Health Spending Account vs. Health Insurance

A health spending account is like having an annual health budget without any limits, exclusions, maximums and deductibles. While health insurance is like having a health budget with each type of product or service micromanaged with limits, exclusions, maximums and deductibles.

Two Approaches to Providing Drug, Dental, Vision & Medical Coverage

	Health Spending	Health Insurance
Defining Characteristic	Defined Contribution: The monthly contribution formula determines the amount that employees are reimbursed and how much the plan costs.	Defined Benefit: The coverage limitations, maximums and exclusions determine the amount that employees are reimbursed and how much the plan costs.
Trade-off	Employees have the flexibility to buy the health care products and services that they value most.	Employees have higher maximums for unexpected claims.
Coverage	Any health expense permitted by Canada Revenue Agency may be claimed.	Only products and services are specifically included in the insurance contract are covered.
$ Amount Maximums	There are no specific maximums. However, employees cannot be reimbursed for more than their account balance.	There are annual claim limits for dozens of specific benefits.
Frequency Limitations	There are no frequency limits.	There are frequency limits for dozens of specific benefits.
Exclusions	There are no exclusions.	There are exclusions for dozens of specific benefits.
Frequency Limitations	Employees are reimbursed for claims up to the amount of contribution balance in their health spending account. At the end of the calendar year: unused contributions that were made during the year carry forward and can be used during the next calendar year. unused contributions that were made during the prior year calendar year are refunded to the employer. a tax receipt is issued for receipts that have exceeded the account balance, since they cannot be reimbursed with future contributions.	Claims for expenses that are not specially listed are not covered. Claims for expenses that exceed the $ amount maximum are not covered. Claims for expenses that exceed the frequency limits are not covered. Claims for expenses that are excluded are not covered.
Cost Volatility	Monthly cost per employee are fixed and based on a formula which can be adjusted at the beginning of each calendar year. Unused contributions are refunded to the employer if not used by the end of the calendar year following the year that the contribution was made.	Monthly costs vary based on the dependent status of employees (single/family/covered by spouse) and increased annually based on historical claims as well as projected inflation.
Fees and Taxes	10% administration fee, 11.5% direct taxes on contributions.	30% markup on claim, 14.7% direct & indirect taxes on claims.
Corporate Culture	Empowering employees to make purchase decisions based on their personal values.	Somewhat paternalistic in that each member of the employee’s family is taken care of to some degree based on the employer’s healthcare values.