Can a Health Spending Account Affect Your Eligibility for the Canadian Dental Care Plan?

The introduction of the Canadian Dental Care Plan (CDCP) has created an interesting consideration for employers who offer a Health Spending Account to their employees.

Many employers assume that because an HSA is flexible and employees choose how to use their available balance, it will not affect their eligibility for the CDCP unless they actually submit a dental claim.

Unfortunately, that is not how the rules work.

Under the current CDCP eligibility rules, an individual cannot have access to private dental insurance or coverage. The Government of Canada specifically confirms that this includes Health Spending Accounts that cover dental expenses.

That means an employee could lose eligibility for the CDCP simply because their HSA allows dental expenses, even if they have never submitted a dental claim.

Who Qualifies for the Canadian Dental Care Plan?

At a high level, an individual must meet 4 requirements to qualify for the CDCP:

• They must not have access to private dental insurance or coverage
• They and their spouse or common-law partner, if applicable, must have filed their Canadian tax returns
• Their adjusted family net income must be less than $90,000
• They must be a Canadian resident for tax purposes

The amount covered by the CDCP also depends on adjusted family net income.

For those with income below $70,000, the CDCP covers 100% of eligible services based on the CDCP-established fee schedule. Coverage decreases to 60% between $70,000 and $79,999 and 40% between $80,000 and $89,999. There can still be out-of-pocket expenses depending on what the dental provider charges and the services received.

How Does a Health Spending Account Affect Eligibility?

This is where employers need to be careful.

A traditional Health Spending Account can reimburse a wide range of CRA-eligible medical expenses, including:

• Prescription drugs
• Vision care
• Paramedical practitioners
• Medical equipment
• Dental expenses

However, if dental expenses are included in the HSA, the employee is considered to have access to dental coverage for purposes of the CDCP.

It does not matter whether the employee:

• Uses the dental benefit
• Has ever submitted a dental claim
• Decides they do not want the dental coverage

The Government of Canada looks at whether the employee has access to dental coverage, not whether they actually use it.

Simply telling an employee not to use their HSA for dental expenses would therefore not solve the problem.

There May Be Another Option

One of the advantages we have when setting up Health Spending Accounts through myHSA is the ability to customize the plan design.

Dental expenses can be excluded from an HSA.

myHSA has specifically confirmed that if an HSA does not include dental coverage, the HSA itself would not be considered access to dental care for CDCP purposes. The employee could therefore potentially remain eligible for the CDCP, assuming they meet all of the other eligibility requirements.

This can create an interesting opportunity for employers.

Instead of eliminating the Health Spending Account entirely, an employer may be able to provide employees with an HSA that continues to cover eligible medical expenses while excluding dental expenses.

The employee could potentially receive their dental coverage through the CDCP while continuing to use their HSA for other eligible healthcare costs.

The Important Part: We Design This by Employee Class

This does not mean an employer should simply remove dental coverage for one employee because that particular person wants to qualify for the CDCP.

Health Spending Accounts should be structured using reasonable employee classifications, with employees in the same class receiving the same plan design.

For example, an employer could potentially have:

Executive Class

$5,000 Health Spending Account
Medical + Dental eligible

Full-Time Employee Class

$1,500 Health Spending Account
Medical eligible
Dental excluded

Employees should be grouped using reasonable and objective criteria such as position, employment status, seniority or another legitimate business classification. myHSA specifically recommends that classifications be established using consistent criteria rather than changing benefits arbitrarily for individual employees.

This allows us to design the plan around a class of employees, rather than an individual’s personal circumstances.

Why This Matters

Consider a business owner who wants to provide a $1,500 annual HSA to their employees.

One employee has an adjusted family net income of $60,000 and otherwise qualifies for the Canadian Dental Care Plan.

If their $1,500 HSA includes dental expenses, they may lose access to significantly more valuable dental coverage through the CDCP.

In that situation, providing $1,500 of flexible HSA coverage could unintentionally cost the employee access to thousands of dollars of potential dental benefits.

By designing that employee class so that the HSA covers medical expenses but excludes dental, the employer may be able to provide the HSA without creating the same conflict with CDCP eligibility.

That is where plan design becomes important.

Employers Also Need to Consider T4 Reporting

Employers are required to report whether employees have access to dental insurance or coverage through Box 45 of the T4.

The federal government can use this information when reviewing CDCP eligibility. If the information reported on the T4 conflicts with what an individual declares on their CDCP application, the government may request additional documentation from the employer.

For this reason, any change to the HSA should be properly documented, including the employee class, what expenses are covered, and the effective date of the change.

An HSA Can Still Be Flexible

One of the reasons I like Health Spending Accounts is that they do not have to be a one-size-fits-all solution.

For some employees, having dental expenses included in their HSA may make perfect sense.

For others who qualify for the Canadian Dental Care Plan, excluding dental from their employee class may provide a better overall benefits solution.

The important thing is to understand how the different programs interact before designing the plan.

If you currently offer a Health Spending Account, or are considering introducing one for your business, we can review your employee classes and determine whether your existing plan design could unintentionally affect an employee’s eligibility for the Canadian Dental Care Plan.

As always, CDCP eligibility ultimately depends on the individual’s complete circumstances, including family income and whether they have access to dental coverage through a spouse, family member, pension, professional association, or another source.

– Jeff

*Disclaimer: This article is intended for general informational and educational purposes only and does not constitute personalized insurance, financial, legal, or tax advice. Insurance needs, policy features, costs, and suitability vary based on individual circumstances and specific contract provisions. Coverage availability and terms are subject to insurer underwriting and approval. Readers should review their own situation carefully and consult with a licensed insurance advisor before making any insurance decisions or changes to existing coverage.