What Is a Medical Savings Account?
A Medical Savings Account (MSA) is a type of financial account designed to help individuals save money for qualified medical expenses. These accounts are commonly seen in countries like the United States, where individuals can contribute pre-tax dollars to cover out-of-pocket healthcare costs such as dental, vision, prescriptions, and therapy.
Medical Savings Accounts are intended to provide financial flexibility and tax savings for people who want more control over their healthcare spending.
Does Canada Have Medical Savings Accounts?
Not exactly in name, but yes in concept.
In Canada, the closest equivalent to a Medical Savings Account is the Health Spending Account (HSA). While Canada does not use the term “Medical Savings Account” officially, the functionality of an HSA is very similar — with a few key differences based on how Canadian health benefits and tax laws work.
What Is a Health Spending Account (HSA) in Canada?
A Health Spending Account (HSA) is a CRA-approved, tax-free benefit plan that allows Canadian businesses to reimburse employees for eligible health and dental expenses.
Unlike traditional insurance plans that cover a fixed set of services, an HSA allows the employee to choose how to spend the allocated amount — making it a flexible, customizable, and tax-efficient alternative to group health insurance.
Key Features:
- Funded by employers, not employees
- Tax-deductible for employers
- Tax-free for employees
- Can be used for a wide variety of eligible expenses (as defined by CRA)
How a Health Spending Account Works
Let’s walk through how an HSA works in Canada:
Step-by-Step Process:
- Employer sets up the HSA with a provider (e.g., Wellbytes, Olympia, etc.)
- Employee is allocated a yearly spending limit (e.g., $1,000 per year)
- Employee pays for a health service, like dental treatment or new glasses
- They submit a receipt through the provider’s platform
- The provider reimburses the employee, tax-free
This process gives both the employer and employee more control and transparency over health spending.
Who Can Use an HSA in Canada?
Health Spending Accounts are ideal for:
- Small to medium-sized businesses seeking affordable benefit plans
- Incorporated business owners who want to convert medical expenses into business expenses
- Startups and remote teams that need a flexible alternative to traditional insurance
- Employees and contractors who are looking for more control over their benefits
📝 Note: Sole proprietors who are not incorporated are generally not eligible for HSA unless they have an incorporated structure (e.g., via a personal services corporation).
CRA-Approved Medical Savings Accounts
The Canada Revenue Agency (CRA) allows Health Spending Accounts as long as they comply with guidelines under Private Health Services Plan (PHSP) regulations.
To ensure CRA compliance:
- The HSA must have an annual limit
- The plan must cover eligible medical expenses (as defined by CRA IT-339R2)
- Funds cannot roll over indefinitely
- Only expenses incurred while the employee is active are eligible
- Claims must be submitted with proper documentation
This makes HSA a legitimate, CRA-approved form of Medical Savings Account in Canada — with full tax advantages.
Benefits of Offering HSA to Employees
1. Tax Savings
- 100% of employer contributions are tax-deductible
- 100% of employee reimbursements are non-taxable
2. Employee Satisfaction
- Employees feel more empowered when they choose how to spend their health benefits
- Can cover non-traditional services like acupuncture, physiotherapy, and mental health care
3. Lower Costs for Employers
- Fixed costs per employee
- No surprises like insurance premium increases
4. Easy to Manage
- No underwriting required
- No co-pays or deductibles
- No need to manage claims — all done via the platform
HSA vs Other Types of Health Benefits in Canada
| Feature | HSA (Health Spending Account) | Group Insurance | Wellness Spending Account |
|---|---|---|---|
| Tax-Free | ✅ Yes | ✅ Yes | ❌ No (taxable benefit) |
| Employee Flexibility | ✅ High | ❌ Low | ✅ High |
| CRA Approved | ✅ Yes (PHSP) | ✅ Yes | ❌ No |
| Employer Cost Control | ✅ Yes | ❌ No (variable premiums) | ✅ Yes |
| Covers Medical Expenses | ✅ Yes | ✅ Yes | ❌ No (only wellness) |
| Covers Alternative Therapies | ✅ Yes | Depends | ✅ Yes |
How to Set Up a Medical Savings Account (HSA) in Canada
For Businesses:
- Choose an HSA Provider (e.g., Wellbytes.ca, Collage, Olympia, etc.)
- Set your budget per employee per year (e.g., $1,200)
- Enroll employees and communicate the plan details
- Monitor usage and reports via the admin dashboard
For Incorporated Individuals:
- Ensure you have an active incorporated business
- Choose an HSA provider
- Set yourself as an employee of your business
- Start submitting eligible medical receipts for reimbursement
⚠️ Important: Reimbursements must only be for eligible expenses under CRA rules, including medical, dental, vision, and prescription-related costs.
Real-Life Example: How HSA Saves You Money
Case Study:
John, a full-time employee in Toronto, receives an HSA with $1,000 annually. He incurs the following medical expenses:
| Expense | Amount | Covered by HSA |
|---|---|---|
| Physiotherapy | $300 | ✅ Yes |
| Dental Cleaning | $250 | ✅ Yes |
| Prescription Glasses | $200 | ✅ Yes |
| Mental Health Counselling | $250 | ✅ Yes |
| Total | $1,000 | Fully covered |
Without HSA, John would have paid these costs out-of-pocket using after-tax dollars. Assuming a 30% marginal tax rate, he would need to earn $1,430 before tax to cover $1,000 of expenses. With HSA, he saves that tax.
Conclusion
While Canada does not have a “Medical Savings Account” in name like the U.S., the Health Spending Account (HSA) serves the exact same purpose — and in many ways, it does it better.
- Tax-free for employees
- Tax-deductible for employers
- CRA-approved structure
- Flexible and customizable
Whether you’re a business owner looking to offer smarter employee benefits or a professional seeking tax savings on health expenses, the HSA is your best option in Canada for a modern Medical Savings Account.
Ready to set up your Medical Savings Account in Canada?
Explore providers like Wellbytes.ca to get started with an HSA that fits your company or individual needs.
📚 Want to Learn More?
If you’re interested in learning how to maximize tax savings and optimize employee wellness benefits, check out our next blog. Here !
