment offering in order to attract and retain quality people.

In today's tight labour market, employees rank benefits very high when it comes to making their final employment decision of where they would like to work. Personal Health Spending Accounts (PHSA) are becoming a popular way of adding value to the employment offering.

A PHSA is established by an employer with a qualified trustee whereby the employer will systematically deposit funds for a medical reimbursement benefit of the employee. The employee can claim any qualified medical expense under CRA's guidelines which gives the employee unique coverage for his or her specific needs. The PHSA also allows the employee to use these funds to purchase various reimbursement type insurance coverages.

One type of coverage the employee can elect to purchase with their PHSA dollars is a personal insured health plan. A personal insured health plan will in effect provide the employee with many of the benefits he/she would have accessed if the employer subscribed to a group health and dental insured program. The health plan will reimburse the employee for prescription drugs, medical expenses, dental care, hospital expenses, travel insurance, student accident coverage as well as the ability to access term life coverage.

Another type of coverage that an employee can purchase with their personal health spending account dollars is critical conditions coverage. Critical conditions coverage would provide the employee with immediate access to the best advice and care for their particular illness through "best" doctors. Best doctors will provide the insured employee with clinical guidance and access to a second opinion to help arrive at the right treatment plan from a global database of 50,000 peer-ranked “best” doctors for any one specific medical condition. The coverage would also reimburse the employee with up to $2 million of global medical expenses incurred to treat their particular illness.

The final type of reimbursement coverage that is very often overlooked is long-term care coverage. Not every employee may be in the market for long-term care coverage because of their age and stage of life. But I see a definite application for this coverage in many small business situations where there is family ownership. The scenario would be parents who still own shares in the company and the children are currently running the day-to-day operations of the company. Long-term care coverage could be purchased through the PHSA for the parents' benefit.

If the parents experience a need for home care, or a need to enter a care facility, the coverage would reimburse the parents for all their personal care expenses. This coverage would definitely save the business from a potential large home care expense or care facility expense that could arise and also allow the parents to retain their savings.

As already mentioned, Personal Health Spending Accounts can be designed for the unique needs of each employee. The accounts also need to be set up according to the rules outlined by CRA. Some of the rules that need to be followed are:

• The account needs to be established as a benefit to every employee, or class of employees;
• The accounts cannot vary in their amounts between employees or class of employees;
• The money cannot stay in the account past a rolling 24-month period. Any money left over after the 24 months must be refunded back to the employer, and it is then at the discretion on the employer to keep the funds, or pass them on to the employee.

Personal Health Spending Accounts should be established by a qualified knowledgeable representative and through a respected supplier. Care must be taken to follow all guidelines and rules, and also make sure any coverages purchased with PHSA dollars are reimbursement coverages and not indemnity type coverages.

. . .
About the author
Dale R. Berg, CFP, CLU, ChFC, is a Senior Financial Advisor with Regency Advisory Corporation. He can be reached at 1-877-837-3377 or 306-665-3377, or click to email Dale Berg.

Disclaimer
Please contact a professional advisor to discuss your particular circumstances prior to acting on the information above. The opinions expressed are those of the author and not necessarily those of Assante Financial Management Ltd.

+ Back to Latest News & Resources page