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How Healthy is Your Health Care Plan?

01/06/2009


In these uncertain economic times, businesses in the food industry need to manage costs while maintaining benefit programs that keep their business healthy. This is an area that is often overlooked. Managing these priorities can be difficult, but understanding your options is essential to maintaining your competitive edge and reducing costs.

The traditional employee benefit plan consists of an employee and employer paying premiums to an insurance
company to provide a range of health, dental and drug benefits to the employee. The employee and employer are required to pay the annual premiums, as calculated by the insurance company, regardless of whether the employee utilizes the benefits or not. This represents a real cost to both the employee and the employer since the premiums are required to be paid even if the employee does not fully utilize the benefits. In addition, an insurance company may put restrictions on the types of expenses and/or amount that may be claimed by the employee. i.e. only $200 for eyeglasses every two years.

Health Spending Account
It may be time to consider a Health Spending Account (“HSA”). This is a benefit plan that can be used in conjunction with a traditional benefit plan or on its own. The advantage to a HSA is that it may be more flexible in meeting the needs of employees at a lower cost to the employer because it works like a special savings account.

Here’s how a HSA works. Every year, the employer places a certain amount in each employee’s HSA, either at the beginning of the year or throughout the year. The employee can then use this money — called credits — to cover their personal or family’s medical, dental and drug costs as they see fit. These types of plans must be administered by an insurance company which would normally charge the employer a 10 per cent administration fee based on the dollar amount of the claims submitted by the employee.

Benefits for Employers
The HSA can be an effective tool for managing costs, as employers will know ahead of time how much the benefits program will cost them. They decide the maximum they will contribute to each employee per year. If the employee does not use his full allocation of credits in a year, those credits may be carried over for a period of up to 12 months. This will result in the employer having to make a smaller contribution in the following year to provide the same level of benefit, thereby resulting in a cash savings to the employer. A HSA is flexible in that there are a variety of allocation options. For example, the funds can be allocated based on a fixed percentage of the employee’s salary. Also, the employer can take into account the different types of employees and their years of service. In addition, all contributions made to a HSA are tax deductible for the employer.

Benefits for Employees
The HSA is a simple and effective way to get the most out of a benefits plan. The credits in a HSA can pay 100 per cent of most medical expenses up to the employer’s contribution limit, resulting in no out-of-pocket costs to the employee. The credits represent tax free dollars to the employee as any amounts contributed to a HSA by the employer are not taxable to the employee. The only restriction imposed on the employee by the HSA would be that the amount must qualify for a medical expense tax credit under the Income Tax Act.

So How Healthy is Your Healthcare Plan?
Now more than ever, saving money while taking care of your employees’ needs with a HSA is a win-win worth investigating.

By Mike Murphy CA, CPA Tax Specialist and Andrew Raphael Director of Agri- Food. For more intformation, please contact [email protected] or toll-free at 1.877.688.8408.