As a business owner, choosing the right benefits plan for your employees is a critical decision that impacts your team’s well-being and your bottom line. While traditional group benefits plans have long been the go-to option, Health Spending Accounts (HSAs) are growing in popularity for their flexibility and tax advantages. So, how do you decide which is right for your business? Let’s break it down.
What Is a Traditional Group Benefits Plan?
Traditional group benefits plans provide employees with coverage for medical expenses, dental care, vision, prescriptions, and sometimes wellness benefits. Employers typically pay a portion of the premium, with employees contributing the rest. These plans offer predictable coverage but can be costly and inflexible, with standardized coverage that may not suit every employee’s needs.
What Is a Health Spending Account (HSA)?
An HSA is a tax-advantaged account that allows employees to claim eligible healthcare expenses up to a pre-set limit determined by their employer. Instead of paying premiums to an insurance provider, businesses allocate a set amount per employee, and any unused funds can sometimes roll over year to year. HSAs provide more flexibility, allowing employees to choose how they spend their benefits.
An HSA is a tax-efficient way for business owners and incorporated professionals to cover healthcare expenses. Instead of paying out-of-pocket with after-tax dollars, your business funds the HSA, and eligible medical expenses are reimbursed tax-free. Unlike traditional benefits, HSAs don’t have set premiums, making them a cost-effective alternative.
Comparing HSAs and Traditional Benefits: Key Differences
| Feature | Traditional Group Benefits | Health Spending Account (HSA) |
|---|---|---|
| Coverage | Fixed coverage for medical, dental, and vision | Employees choose how to allocate funds |
| Cost to Employer | Monthly premiums (can increase annually) | Fixed annual contribution per employee |
| Flexibility | Limited – predefined coverage | High – employees decide how to use funds |
| Tax Benefits | Premiums are a deductible business expense | 100% tax-free reimbursement for employees |
| Portability | No – coverage ends if employment ends | Sometimes – depends on plan design |
| Roll-Over Options | No – coverage resets annually | Some HSAs allow unused funds to carry forward |
When Does an HSA Make Sense?
🔹If your workforce is diverse, with employees needing different types of healthcare support.
🔹If you want cost certainty, as HSA contributions are fixed and don’t increase unpredictably.
🔹If you’re a small business owner looking for a tax-efficient way to provide benefits.
When Should You Stick with Traditional Benefits?
🔹If you want comprehensive, structured coverage for employees.
🔹If your workforce values predictability in their benefits.
🔹If you have a larger company where economies of scale make group benefits more affordable.
Can You Combine an HSA and Traditional Benefits?
Yes! Many businesses use a hybrid approach by offering a base group benefits plan for core needs and an HSA for additional flexibility. This ensures employees have essential coverage while still allowing them to personalize their benefits.
Explore Your Options
Deciding between an HSA and a traditional benefits plan depends on your business size, budget, and employee needs. At Executive Health Benefits, we specialize in helping Canadian businesses navigate their options and build a plan that works for them.
📌 Further Reading:
🔹The Difference Between Health Spending and Wellness Accounts
🔹Unlocking the Benefits of Health Spending Accounts: What Can You Claim?
📌 External Resources:
🔹Canada Revenue Agency: Eligible Medical Expenses You Can Claim
🔹MyHSA: How myFlexplan and Traditional Benefits Work Together to Meet Employee Needs
Let’s Talk Benefits
Not sure which benefits approach makes sense for your business? Let’s chat! Book a free consultation to explore the best options tailored to your company’s needs.