HSA vs Traditional Health Insurance for Canadian Small Businesses

By Frontier Team•February 10, 2026•4 min read

If you're looking for a cost-effective health plan for your Canadian small business, you've probably been quoted $150–$300 per employee per month for traditional group insurance from providers like Manulife, Sun Life, or Canada Life. For a team of 3, that's $5,400–$10,800 per year — before anyone even uses it. A Health Spending Account (HSA) eliminates that waste entirely. You only pay when someone actually has a medical expense.

The Real Cost Comparison

Here's what a typical year looks like for a 3-person team:

Traditional Insurance Health Spending Account
Monthly premiums $200/person × 3 = $600/mo $0
Annual cost (premiums alone) $7,200 $0
Annual cost (actual claims) Included in premiums (whether used or not) Only what's claimed (e.g. $3,600 at $100/person/mo budget)
Deductibles & co-pays 20–50% out of pocket on many items $0 — 100% reimbursed up to your limit
Unused premiums Gone. No refund. Balances roll forward for the benefit year
Tax treatment Premiums are deductible, but employees may face taxable benefit 100% deductible for the business, 100% tax-free for employees
Typical annual total cost $7,200–$10,800 $3,600–$5,400

For a team of 3, that's roughly $3,600–$5,400 saved per year — money that stays in the business instead of going to an insurer.

What Traditional Insurance Doesn't Tell You

Traditional group plans sound comprehensive, but they come with catches that hit small teams the hardest:

  • Premiums increase every year. Renewal rates typically go up 8–15% annually based on your group's claims history. One bad year and your costs spike.
  • You pay for coverage nobody uses. Plans bundle services together. You can't opt out of categories your team doesn't need.
  • Pre-existing conditions may be excluded. Many insurers apply waiting periods or outright exclusions. HSAs have no such restrictions.
  • Deductibles and co-insurance add up. Even with insurance, employees still pay 20–50% out of pocket for many services. With an HSA, claims are reimbursed at 100%.
  • Minimum group sizes. Some insurers require 3+ employees, leaving solo founders and micro-teams with no options.

What an HSA Actually Covers

An HSA covers everything the CRA considers an eligible medical expense — which is far broader than most insurance plans:

  • Dental, orthodontics, and Invisalign
  • Vision care and glasses
  • Prescriptions
  • Physiotherapy, massage, chiropractic
  • Mental health and counselling
  • Fertility treatments
  • Medical devices and mobility aids

No exclusions, no pre-approvals, no claim denials for "not covered under your plan."

When Insurance Still Makes Sense

Insurance isn't always the wrong choice. If your team needs life insurance, disability coverage, or critical illness protection, those require an insurance product. An HSA covers day-to-day medical expenses — the stuff your team actually uses most often.

Many businesses pair a basic insurance plan (for catastrophic coverage) with an HSA (for everyday expenses). This gives you the safety net of insurance without overpaying for routine care.

The Tax Advantage

With traditional insurance, premiums are a deductible business expense — but the benefit may be taxable to employees depending on the province and plan type.

With an HSA, it's simpler: every dollar reimbursed is a 100% tax-deductible business expense, and employees receive it completely tax-free. No taxable benefit, no T4 adjustments.

For a founder paying themselves through a corporation, this means covering $5,000 in medical expenses through an HSA instead of taking $7,000+ in salary to pay for it after tax.

How to Switch

Setting up an HSA takes minutes, not weeks:

  1. Choose a monthly budget per person (most teams start with $100–$150/month)
  2. Onboard your team — we handle the setup and CRA compliance
  3. Submit receipts when expenses happen — reimbursement by e-transfer within 48 hours
  4. Only pay for what's used — no premiums, no waste

There's no setup fee, no minimum commitment, and you can cancel anytime.

Simplify Your Business Health Benefits

Get Started