Health Spending Accounts

Each family and individual has different needs when it comes to health. Incorporating a HSA into your company benefits is a great way to add flexibility and value. In this episode of Risky Business, Colin Rooke and Paul Martin are joined by Ryan Werner from Custom Care.

 

Listen to the full episode here, or read the full transcript below

Paul Martin: Welcome to Risky Business, commercial insurance with Butler Byers. This is Paul Martin, the business commentator on CKOM and you’ve heard me talking me, for a couple of years now, with Colin Rooke, the commercial risk reduction specialist at Butler Byers about all things related to commercial insurance and what businesses and business owners need to know, when they, what potential options exist for them, when they’re in the market to look at their insurance needs and Collin, for the most part, we have talked in the past about, things more related to what they would call probably, property and that kind of stuff in the insurance business. Today, we’re gonna talk a little bit more or change subjects a little bit, and talk about benefits and talk about payroll benefits and insurance options that are available to staff.

Colin Rooke: Yeah. You know, traditionally the show has really focused a lot along the lines of property casualty and I thought you know, benefits is a big part of our business and you know, whenever we can on the show, we try to include any partner we have and so today we’re going to talk about kind of a new idea, something that I think that’s been around a long time but really warrants further explanation.

So, we’re going to talk about he idea of a health spending account. Now, the idea of this show of course is, we’re talking about risk, so why is a health spending account a risk. Well, it’s really, it’s more of, you know, when we have clients going through our risk reductions process, we always touch on benefits and we use benefits really as a competitive advantage. We spend a lot of time saying well okay, to the business do your employees truly understand the value you provide. Are you you invest in a plan to leverage whether someone should join the stay in the business. 

We’ve talked about this before, there’s a lot of misunderstanding or miscommunication on that segment. Now, the idea of a health spending taking a little bit different direction. We want to talk about a solution for smaller business. So, maybe if you’re a smaller business listening thinking, well how can I compete or how can I show value. How can I, new or I’m getting a lot of push back from the employees saying, we something in this space. 

So, I thought who better to bring on the show than one of our partners, talk about the idea of a health spending account and really what’s the works for anyone listening and once again this would be a fantastic risk business.

Paul Martin: So this is a option, if I could put that way, an option or alternative to what most of us would consider to be the traditional benefits package that an employer might offer which is, I pay a premium every month as the business owner and certain things get qualified as a consequence to that and in some cases employees may pay part of the premium and then you’re allowed to get a certain amount of dental or pharmacy or eyeglasses or whatever you pick and choose, off the menu.

This is an alternative to that, correct?

Colin Rooke: Absolutely and you know, I think when it comes to perceived value, health spending accounts are great because it provides a lot of flexibility to the employees. You are more or less able to choose where you want your dollars to go and again on the lines of our process in risk management. This is something that I think, every business owner needs to know about and put that in their tool kit, maybe have that conversation on again, just another option for a small business.

Paul Martin: So, what we would traditionally, as a business owner see, kind of understand as being, what’s available in this market. There actually is an option. So, for a business owner this kind of opens the waterfront a little bit.

Colin Rooke: Absolutely, and it’s really easy to set up. It’s real easy to explain and who better to again hear it from than Ryan Warner from custom care, a third party provider that we work closely with and just kind of take us through it.

Paul Martin: Well, let’s welcome Ryan into the program and Ryan joins us by phone today from Toronto. Ryan thank you very much for taking the time to be with us.

Ryan Warner: No problem at all. I appreciate you guys having me.

Paul Martin: Alright, you’ve heard us talk about this in the run up. Did we get anything wrong? Or have we got it pretty much figured out?

Ryan Warner: No, it sounds like you’ve got it pretty much smack on, is about as flexible and simple tool as a small business owner could possibly use.

Paul Martin: Ryan is it your experience that small business owners in particular, but business owners in general, this is one of those alternatives or options that’s in the market place that they either haven’t heard about or they’ve overlooked or they don’t truly understand the flexibility that it brings to them.

Ryan Warner: Absolutely. It’s actually quite shocking to me how few, small business owners in Canada take advantage of this tool. It’s unfortunate really, because it’s something that can either supplement an existing benefit plan, or operate like a stand alone benefit plan, and it has total flexibility for the business owner to really tailor it to what they need for themselves and their family as well as their employees and most importantly, it flows perfectly with whatever budget they want to tie to it.

It can either supplement an existing benefit plan, or operate like a stand alone benefit plan, and it has total flexibility for the business owner to really tailor it to what they need for themselves and their family as well as their employees

Paul Martin:  Alright, well, maybe we better do, as we do on this program, we do a step by step analysis. It’s something that Collin stands by and he’s brought to the vernacular of insurance and commercial insurance in Saskatchewan. So, we’re gonna kind of get you to do the same thing for us, if you don’t mind. Can you give us a little step by step walk through?

