1. What are the key features of the enVia Health Spending Account that make it unique?

• MUCH BROADER RANGE OF HEALTH CARE EXPENSES CAN BE CLAIMED!
• EVERYONE QUALIFIES - NO HEALTH EVIDENCE REQUIRED FOR HEALTH SPENDING ACCOUNT (eHSA)
• NO PRE-EXISTING CONDITION EXCLUSIONS under eHSA
• NO DEDUCTIBLES OR CO-PAYMENTS
• NO WAITING PERIODS -  IMMEDIATE COVERAGE
• UNUSED CONTRIBUTIONS CARRY FORWARD TO SECOND YEAR

2. What problems does the enVia Program solve? Why was it created?
Most Canadian employers today are seeking an alternative to the spiraling cost of the traditional “defined benefit” health and dental program. In search of relief, many have opted to move from a fully insured basis to the “Administrative Services Only” approach, only to realize that they are fully responsible for the ultimate claims experience plus administration expenses.

The addition of a claims leveling device known as “Stop Loss” insurance, or increased deductibles or co-insurance have not really contained the employer’s costs. Employees continue to use the benefits to the plan maximums as they have no idea of the true cost.

In order to gain control over costs, employers in Canada have to follow the trend in the US where the majority of employers have adopted a “defined contribution” approach per employee (regardless of marital status) to the provision of health and dental benefits. This requires employees to become part of the cost control solution because of the now limited employer healthcare dollars. The enVia Benefits Program provides the cost containment solution with flexibility not available under any traditional insurance program through a Health Spending Account plus automatic Catastrophic Insurance. 

3. Why is enVia popular as an alternative to traditional Group Insurance Programs?
The enVia Health Spending Account (eHSA) Program is a “private health services plan” as defined under the Income Tax Act’s Interpretation Bulletin IT-339R2. It is not insurance, rather a tax effective method of covering health and dental expenses on an affordable basis. It enables self-employed individuals and contract employees to secure medical and dental benefits in a more cost controlled manner than under a traditional group insurance program, which normally has minimum participation requirements based on group size and required employer cost sharing.

The eHSA Program is available on an individual basis. It can be utilized to meet all or most of an individual’s  needs for health and dental protection under an individual “private health services plan” (PHSP) per Interpretation Bulletin IT-339R2. 

4. Who is eligible to participate?
The eHSA Program is available to:

1. Incorporated self-employed entrepreneurs;
2. Sole Proprietors (subject to CCRA deduction limits);
3. Employees (who work for a “flexible” employer);
4. Employer groups, but on an individual basis.

5. Why should one consider the eHSA “defined contribution” approach instead of a traditional individual health and dental program?
Traditional individual health and dental programs offer limited coverage in comparison to the wide range of eligible medical and dental expenses that can be claimed at 100% reimbursement with no deductibles, or limits other than the amount contributed to the eHSA. It is a “defined contribution approach” under which the employer decides how much can be afforded initially and on an ongoing basis. There is no annual increase in contribution or cost as there is under a traditional group insurance program where insurers utilize arbitrary “inflation and trend” factors to justify their compounding premium rate increases at each renewal.

6. What is an enVia Health Spending Account (eHSA)?
It is a “Health Spending Account”, a vehicle permitted under the Income Tax Act as a “private health services plan” (IT-339R2) that enables “employers” (including the incorporated self-employed and sole proprietors) to cover participants’ eligible medical and dental expenses as defined under Section 118.2 (2) of the Act. The net funds contributed (after the administration fee) may be used to pay for any eligible medical or dental expense. The eHSA operates on a “Policy Year” basis, i.e. 12 months from the effective date it will renew.  Prior to the start of each policy year the “employer” determines how much to contribute for the following policy year. It is not an “insurance plan”, rather a unique tax sheltered vehicle that individuals may utilize to control the cost of medical and dental benefits. “Employees” cannot contribute directly to the eHSA per CRA rules and that is why contributions must be made by an “employer”.

7. What is the cost?
The “employer” (including the self-employed) determines how much to contribute based on the available funds for this purpose. The minimum net annual contribution to the eHSA is $1,000 (plus administration fees & catastrophic insurance premium). The full net amount is therefore available to be spent on the participant’s eligible expenses. The monthly cost for various employer contribution amounts is included in the Individual Application form.

