Medical expenses pop up for all of us. Whether it’s prescription drugs, dental work, or regular massages, we all take care of our health.

There are three different ways you can pay for these expenses if you’re an individual with an incorporated business:

• A Health Spending Account (like our HSA Select);
• Health Insurance; or
• Paying out-of-pocket.

Let’s look at how these three options would work for a single male in his 40s with $1,500 in annual medical expenses. Then we can decide the most cost-effective way forward.

HSA Select

A Blendable HSA Select combines contributions to a Health Spending Account (HSA) with Excess Medical coverage for unanticipated, catastrophic expenses.

Contributions and Fees: $3,540

• $3,000 annual contributions (the minimum contribution allowed)
• 10% admin fee
• $240 annual Excess Medical Premiums

Claim Reimbursements: $1,500

Returned at year-end: $1,500

• $3,000 contribution, less $1,500 claim reimbursements

As a Plan Sponsor:

• You’ve spent $540 to ensure there are HSA funds available if medical needs arise, and insurance is in place in the event of unanticipated major medical expenses.
• This, plus the amount of claim reimbursements, is tax-deductible for your business.

As a Plan Member:

• You’ve received $1,500 tax-free to pay for your medical expenses.
• You had additional funds available and insurance in place if needed.

Health Insurance

Let’s say you paid for health insurance instead. You'll pay a monthly premium and get a plan with a variety of categories of expenses you can claim, each with a maximum allowed and a maximum percentage reimbursed (typically 80%).

Annual Premiums: $2,200

Claims: $1,500, but only $1,200 reimbursed

Returned at year-end: $0

As a Plan Sponsor:

• You’ve spent $2,200 to cover anticipated medical needs.

As a Plan Member:

• You’ve had to pay $300 out-of-pocket for your medical expenses thanks to the limits on the plan.
• This $300 is after-tax dollars, meaning the actual cost is higher.

Paying Out-of-Pocket

The last option is paying for all medical expenses out-of-pocket as they come up. The thinking is, this way you save the Admin Fees or Premiums associated with the plans above.

Initial Costs: $0

Medical Expenses: $1,500

As a Plan Sponsor:

• You aren’t involved, there is no tax-deduction for your business.

As a Plan Member:

• You’ve paid $1,500 out of pocket, plus tax on these expenses.
• You have no additional insurance in place as protection for major expenses should something happen.

So, what's the best way forward?

Well, that's up to you.

If you feel like taking on all the risk of paying for medical expenses, and paying with your hard-earned after-tax dollars, then pay out-of-pocket.

If you want to pay over $2,000 in premiums ever year, be limited on what you can claim, and still pay a portion out-of-pocket, then health insurance is for you.

But, if you want to pay the least overall, benefit from tax-free funds to pay for your medical expenses, and have protection in place for unforeseen major costs, then our HSA Select is the clear winner.

I'm convinced, sign me up!

We knew you'd see the light! Get in touch with our Growth Team to set up an HSA Select for your incorporated business.