More Canadian businesses are offering their employees Health Spending Accounts to better serve an increasingly young workforce.
“I think this has been a slow growth over time, and they continue to be more popular,” said Rosalie Wyonch, associate director of research at the C.D. Howe Institute think tank.
The rise of Health Spending Accounts, or HSAs, is driven by a desire to offer flexible coverage to workers of all ages.
“A younger person[‘s] … benefit[s] needs are going to be very different, statistically, than a 50-year-old teammate or a 60-year-old teammate,” said Adam Mitchell, CEO at Mitch Insurance Brokers, an insurance brokerage with offices across Canada.
“This just puts the lump of money they intended to pay into the account and says, ‘You use it … how you see fit’.”
‘Benefits for both’
A Health Spending Account is a type of workers’ benefit plan where employers offer employees a set amount of money — generally $1,000 to $2,000 a year — to cover eligible health-care expenses.
An employee can spend this money on products or services that are on a pre-approved government list. Examples include braces, vitamins and pacemakers.
Employees must pay for the expense out-of-pocket themselves, and then submit a receipt to an insurer, which manages the HSA on the employer’s behalf.
In contrast to traditional health or dental insurance, there is no cap on the amount of coverage by spending category. And the employer pays 100 per cent of the cost, rather than the employee having to make a co-pay.
“[Health Spending Accounts] also offer tax benefits for both employers and employees,” said Sheila Burns, director of health and disability policy at the Canadian Life and Health Insurance Association.
“In most cases, contributions are tax deductible for employers and tax free for employees (except in Quebec),” Burns said in an email.
A different, but similar, type of workers’ benefit plan is the Lifestyle Spending Account or Wellness Spending Account.
These cover products or services — such as dog-walker fees, sports equipment or gym memberships — that can contribute to overall health but are outside the scope of government-approved health coverage. The key difference from HSAs is that these benefits are taxable to the employee.
Forty per cent of about 650 employers surveyed under the 2024 Benefits Canada Healthcare Survey reported offering a Health Spending Account. Another 29 per cent reported offering a Wellness Spending Account.
“Both percentages have increased since the question was first asked in 2017, when the results were 31 per cent and 14 per cent, respectively,” reads the survey report.
The survey results “fits what we’re seeing,” said Mitchell.
Large businesses are more likely to offer Health Spending Accounts, he says, but the trend has quickly caught on with small- and medium-sized businesses as well.
‘Attract more employees’
One of the reasons behind the increase in Health Spending Accounts is to better attract young talent, says Wyonch, of the C.D. Howe Institute.
“Employers can attract more employees by offering more generous benefits packages, and that’s more meaningful to people as the costs [of living] are going up,” she said.
A Health Spending Account gives more flexibility for healthy, young Canadian adults, most of whom do not have children or costly health expenses.
“People [are] having less kids and kids later. It just conversationally feels better to offer a young couple or person [coverage towards] the dog walking,” said Mitchell.
Employers’ interest in Health Spending Accounts has also increased as the cost of health insurance rises for an aging workforce, says Wyonch.
“Both private insurance expenditure and out-of-pocket health expenditures per capita are going up at a faster rate than other areas of health-care spending,” she said.
Health Spending Accounts allow for a “much more stable cost plan” for employers, Mitchell says.
The downside of an HSA is that it is not insurance. If an employee experiences a significant medical expense, the funds in a HSA could be quickly exhausted.
But Mitchell says savvy employers will mitigate this risk by offering dual HSA and insurance plans, which ensure employees are still covered for various medical expenses and catastrophic scenarios. Almost all employers offer HSAs alongside traditional insurance, he says.
“The satisfaction rates are up on both sides, because the employer gets more cost predictability and cost control and less runaways,” said Mitchell.
“And for the employees, they get much more choice and customization in their control. So it really just is a smart … plan.”
