The expense of utilizing a Health Spending Account, whether it's a Heath & Welfare Trust (HWT) or even a Personal Health Services Plan (PHSP), are considerably less than coughing up the equivalent taxes on those earnings, but they usually are a bit different to comprehend.
When you use your own finances to pay for health care fees (either the expense of your health insurance plan, or the expense that your health insurance policy just doesn't cover), you earn the money, pay the income taxes (at rates as high as 48%), and just use what's left to cover the health care fees. Additionally, it is possible that you might qualify for a rebate called the Medical Tax Credit, then again there is a deductible equal to 3% of your income (so, no credit at all for that amount), and for any amount above that you receive only a tax credit, not a deduction, which means that your benefit is limited to the lowest tax bracket amount inside your province.
A common Canadian family spends between 3 and 7 thousand dollars annually on health care costs. If they are fortunate enough to become covered by a health insurance policy by way of their work, union, or association, they may gain some coverage, but often they have to cover half or much more of the monthly cost of the plan themselves. If you're self-employed, or even a small business owner, you pay the full expense of any health plan membership yourself.
Usually when you use a Health Spending Account, you deposit the whole amount of money (before taxes) to your HSA account. You'll pay an upfront fee of around 10% (possibly less if you are in a larger plan), in addition to GST or HST on the administration fees. There is also a additional tax levied by many provinces - the premium tax. This tax is generally around 2% and is charged on all insurance type products - car insurance, house insurance, life insurance, and Health Spending Account deposits. When all is said and done, your total fee will probably be some where in the 12-14% range, based on your province.
So you now know where the savings originates from! When you are using a Health Spending Account for your family's health care costs, you're choosing to pay for 12-14% (for fees and taxes) as an alternative to gving up up to 48% in income taxes to the Canada Revenue Agency - the savings add up pretty quickly!
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