The eHSA can be utilized to meet all or most of a family’s needs for health and dental protection.  Additional protection is provided through the automatically included “Catastrophic Insurance”. The cost of this additional protection with a deductible of $2,500 per person is included in the administration fees.

Net Annual Amount Required in eHSA Net Amount Required in eHSA / month Total Monthly Cost (incl. Admin. Fee, Catastrophic Illness & 2% Tax)* $1,000 $83.33 Single $112.00 Couple $124.00 Family $130.00 $1,500 $125.00 Single $162.00 Couple $174.00 Family $180.00 $2,000 $166.67 Single $212.00 Couple $224.00 Family $230.00 $3,000 $250.00 Single $312.00 Couple $324.00 Family $330.00 $5,000 $416.67 Single $512.00 Couple $524.00 Family $530.00 $6,000 $500.00 Single $612.00 Couple $624.00 Family $630.00 $7,200 $600.00 Single $684.00 Couple $696.00 Family $702.00 $10,000 $833.33 Single $945.33 Couple $957.33 Family $963.33 $15,000 $1,250.00 Single $1,412.00 Couple $1,424.00 Family $1,430.00 $25,000 $2,083.33 Single $2,345.33 Couple $2,357.33 Family $2,363.33 $50,000 $4,166.67 Single $4,678.67 Couple $4,690.67 Family $4,696.67

* For annual contribution amounts of over $5,000 reduced Administration fees will apply based on the anticipated frequency of claim payments.

The Ontario Ministry of Finance has advised that 8% PST must be charged when the Program is provided to 2 or more employees through an employer group billing. The 8% does not apply to “PHSP’s” for individuals and that is why the eHSA has been established as an individual program. Esorse, the Program Administrator will issue individual billings to an employer for each employee that has enrolled in the Program as well as a summary. 

8. What if a participant requires more funds in their eHSA to cover anticipated expenses?
The participant may approach the employer to enter into a “compensation arrangement” on a year to year basis. Under such a formalized arrangement that does not cost the employer anything other than a change to payroll for the individual, the employee would take a reduction in salary of “X” thousand dollars per year (including the eHSA administration fees) and have the employer contribute this amount in pre-tax dollars to the their personal eHSA account. This enables the employee to have sufficient funds available in a tax sheltered vehicle to cover their family’s medical or dental expense. It is the most tax-effective method of handling the cost of major dental expenses such as Orthodontia or dental implants, or Fertility treatments. 

9. Is A Medical Required?
No, the eHSA does not require any health evidence. The Catastrophic Insurance policy contains a 24 month waiting period with respect to coverage for pre-existing chronic conditions and thus no health statement is required.

10. What happens to the unused eHSA contributions at the end of a policy year?
Unused contributions from the first plan year are not lost – they carry forward to the second plan year, and if not used by the end of that plan year are forfeited. The forfeited contributions cannot be returned directly to the employee per Revenue Canada’s rules. However, the employer receiving the forfeiture amounts could deposit the amounts received into the employee’s RRSP, or pay them out as a new bonus. In either case the employer receives a tax deduction for the business expense to offset the receipt of the forfeitures that was written off two years earlier and the employee receives a new benefit.

Unfortunately Revenue Canada has advised that sole proprietors or contractors are not eligible to receive the forfeiture of unused eHSA funds at the end of each second plan year. Sole Proprietors are limited by the Income Tax Act to deduct $1,500 for themselves, $1,500 for their spouse and $750 for each child from their business income as qualifying medical insurance premiums. Individuals in a partnership and/or if they have employees are faced with additional rules that become more complex. Please see the CCRA T4002 Business and Professional Income Guide available from the CCRA web site. Sole proprietors with high medical or dental expenses should consider the financial advantages of incorporation as there is no limit placed on contributions to a private health services plan.

11. How safe are the employer contributions?
Monthly contributions are collected by the Program Administrator and are held in a Trust Account until required to make eHSA claim payments. Interest is credited on the contributions on deposit on a daily interest rate basis by the Administrator, and are credited monthly and applicable Tax slips will be issued.

12. Who pays the eHSA claims?
The Pay-Direct card is used to pay for expenses where possible, otherwise participants mail their fully completed claim form along with the original receipts to Esorse Corporation, the Administrator, who pays the eHSA claims. Reimbursement is 100% with no deductible or co-pay. Claims are paid up to the amount available in the individual’s account - if current balance is less than the submitted claim, reimbursement will be made once subsequent monthly contributions allow.

