Health Spending Accounts and Cost Plus Arrangements

Health Spending Accounts and Cost Plus Arrangements, plans offered by Northern River Financial, are non-insured benefit options which can be used to add flexibility to coverage and are often used to create a form of flex plan. They are particularly useful for covering medical expenses that are larger than the amount covered by the primary medical coverage of the group plan or for items that might not be covered. An example of such an instance would be if one or more of your staff required an extensive dental surgery where costs could easily be tens of thousands more than would be covered under a standard dental plan. Either can be employed to enhance the corporate employee benefits compensation package for your executives and longer-term employees.

Cost Plus Arrangements (CPA) can be used to cover any medical expense allowable under Canada Revenue Agency’s (CRA) guidelines if they are not already covered under your standard employee benefits program. Since cost plus expenses are paid with pre-tax funds from your business, and not from the disposable income from your employees, it is a very tax-effective way to reward more senior employees, and without attracting payroll taxes.

A Health Spending Account (HSA) is a more formalised addition to your benefits plan which enables a small business owner to provide an element of a flex plan to a group of employees. Usually, Northern River Financial offers HSA plans in partnership with a health plan which has been somewhat stripped-down. For instance, there may be no vision care or paramedical services, or the drug deductible may be higher than normal. The added HSA is the vehicle used to pay for these routine and predictable expenses.

CPAs are usually employed when only a few employees are participating. It is important that the plan is structured to include all senior management employees and not just company owners or shareholders. It is against CRA’s rules for the plan to be for the sole use of owners and shareholders so failure to offer it to all senior staff this may cause taxation issues with the CRA.

HSAs are setup when there will be more than just a few participants. They are designed to offer flexibility so that part of the monthly payment made by employer and employee is kept for use as needed, as opposed to being allocated to a particular application such as dental or vision care. In this way, if you have extra expenses beyond basic coverage then the credit in the HSA can be used to cover some, or all, of the added expense. The Insurer manages the annual limits, removing the record-keeping from the human resource or the payroll department.

Key considerations

  • Cost Plus Arrangements are an added benefit
  • Less corporate administrative burden
  • Health Spending Accounts enhance traditional group benefits
  • Allows expenses not covered in group plans
  • Flexibility of coverage