Personal Spending Accounts (PSAs)

 

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Many times Employers have stated to Health Risk that they desire to implement either a Health Spending Account or Flexible Spending Account for their employees, but want to have their employees also contributing to the plan. This cost sharing is a very normal practice on a Traditional Health and Dental plan where there can be splits of premiums determined by the Employer. For example, a 50/50 plan would be contributed to equally by the Employer and the Employee. A 75/25 split would be 75% Employer contributed and 25% Employee contributed.

 

Is it possible to have Employer/Employee split contributions for a Health Spending Account or Flexible Spending Account?


Solution:

In order to accommodate an Employer and Employee split contribution for either a Health Spending or Flexible Spending Account, Health Risk has designed a unique plan design to ensure that Employer contributions remain 100% Tax Free and that Employee contributions that are already after-tax dollars are kept separate from the Employer contributions. We call this solution a Personal Spending Account (PSA).

When an Employer implements either a Health Spending Account or a Flexible Spending Account with a split premium, Health Risk will automatically create separate accounts for each employee as follows:

If the Employer implements a Health Spending Account:

  1. Non-Taxable Health Spending Account 100% funded by Employer to be used for eligible Health, Dental and Vision expenditures. Would follow HSA rules and Employer owns unused premiums.
  2.  Personal Spending Account (PSA) to be 100% funded by the Employee with salary deduction contributions. This fund could be used to top off the Health Spending Account OR any of the options available under a Taxable Flexible Spending Account. (Gym memberships, vitamins, insurance, family care, education etc.) Employer determines the rules of the PSA, usually mirroring those of the Health Spending Account. Employee owns the contributions and could decide to save their contributions to be used for a large expenditure such as Orthodontics. When an employee is terminated or leaves the Employer, the PSA unused funds are returned to the employee.
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If the Employer implements a Flexible Spending Account:

Non-Taxable Health Spending Account – The employee determines what portion of the Employer Funding is to be contributed to either a Taxable or Non-Taxable Account. Any funding allocated to the Taxable Account would be included in the employee’s Taxable income for the funding year.

Taxable Spending Account – The employee’s contributions would be directed to the Taxable Account. This Taxable Account would follow the rules of the Benefit Plan design determined by the Employer. Most often this account is designed for Retirement such as RRSPs, TFSAs or RESPs AND/OR Health and Wellness plans that could include Gym and Sport memberships, gym equipment, vitamins and more pro-active/holistic ways of maintaining health.

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Personal Spending Account (PSA) – this account holds the employee contributions to the plan and is to be 100% funded by the Employee with salary deduction contributions. This fund could be used to top off the Health Spending Account OR any of the options available under the Taxable Flexible Spending Account. (Gym memberships, vitamins, insurance, family care, education etc.) Employer determines the rules of the PSA, usually mirroring those of the HAS and FSA Spending Accounts. Employee owns the contributions and could decide to save their contributions to be used for a large expenditure such as Orthodontics. When an employee is terminated or leaves the Employer, the PSA unused funds are returned to the employee.

Often we are approached by employees who are provided Traditional Health and Dental plans or Spending Accounts with the question “are they able to contribute more to their plan?”


Solution:

The answer is YES! Health Risk would create a Personal Spending Account for the employee that would sit beside their current plan. They would contribute to this account on a regular basis with after tax dollars. This account basically becomes a “savings account” for the individual and their family to allow for expenses to be covered that are not covered under their Employer provided plan. These expenses could include Deductibles or Co-insurance amounts.

Because many people do not “save” or “budget” for large ticket items such as extensive Major Dental or Orthodontics the PSA allows families to be prepared for these unexpected expenses. The PSA also allows the individual to save for times when they may need extensive services such as Chiropractic or Massage Therapy over and above their plan maximums.

The individual OWNS their PSA and has access to the funds at any time. An employee can direct Health Risk that after adjudicating all submitted claims through their Employer plan that any remaining expenses be automatically reimbursed through their PSA. As well, any claims submitted that are NOT covered under the Employer plan can be automatically reimbursed through their PSA. If an individual chooses to terminate their PSA, all remaining funds in the account will be returned to them.

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Do you have ideas as to how to provide unique benefits to your employees? Contact Health Risk to discuss and let’s work together to create a unique benefit product offering that will set you and your company apart from both your competition and other companies in general!

Our motto is – “If you can dream it we can build it!”

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DISCLAIMER: Please be advised that the information on this web site is intended to present a broad variety of general information as simply and accurately for your knowledge as we possibly can. In no event does this information form part of or apply as a legal document. Therefore, please note that rules, conditions and industry practices discussed may be changed over time.