Health Spending Accounts in Canada: A Flexible and Tax-Efficient Benefit Employees

What is a Health Spending Account?

A Health Spending Account¹ is an employer-funded account that reimburses employees for eligible health, dental, and vision expenses. In Canada, HSAs are typically set up under the Canada Revenue Agency’s (CRA) Private Health Services Plan (PHSP) guidelines and must comply with specific eligibility and claims rules.

Unlike traditional benefit plans with fixed coverage, an HSA gives employees a set annual amount to use as they choose.

How An HSA Works In Practice

Most HSAs¹ follow a simple process:

1. The employer sets the rules: who is eligible and how much each employee receives each year.
2. Employees pay out of pocket for eligible expenses and submit claims (with receipts) to the HSA provider.
3. Reimbursement is provided for approved claims, up to the employee’s annual HSA balance, often through direct deposit.
4. Unused funds may roll over for up to one year, depending on the plan design.

HSAs offer tax advantages for both employers and employees. This is because employers can generally treat contributions as a tax-deductible business expense. Furthermore, employees typically receive reimbursements tax-free, provided the HSA is set up properly under CRA rules. This is particularly beneficial for organizations, as it turns out to be more efficient than providing the same amount as additional salary.

Eligible Expenses: What You Can Claim

Eligible expenses are usually grouped into categories like dental, medical, vision, hospital, durable medical equipment, and professional services.²

Dental expenses

HSAs commonly reimburse both routine and major dental work, including:²

• exams, cleanings, and X-rays
• fillings, root canals, extractions
• dentures, crowns, bridges, implants
• orthodontics

This is especially beneficial for families with significant dental expenses that may exceed standard plan limits.

Medical expenses

Eligible medical claims often include:

• prescription medications dispensed by a licensed pharmacist
• vaccines
• drugs or devices obtained through Health Canada’s Special Access Program
• diagnostic services such as MRIs, ultrasounds, X-rays, and medically required lab tests

Vision Expenses

Vision Claims Often Include:

• prescription eyeglasses and contact lenses
• Laser eye surgery
• services from opticians, optometrists, and ophthalmologists

This is particularly helpful since many traditional plans have limited vision coverage that does not fully cover eyewear costs.

Durable Medical Equipment

Many HSAs cover a wide range of equipment, often when prescribed, such as:

• CPAP machines and supplies
• wheelchairs and mobility scooters
• hospital beds for home use
• braces, orthotics, orthopedic footwear
• hearing aids and diabetic supplies
• certain bathroom and mobility aids

Professional Services

HSAs can also reimburse a broad list of regulated health professionals, such as:

• chiropractors, physiotherapists, massage therapists
• acupuncturists, naturopaths
• psychologists, psychotherapists, social workers
• speech therapists, dietitians, occupational therapists
• various medical specialists

Why Invest In HSAs