- Steve McEwan
The Common Mistake Advisors Make: American HSA vs. Canadian HSA
We often get mentioned in the same breath as U.S. based HSAs and thought it would be noteworthy to discuss the difference between the two. The American HSAs are different but kind of a cool concept, with no medicare.
To be clear, a Canadian HSA is actually more like a Health Reimbursement Plan (HRA) in the U.S. An “HSA” is a totally different concept in the U.S. than Canada. We’ve put together a brief breakdown for you.
Not us. These more resemble an RRSP in Canada in how it operates but for future health care costs, not retirement. Essentially an employer and the employee can contribute to an HSA account. The contributions are tax deductible and the funds can grow tax-free. If the funds are withdrawn for medical related expenses, they can be withdrawn tax-free, otherwise the funds withdrawn are taxed as income. Just like RRSP, there are yearly contribution limits that can be deposited. In 2019, for example, the limit is $3,500 for individuals and $7,000 for families. If you are above certain age bracket you can deposit a bit more. What is allowable to claim is published by the IRS. There can be fees for an HAS, some charge a monthly maintenance fee or a per-transaction fee, which varies by institution.
Here is our closest cousin. There are few iterations down south for HRAs, but we will outline the general concept. We love HRAs mainly because they are so much like myHSA that it made us laugh the first time we looked into it. The most similar part would be the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA); the employer selects the amounts for the employee and then the employee can use the balance towards IRS allowable items. This can include many health, dental, and vision expenses as well as personal health insurance premiums. With a Canadian HSA you can also claim personal health and dental premiums, but in the U.S. this would probably be used more often since they don’t have medicare and have individual market places where you can buy health coverage. With the QSEHRA, small businesses with fewer than 50 employees can offer an HRA governed by new rules specified in the legislation. IRS specifies limits on these plans to the following amounts:
The employee has access to the funds while they are employed at the company. If they happen to leave, they no longer receive the employee benefit. With an American HRA the funds stay with the employee. There are a few other types of HRAs, but we will leave the full details on each type for another blog another time. Hopefully this cleared up some of the misconceptions between American HSA, HRA and HSAs in Canada.
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