Think of it, I’m the business owner, I don’t understand this or know about it and you’re briefing me for the first time. What should I be hearing?

Ryan Warner: Sure thing Paul, yeah, I guess the first question I generally start with is, what do you figure you spend as an individual, you the business owner year over year on things like medications, maybe massage, chiro, physio visits, dental visits for you, your kids. What does that number look like?

If you can do some quick math, you can probably come up with a couple thousand dollars without thinking too hard about it and if I could tell you, you could make that a total deduction tax wise, to your business, would that be something that would peak your interest?

Paul Martin:  Yeah, I’d probably be paying attention at this point because you’d be saying to me, you can cover some of your health cost with pre tax dollars, rather than post tax dollars.

Ryan Warner: That’s right. What we find is the average account, they’re spending about 2,500 to 5,000 dollars a year, without out of pocket after tax dollars, so if we can pump those things through a healthcare spending account it’s a really tax efficient way of taking advantage of this tool, that like I said, so few business owners already are today.

Paul Martin: Is this a product that is getting traction in the market. I guess what I’m asking is, are more businesses adopting this approach?

Ryan Warner: Definitely. So, Custom Care, I can speak of our side of the coin. We have a little over 8200 clients now, we’re adding about 60 new businesses a month. So, you can appreciate the word is finally getting out even know this tool has been around for quite some time and business owners are smartening up and taking advantage of it.

Paul Martin:  Alright and the term that we should be, I think you’ve used it a couple of times, health spending accounts, right, that is, if I use that lexicon, someone in your industry will understand it very quickly?

Ryan Warner: Absolutely yeah, it’s used interchangeably, either health spending account or healthcare spending account and the other term that’s occasionally tossed around is private health services plan or PHSP.

Paul Martin: Alright, we’d love to take a little break and Ryan, if you’d stay with us and Collin stand by. We’re going to dig into this just a bit deeper. I’m gonna get you to kind of work me through the mechanics of this because business owners understand that stuff and I think if we can explain mechanically how it works, they will get a much better understanding of the opportunity that presents itself with this thing.

So, you’re listening to Risky Business, commercial insurance with Butler Byers, we’re gonna take a little break and back after this.

Paul Martin: Welcome back to Risky Business, Commercial Insurance With Butler Byers. This is Paul Martin. Joining me, as always, is Colin Rooke, the commercial risk reduction specialist with Butler Byers Commercial Insurance in Saskatoon. Also joining us is Ryan Warner. He’s the director of marketing with CustomCare. He’s in Toronto, and he is explaining to us, helping us understand something called a health spending account. Just before the break, I hinted we would ask you to kind of explain the mechanics of how this thing works. Business owners truly understand how business structures work. I think if we could explain it to them, we might get a better handle on how you guys have approached the marketplace with this particular product.

Ryan Warner: Sure thing. We’ve already established that a business owner has just got to take a minute to determine what their personal expenses are for health and dental related expenses throughout a calendar year. Once they’ve determined what that number is, it’s really quite simple. We set up a health spending account in their name for that amount. That’s the amount they have access to for the full year. They can choose whether they want to deposit some money right up front or if they want to sit and wait until the claims start to accrue.

The company is the bank that’s going to fund the CustomCare HSA. Once the money is deposited into that HSA, they can simply use an app to snap a picture of a dental receipt, for example, and then the CustomCare HSA is going to pay back that business owner to their personal bank account. The money simply flows out of their business into the HSA and then from the HSA into their personal bank account. That’s how we’re able to make it a tax deduction to the business and totally tax-free to them as an employee. Of course, if they want to roll this out to their staff, which we would love for them to do, and I’m sure they would consider, they can do the same approach for whatever they want to do for their employees.

Paul Martin: In the initial way you described it, it’s to the owner, but it is actually available to the entire … anyone who’s on the payroll.

Ryan Warner:  That’s right, yeah. We see a lot of businesses starting to go this way, especially in the less than 10 employee market. What we’ve found is that those businesses are trying to figure out a competitive way to offer some kind of benefit plan but, of course, they have a budget to work within. There is no other benefit offering out there that is as moldable to their budget as an HSA.

Paul Martin: If I was a business owner, and let’s say we determined 5,000 was going to be the number, the company would put 5,000 into the account, which you manage, so it’s out of my hands as the business owner … You now are the manager of that money. If I were to consume all of that money, if I could use that term, my expenses went beyond the 5,000, what happens then?

