Health Spending Accounts (Part 2 of 2)

Interest in Health Spending Accounts (HSAs) is growing for some fundamental and basic reasons. Today's reality is that governments in Canada and the United States are working to balance their budgets by reducing expenses.

Another reality is that health care expenditures take up a significant portion of government budgets and must be reduced if governments are to be successful in their efforts.

While this funding for services is declining, demand for health care is not likely to subside.

In this second of two parts, we take a look at who is covered by HSAs and what services are covered.

Who is Covered by a HSA

When a HSA is set up for an employee or self-employed individual, it can cover allowable medical expenses for the individual and, at the individual’s discretion, their dependants. This includes a spouse or any member of a household related to the employee by blood relationship, marriage or adoption and who is financially dependent upon them within a given year. Dependants must also be a Canadian citizen residing within the country for a minimum of six months out of the year.

There are instances when a more comprehensive definition of dependant is required. For Health Spending Accounts, the complete definition of Dependant is provided in the Income Tax Act. This definition can be found at http://www.cra-arc.gc.ca/E/pub/tp/it513r/it513r-e.txt.

Dependants may include parents residing with children or in facilities such as a retirement home or nursing facility. The cost of these services can be reimbursed through a Health Spending Account.

Medical Expenses Covered by a Health Spending Account

There are three broad categories of medical expenses.

1. Medical Practitioners

Services provided by a licensed medical practitioner can be reimbursed through a HSA. Medical practitioner encompasses a wide range of individuals that work in the medical profession including but not limited to:

Doctor; Dentist; Optometrist; Osteopath; Chiropractor; Naturopath; Therapeutist (or therapist); Physiotherapist; Chiropodist (or podiatrist); Christian Science practitioner; Psychoanalyst; Psychologist; Speech-language pathologist or audiologist; Occupational therapist; Acupuncturist; Dietician; Dental hygienist

2. Medical Expenses

Medical expenses, as defined by Canada Revenue Agency, include a broader range of products and services than is typically covered through private insurers. In addition, there are no limits on how much can be spent on specific services. Following are just some of the products and services classified as medical expenses by Canada Revenue Agency:

Medications prescribed by a licensed medical practitioner; Payments to hospitals; Payments to associations such as The Arthritis Society, The Canadian Red Cross, and Victorian Order of Nurses which employ individuals that provide a variety of health services; Out of country medical services; Attendant Care; Institution/education/training for individuals with physical or medical impairment; Transportation and travel expenses for patient and accompanying individual; Artificial limbs, aids and other devices; Products required because of incontinence; Eyeglasses; Guide and hearing-ear dogs and other animals; Bone marrow or organ transplants; Renovations and alterations to a dwelling

3. Other

This complete list of services includes items such as training or education for the disabled, making a home accessible to those with physical disabilities and special equipment for individuals with breathing disorders such as asthma. A Health Spending Account can also be used to pay for many assistive aids such as a scooter or assistive devices for walking, standing, using a shower or toilet and more. For more information on allowable medical expenses, refer to CRA Publication IT519-r2 (http://www.cra-arc.gc.ca/E/pub/tp/it519r2-consolid/it519r2-consolid-e.html#P178_27514).

Learn more about Health Spending Accounts

PreAxia

PreAxia provides access to published articles and interviews about Health Spending Accounts. These can be accessed in the HSA Education Centre that can be found at www.PreAxia.com/HSA. A Frequently Asked Questions (FAQs) document on Health Spending accounts is available at the bottom of the HSA Education Centre.

Wikipedia

Wikipedia provides an excellent explanation of Health Spending Accounts and CRA Guidelines.

http://en.wikipedia.org/wiki/Health_and_welfare_trust

http://en.wikipedia.org/wiki/Private_health_services_plan

Canada Revenue Agency (CRA)

Following are bulletins and other publications by CRA pertaining to Health Spending Accounts.

IT-85R2 - Health and Welfare Trusts for Employees

http://www.cra-arc.gc.ca/E/pub/tp/it85r2/README.html

IT339R2 - Meaning of Private Health Services Plan

http://www.cra-arc.gc.ca/E/pub/tp/it339r2/README.html

IT529 Flexible Employee Benefit Programs

http://www.cra-arc.gc.ca/E/pub/tp/it529/README.html