September 2, 2021
by John Moakler, BMath, CFP, CLU, CSC; Rick Goldring, B.A., CFP, CLU, CH.F.C.
A dentist running a Dentistry Professional Corporation (DPC) is like any other small business owner who is challenged with how to pay for drug, dental and extended healthcare costs. If you do not have access to a group plan through your spouse, you will have to pay for these expenses out of pocket using after tax income. This is where a Health Spending Account (HSA) is of great value to you and your family. You will no longer have to pay for these expenses personally; all you need to do is to set up an HSA, and any contributions by your DPC are 100 percent tax deductible to the DPC, while all eligible medical expenses are reimbursed to you and your family tax-free.
HSAs are less expensive than group insurance policies. With group insurance, the costs are based on the previous “experience” in terms of claims filed, plus the insurance company’s fees and profits.
What is a Health Spending Account?
An HSA is a self-insured Private Health Services Plan (PHSP) set-up by the employer (dentist) as a benefit for their employees. An HSA provides expanded medical and dental coverage to professionals and business owners, their families and certain employees.
How does a HSA work?
From a visual perspective, picture a health spending account like a type of piggy bank for your drug, dental and extended healthcare needs. Money deposited by your DPC can be used to cover all Revenue Canada approved eligible personal medical expenses. All contributions are 100 percent tax deductible to the corporation, and they are 100 percent tax free to you, your family members, and your employees.
Our process is one in which a member of the HSA plan pays for the health or dental service up front and then submits the expense to an automated claim process using our website (MoaklerWealthManagement.com).
First, they click on the button labeled, “Client Login,” and then they proceed to click on “Health Spending Account.” Once the expenses have been submitted and verified, the money is then deposited into the member’s personal bank account on file approximately three business days later. You do not need to mail any paperwork, but the plan does call for you to keep your receipts in case of an audit by Revenue Canada.
An HSA can be set up for a one-person business or multi-employee DPC as a cost-effective alternative to an insured drug and dental plan.
How Is a HSA funded?
When you are initially setting up the HSA, you have the option to contribute a lump sum up front, to turn on a monthly contribution, or you can do a combination of both. If you have some idea of what your health and dental care expenses are going to be over the next year, you can contribute this amount (plus a small service fee and taxes) as a lump sum and then decide if you also want to turn on a monthly contribution.
If you initially decide to only go with a lump sum contribution, then you can only add additional money to the account on your anniversary date or if you experience a “life changing event.” Because of this restriction, we usually encourage our clients to make an initial lump sum contribution as well as a monthly contribution. You can always turn off the monthly contribution at any time later.
All contributions into the HSA are funded through your DPC.
Who is covered under the HSA?
The definition of dependents for an HSA is more flexible than in traditional drug, dental and extended healthcare plans. So, any person related by blood, marriage, or law who is financially dependent on you can be covered under the plan. In order for common-law spouses to qualify, they must have resided with you for the past 12 consecutive months.
It is becoming more common for children to either return or stay home after graduation from post-secondary school, and there is an ever-increasing trend for people to pay for the healthcare costs of their elderly parents who might not be covered by a government program.
What happens if you do not spend all of the money in the HSA?
Because we are funding the Health Spending Account through your corporation, then contributions to the plan will roll over indefinitely. This means that if you do not use up the money this year, you can roll it over and use the money to cover medical expenses in subsequent years. However, the DPC will only recognize the deduction in the tax year that the contribution is made.
Revenue generator: If you have patients/clients who are incorporated business owners, then you could educate them on the use of an HSA in order to control costs and provide a cost-effective benefit plan to their employees and family members who could then use the plan for much needed dental visits.
Covered expenses: Expenses that are covered include both health and dental care expenses; below is a sub-list of some of the other expenses that are covered.
If you’d like to get more information on setting up a Health Spending Account, visit TheProsperousDentist.com.
About the Author
John Moakler, BMath, CFP, CLU, CSC is a best-selling author and award winning Certified Financial Planner. He works exclusively with Dentists, Doctors, and Business Owners to bring clarity to their financial lives. He can be reached at john@MoaklerWealthManagement.com.
Rick Goldring, B.A.,CFP,CLU,CH.F.C. is a Certified Financial Planner with Goldring Financial Leadership Inc., a Wealth and Risk Management Company. Rick works with dentists to provide comprehensive Financial, Tax, Estate and Retirement Income Plans. He can be reached at rick@RickGoldring.com
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