All eligible claims under the “Catastrophic” insurance will be paid by Norfolk Mobility Benefits following notification by Esorse that participants have satisfied the $2,500 deductible.

Claim reimbursement payments can be direct-deposited to the participant’s Canadian Bank Account. An email will be sent advising that claim payments have been made, and at anytime participants can go online and look up their account balances and claim history.

13. How does the eHSA and any other group or individual coverage work together?
Participants decide whether they wish claims to be claimed first against their eHSA, or any insured benefits that they are also covered by, such as a spouse’s program. Any co-insurance amount that an employee pays out of their own pocket or deductibles that they must pay are also eligible to be claimed from their eHSA account.

14. What if the participant cannot accurately forecast their anticipated medical or dental expenses?
The eHSA automatically includes “Catastrophic Insurance” to provide an “umbrella of protection” in the event of unexpected Drug, Hospital or Private Duty Nursing (out-of-Hospital) expenses incurred as the result of a sudden serious illness or disease. There is a 24 month waiting period for pre-existing medications or conditions and no health statement is required. The Catastrophic coverage will not cover any dental expenses or elective medical expenses even though they are an eligible claim against a Health Spending Account. Catastrophic coverage ceases at age 70.

The Catastrophic protection will cover claims for eligible expenses in excess of a deductible of $2,500 per person per policy year up to a maximum of $25,000 per annum and $1M lifetime. The Catastrophic coverage will reimburse eligible expenses at 100% after the deductible has been satisfied through eligible claims against the eHSA, or out-of-pocket in the event that the eHSA has been fully utilized.

15. Will a participant be able to claim the full annual amount of their eHSA even though contributions are being made monthly?
eHSA claims are paid up to the amount in the individual’s eHSA account at time of claim. In the event there are insufficient funds available to fully cover the claim the balance of the unpaid amount will be held and paid out as further monthly contributions are received by the Administrator.

16. What expenses may be claimed against the EHSA?
A partial List of Eligible Medical & Dental Expenses that may be claimed from the eHSA (please see Section 118.2 (2) of the Income Tax Act and IT-519R2) is presented below:

17. Can contributions be left in the eHSA to accumulate over a period of years to cover a large anticipated medical expense?
No, based on Advanced Rulings secured from CCRA over the past 13 years, the funds in the eHSA at the end of each second plan year from the immediately prior plan year must be forfeited back to the “employer” under what CCRA terms their “use it or lose it” principle. This is the “element of insurance” required to have the eHSA qualify as a “Private Health Services Plan” as described in Interpretation Bulletin IT-339R2.

18. Is there a maximum amount that may be contributed to the eHSA?
Revenue Canada takes the position that the expense claimed from a Health Spending Account must be considered “reasonable and customary”. In the case of expenses for Autistic children that can run as high as $50,000 or more per year they advised that this would be considered as reasonable and customary dependent on the level of care required.

19. What are the tax advantages of a self-employed incorporated business owner in utilizing the eHSA approach versus deducting his medical/dental expenses on his personal Income Tax Return?
Qualifying Medical Expenses in excess of 3% of your net income or $1,962, whichever is less for the taxation year 2008, may be claimed on your personal Income Tax Return. Thus anyone with earnings at the top marginal tax rate of 46.41% (combined Federal & Ontario taxes) would receive a 21.05% combined tax credit of $639.50 ($5,000 - $1,962 = $3,038 X 21.05%) on medical expenses of $5,000. If the $5,000 is contributed in pre-tax earnings to the EHSA the savings would be approximately $2,320.50 ($5,000 X 46.41%).  

Another way to look at it, in order to cover a $10,000 medical expense with after-tax income someone in the highest tax bracket would have to earn approximately $18, 600 to fully cover the expense.

For the incorporated small business owner the eHSA contribution is a legitimate business expense that can be deducted in full against the corporation’s revenues and the tax savings depend on the taxable status of the corporation.

20. Can employer groups retain traditional Group Life, AD&D and LTD coverage in conjunction with the enVia Program?
Yes, dependent on group size traditional group coverage may be available. Premium rates will be based on the demographics and benefit amounts as determined by the selected insurer.

The foregoing is intended to provide a brief overview of the enVia Benefits Program. Each benefit is governed by the Policy documents issued by the respective insurers, or the Income Tax Act of Canada and related Regulations. For additional information visit, please Contact Us!

Errors & Omissions Excepted Maclagan Inc. March 2010