Navigating Common HSA Myths: Debunking Misconceptions

Health Spending Accounts (HSAs) are a great financial tool, however some people aren’t aware they exist, and often there’s a lot of confusion surrounding what they are and what they can do for you. Unfortunately some of these misconceptions about HSAs can prevent people from taking full advantage of these beauties in saving their businesses, themselves, their spouses and employees some money. Let’s clear up some of the most common myths to help you make informed decisions on an HSA.

Myth 1: HSAs Are Only for High-Deductible Health Plans (HDHPs) like the USA

Many people assume that HSAs are only available to those enrolled in High-Deductible Health Plans (HDHPs), as they are in the USA. In Canada, things are a little different and HSA’s are Employer-Sponsored benefits, which operate as Private Health Services Plans (more info can be found here Private Health Services Plan - Canada Revenue Agency or in our comprehensive HSA guide) and are available to incorporated business owners and their employees without any connection to an HDHP or other insurance plan to cover medical expenses tax-free!

Myth 2: HSA Funds Expire at the End of the Year

One misconception that often hear is the belief that unused HSA funds must be spent before year-end, just like a traditional health benefits plan. The reality is that most HSA plans allow unused funds to roll over from year to year, enabling users to accumulate savings for future medical expenses.

Fund rollover is legal, however not all providers offer this service and it’s best to check with them to learn more. Since we ask that you fund the account as needed, this isn’t an issue at Frontier, however any unused funds will be refunded to you at the end of your plan year.

Myth 3: Employees Contribute to their HSA

This is a fun one, because unlike things like Group Benefits that employees pay a portion of, or RRSPs or TFSAs, employees do not make contributions to HSA’s in Canada. Instead, HSAs are 100% employer-funded, meaning only businesses contribute on behalf of their employees!

Myth 4: HSA Funds are a Taxable Benefit to Employees

The major advantage of HSAs is their tax-free status. As long as funds are used for eligible medical expenses, they are 100% tax free. This is a massive advantage over using the METC for personal medical expenses. However, using HSA funds for non-medical expenses (like buying a treadmill for health and fitness) may result in tax implications or loss of tax-exempt status, and this is why we recommend you do not self-administer your HSA to avoid any tax implications such as audit, fines, owed taxes, and interest on late tax filings.

Myth 5: You Can Use Your HSA for Any Health-Related Expense

While HSAs cover a wide range of medical services, there are some limitations. The Canada Revenue Agency (CRA) defines which medical expenses qualify claiming under your HSA. Check out our list of approved medical expenses here. (LINK TO THE PAGE on our site with list of approved medical expenses)

Some common eligible expenses include:

• Prescription medications
• Dental treatments and orthodontics
• Eye exams, glasses, and contact lenses
• Physiotherapy and chiropractic care (Except in NT, or NU)
• Fertility treatments

Some ineligible expenses include:

• Cosmetic surgery
• Gym memberships
• Over-the-counter vitamins and supplements

At the end of the day, you can always check our helpful guide we’ve put together about claims! If you are still unsure, feel free to check with us to confirm your items qualify and any additional requirements they may have for filing, and those that don’t. (Claim Requirements for your HSA)

Myth 6: Only the Employee Can Use the HSA

It’s easy to assume that HSAs are just for the employee, but they can actually be used to cover eligible expenses for their dependents too. Under CRA rules, that includes spouses and children, as long as they qualify as dependents under the plan. At Frontier HSA, we support this fully — employees can submit claims for their legal spouse, dependent kids under 21 (or under 25 if they’re full-time students), and even older children who are financially dependent due to a disability. If they’re part of your family and meet the CRA’s definition of a dependent, they’re likely covered.

Myth 7: You Can’t Have an HSA If You Already Have Insurance

A lot of people think it’s one or the other — traditional insurance or an HSA — but you can actually use both together, and they complement each other really well. In fact, this is one of the smartest ways to use an HSA: by filling the gaps that insurance leaves behind. Things like co-pays, deductibles, or treatments that aren’t covered (like extra physio visits or certain dental work) can often be reimbursed through your HSA. The CRA allows for this type of “top-up” use, and it’s completely compliant as long as the expense itself qualifies under the Income Tax Act. So if insurance only pays part of your bill, your HSA can help with the rest.

Myth 8: HSAs Are Only for Full-Time Employees

There’s no rule that says HSAs are exclusive to full-timers. Employers can offer HSAs to part-time, seasonal, and even contract employees — the key is setting up employee classes properly. You just define separate classes like Full-Time, Part-Time, and Seasonal, and then assign different benefit levels to each group. This kind of setup is totally allowed under CRA guidelines, as long as it’s fair and consistent within each class. So if you’ve got a mixed workforce, you can still offer flexible, tax-free health benefits across the board — you just have to structure it thoughtfully.

The Bottom Line

HSAs are an incredible tool for reducing personal healthcare costs and optimizing tax savings, but understanding the facts is crucial. By dispelling these myths, you’ll be in a better position to maximize your HSA benefits. Feel free to reach out to our team if you have any other questions you might want answered at hello@founders.ca

Looking for your CRA-compliant HSA provider? Frontier HSA offers transparent pricing, flexible account options, and friendly personal support to help you make the most of your health benefits.