Ryan Warner: This is where HSAs do have one limitation, I guess, in that the government’s very strict on whatever the amount is you set at the beginning of the calendar year, that’s your max exposure or your max utility for the year. If something happens halfway through the year that takes you above that number, unfortunately, you won’t be able to extend that amount. We always tell business owners that, once you’ve come up with the number that you know you’re going to spend, build in a bit of a buffer space. For example, if $5,000 is your number, maybe set up an account for 7,500, keeping in mind that, if you don’t use any HSA dollars throughout the year, you don’t actually have to pay for them. In CustomCare’s case, we don’t charge any admin fees for unused account balances. If there’s anything left at the end of the year, they have the option to roll it over for one year or be reimbursed that amount.

Paul Martin: It really is kind of a user-based system. If I don’t use it, I don’t pay.

Ryan Warner:  That’s right. From a business owner’s perspective, they are able to set and determine the budget, and they know that they will never be getting a renewal from us that says, “Bad news, people claimed too much this year. Your premium has to go up.”

Paul Martin: That is the situation in the sort of more traditional insurance market for employee benefit programs, isn’t it, is that, every year, it’s back to square one, and you set a new rate based on last year’s performance?

Ryan Warner:  That’s right. There’s certainly a lot of benefits to traditional benefit plans, but one of the negative aspects to traditional benefits is the fact that there really is no magic. How much are your employees claiming throughout a year plus some admin expenses and commissions? Once that total number gets added together, now we know roughly what your premium’s going to be. If the next year your employees claim above what was accounted for the previous year, guess what’s happening? Your premium’s going up.

Paul Martin: Is this really the prime difference between the traditional and what you’re recommending with the health spending account is if, in the health spending account, I don’t use the money, I get to … it just sits there, but if I have a more traditional policy, I pay the premium regardless of usage? 

Ryan Warner: That’s correct. That’s correct, yeah. With a traditional benefit plan, you’re quoted a premium. You pay that month over month and, at the end of the year, there is technically a method of being able to get a rebate, but it’s not available to small businesses typically and, frankly, very few insurers are actually functioning on that platform, so it’s not something that’s standard. With a health spending account, we know what the number is from day one. Typically, at CustomCare, we see about an 85% utilization rate, so we don’t expect that even the amount that’s allocated to their employees is going to get used up entirely. As a result, they’re not going to have to pay for those unused dollars. In fact, we give them back to the business.

Paul Martin: I got one last question before I ask Colin to weight in on this. How do you guys make your money on this program? I know you’re not probably a not-for-profit either.

Ryan Warner: No. That is a correct and accurate statement. No insurer that I know is a not-forprofit at this time. With CustomCare, in particular, the way we’re compensated is we charge 10% as an admin fee. That’s only charged at time of claim. When a claim is submitted for a $100 dental visit, we’re going to charge $110 plus taxes. That’s our cost to adjudicate and, of course, our profits are built into that. There is also a one-time setup charge of $295 plus tax. That’s not per employee. That’s just per company, and it’s only once. We don’t charge it annually.

Paul Martin: You use the word adjudicate. I guess that’s really what makes these things work. You’re the third party who can verify whether or not I am actually making a legitimate claim. For a Revenue Canada perspective, I guess that’s pretty important, and that’s … The fee I pay for that is to have you be the third party that will independently judge, yes, that’s a legitimate claim.

Ryan Warner: That’s correct, yeah. The government’s pretty clear on that point in that there has to be an element of risk with any type of insurance program or benefit plan. The element of risk with a health spending account is the amount of money that the business owner is willing to put up for this plan at the beginning of the year. The other element of risk is, if they go beyond that, they are not going to be able to get anything covered outside of that health spending account amount.

Paul Martin: All right. Well, we’ve got about a minute left in the program today. Colin, I just want to have you jump back in. Can you offer a Saskatchewan perspective, if possible? Ryan alluded to the fact that the HSA, the health spending account, is not particularly well known in the business community. Is it fair to say that’s an accurate description of the Saskatchewan business community as well?

Colin Rooke: Yeah. I would say it is. I mean the more we talk about it, I think … I mean, as Ryan said, it is growing fairly rapidly, but they’ve been around a long time. I don’t know if it’s sort of tradition or does it sound too good to be true, but it’s definitely growing. Again, as you can see, the reason why we include this in our discussions on risk management is there are benefits-related risks for any business, there are cash flow risks we discuss, recruitment, retention, human resource management. If we can provide a suggestion that gives some more flexibility to the businesses we work with, and a health spending account fits that, again, it’s all part of the risk management plan that we’ll set in place.

Paul Martin: Colin, thank you very much. As always, the time just seems to scoot by. Ryan Warner in Toronto, I want to thank you for joining us on this program. You’ve been listening to Risky Business, Commercial Insurance With Butler Byers. This is Paul Martin, and we’ll talk to you next time.