Health Care Spending Account (HCSA) vs Health Spending Account (HSA)

Two dressed up avocados representing the identical nature of Health Care Spending Accounts and Health Spending Accounts
Dress it up and name it whatever you wish, but in Canada all health care spending accounts have the same core structure.

In Canada, a Health Care Spending Account (HCSA) is the same as a Health Spending Account (HSA), these two names are used to describe the identical employee health benefit plan.

HCSA = HSA

Although the name ‘Health Spending Account’ appears to be used more often than ‘Health Care Spending Account’, technically speaking neither term is accurate. Under the Canadian Income Tax Act an HSA is a self-insured form of a Private Health Services Plan (PHSP) – a group to which traditional employee health insurance plans also belong.

If that answers your question, you do not need to read any further and can go on with your day. Better yet, sign up for a HCSA/HSA for your business. However, if you feel like you have read something on the internet that still leaves you feeling any doubt, I think I know why.

It is a bit strange that there is no standard language used by Canadian providers of employee health benefit plans. With a quick internet search, you can find Canadian companies using ‘HSA’, ‘HCSA’ or even interchanging the two. The lack of consistent nomenclature likely arises for two reasons: first, as we saw above, neither ‘HSA’ nor ‘HCSA’ are technically accurate (the CRA prefers the less comprehensible “self-insured Private Health Services Plan”). Second, and perhaps more importantly, online content from our neighbour to the south spills into our Canadian search results whenever we google ‘HSA’ – and HSAs in the United States are vastly different. This can be a source of significant confusion.

HSA vs HSA

In the United States ‘HSA’ stands for ‘Health Savings Account’ rather than ‘Health Spending Account’, and the nature of these two products are as different as our respective health care systems. American websites are likely responsible for the many misconceptions Canadians have about what an HSA is. I believe the term “health care spending account (HCSA)” has arisen as an attempt by some Canadian companies to reduce this confusion.

An HSA (Health Spending Account) in Canada is not the same thing as an HSA (Health Savings Account) in the United States.

HSAs in the US have special features that their Canadian counterparts do NOT have:

  1. To be eligible an employee must have a high deductible health insurance plan (HDHP) in place.
  2. HSA accounts are owned by the employee rather than the employer and are portable (the employee keeps the account when changing jobs). They can be set up either directly by the employee, or through their employer.
  3. HSA accounts roll over each year, accumulating any unused amounts.
  4. HSA accounts can be invested and earn tax-free interest.
  5. Not only can employers contribute to the plan, but employees can also contribute money from their pre-tax (gross) income.

None of the above applies to HSAs in Canada. In Canada, an HSA is a form of employee health insurance plan that permits the employee to decide how to use a specified amount of health care dollars their employer has set aside for them (hence “health spending account”). They can be a standalone plan or used in conjunction with a traditional health insurance coverage. Benefit levels do not accumulate year-over-year, nor do they earn interest, and any unused funds are owned by the employer.

HSCA vs HSA vs FSA

To review: in Canada, a Health Care Spending Account (HSCA) is also known as a Health Spending Account (HSA). But an HSA in Canada is markedly different from a Health Savings Account (HSA) in the United States. HSAs in Canada more closely resemble another American health care benefit plan known as a Flexible Spending Account (FSA). Like Canadian HSAs, FSAs are an employer owned health care spending account that does not roll-over and accumulate year-to-year. Despite their similarities to Canadian HSAs, the term FSA is not used in Canada and so is not typically a source of confusion with our customers.

Whether you prefer to call it a ‘Health Care Spending Account (HCSA)’ or a ‘Heath Spending Account (HSA)’, self-insured PHSPs are the fastest growing segment of health benefit plans in Canada and also score the highest in employee satisfaction.

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