Are Health and Wellness Spending Accounts Taking Off?
People who work from home will expect their benefits to keep up with the changes
By Bill Zolis
I think the question I’m getting most often from clients in the last few months is basically, “What effect will this sudden upsurge in working from home have on the sorts of benefits that people will want and need in the future?”
From what I’m hearing and reading on the subject, I think the answer is that we are not seeing any sudden or radical changes in benefits, but that some of the trends we have been following seem to have started to take off. Two things I’m hearing about a lot are “health spending accounts,” and “wellness spending accounts” and that’s what I want to talk about here.
Health Spending Accounts (HSAs) and Wellness Spending Accounts (WSAs) have been around for many years, but I think they are growing in popularity now because today’s employees are looking for two things:
– benefits that are immediately useful to them, at their stage of life and career; and,
– benefits that have fewer restrictions and are flexible in how they can be used.
The different kinds of spending accounts being offered respond quite well to both of these needs. But, before we go too much further, we need to look at the definitions and differences between these two main types of spending accounts.
The HSA, sometimes called a Heath Care Spending Account, or HCSA, covers the traditional suite of core benefits, such as prescription drugs, vision care, routine dental care, massage, chiropractors, orthopaedic devices (with prescription) and so on. These “medically necessary” or doctor-prescribed benefits enjoy a special tax status, in that all such expenses are fully deductible by the employer, and non-taxable for the employee.
What the HSA does is to put all of the available coverage into a single “health account” that the employee can draw on for vision or prescription drugs or anything else on the list. The employee is less likely to max out on, say prescription drugs, while not using the vision care at all. It’s that greater flexibility that makes the idea so appealing to plan members. It lets them decide what they need, and they run into fewer restrictions and limits.
The Wellness Spending Account can cover all of the taxable items that so many employers have been adding to their suite of benefits to promote wellness, and to attract and retain employees. Things like the gym membership, or weight-loss programs or marriage counseling. These are deductible as expenses by the employer, but they do show up as taxable income on the employee’s tax slip at the end of the year. (Because there are no tax-law restrictions, employers can put anything reasonable that employees want on the list of benefits – teeth whitening, meditation.
The big advantage from the employee’s point of view is the flexibility and the sense of being in control without too many bureaucratic restrictions. One person might say, “Forget the gym membership, I want to go to hot yoga,” while another says, “Never mind the yoga, I want to take a kickboxing class.” Well, to each her own.
Of course, it’s important to keep the non-taxable benefits separate from the taxable ones – first of all to simplify the paperwork, and second of all to stay out of trouble with the Canada Revenue Agency. That’s why there are usually two separate spending accounts – one for non-taxable Health, the other for taxable Wellness.
Naturally, clients I talk to ask about the bottom line as well as the advantages. Basically, do the costs go through the roof? Actually, employers have more control over costs with these spending accounts. They set the overall limit – whether it’s $500 a year or $1500 a year per employee or whatever. There may be a full or partial carry-over for one year (which helps to control use-it-or-lose-it syndrome), and the employer pays out based on actual expenditures – rather than paying up-front insurance costs.
I know a lot of employers I talk to are looking for ways to make their benefits plans more effective and appealing to their people, and spending accounts may play a role in building the well workplace. It’s all about that flexibility that employees are telling us they really want in their benefits, and the sense of being in control.
How does working from home affect the demand for spending accounts? It’s hard to say and maybe too early to tell, but I think we’re seeing it, and I think there are two reasons. First, everything else about work has suddenly become much more flexible, people have had to take charge of how they work, and I expect them to just naturally look for the same flexibility and sense of being in charge when it comes to their benefits. Second, I think that some of the benefits that are already out there will take on a new relevance for people working from home – things like mental health counseling, support for childcare and elder care and, yes, fitness programs that just get you out of the house for a couple of hours a week.
Whether it’s driven by Covid-19 and working from home or not, I expect we’ll be talking about spending accounts in the future.
In the meantime, stay safe, keep healthy… and carry on.
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