Health Spending Accounts: Should Your HSA Be Separate From Your Group Benefits Plan?

Health Spending Accounts (HSAs) are now a common component of employee group benefits plans in Canada. They give employers a predictable way to fund benefits while allowing employees to choose how their health dollars are spent.

In most cases, an HSA is bundled with the same insurance company that provides insured benefits such as extended health, dental, and disability coverage. This approach is familiar and often convenient.

However, bundling is not the only option. Some employers choose to separate the HSA from the insurance carrier and administer it through a standalone HSA provider. Understanding the difference can help employers make more intentional decisions about their benefits strategy.

What Does It Mean to Separate an HSA?

Separating an HSA means that insured benefits remain with an insurance company, while the Health Spending Account is administered independently. The employer still determines funding levels, eligibility rules, and which expenses are covered within CRA guidelines.

The difference is administrative rather than conceptual. A detached HSA is not tied to the insurance carrier’s systems, renewal cycle, or plan design constraints.

Why HSAs Are Often Bundled With Insurance

Bundling an HSA with insured benefits is often the default because it simplifies setup. There is usually one provider, one implementation process, and often a single portal or app for employees to access their benefits.

For smaller organizations or plans where the HSA is relatively minor, this structure can work well. It reduces upfront complexity and requires minimal coordination between vendors.

Over time, however, employers may find that what was simple at setup becomes less flexible as their workforce, benefits, or cost pressures evolve.

Potential Advantages of a Standalone Health Spending Account

Greater Stability Over Time

Insurance plans change. Pricing, carriers, and plan designs are reviewed regularly. When an HSA is embedded with the insurance carrier, a carrier change can require re-establishing the HSA and re-educating employees.

With a standalone HSA, the account can remain in place even if insured benefits move to a different carrier. This continuity can reduce disruption during renewals and help maintain a consistent employee experience.

More Deliberate Use of HSA Dollars

Standalone HSA providers typically apply more comprehensive claims adjudication. This may include confirming eligibility, coordinating with spousal coverage, and ensuring insured benefits are used first when applicable.

The result is not fewer benefits for employees, but often more intentional use of HSA dollars. Employers may see lower utilization simply because claims are processed more accurately and consistently.

A More Tangible Employee Benefit

HSAs tend to resonate most when employees clearly see how they work. Paying for an eligible expense, submitting a claim, and receiving reimbursement shortly afterward makes the benefit feel concrete.

This reimbursement experience reinforces the employer’s contribution in a way that passive coverage often does not. It can improve employee appreciation of the benefits plan without increasing employer costs.

Simpler, More Modern Claim Experiences

Many standalone HSA platforms are designed around ease of use. Employees can typically submit claims by uploading a photo of a receipt through a mobile app or web portal, with minimal data entry.

When benefits are easy to use, employees are more likely to understand them, value them, and use them appropriately.

A Natural Path to Lifestyle Spending Accounts

Separating the HSA can also make it easier to introduce a Lifestyle Spending Account (LSA). LSAs allow employers to reimburse a broader range of non-medical expenses, such as fitness, wellness, education, or family support.

These accounts are optional, but they are a natural extension for employers looking to support a modern and diverse workforce while maintaining a fixed and predictable benefits budget.

Is a Bundled or Standalone HSA Better?

There is no single right answer.

Bundled HSAs may be appropriate when the employer prefers a single-provider structure, the HSA is intended to play a supporting role within the overall plan, or administrative simplicity is the primary objective.

Standalone HSAs tend to appeal to employers who view the HSA as a meaningful part of total compensation, value cost control, and want flexibility as their benefits strategy evolves.

The right structure depends on the employer’s goals, not on the insurance company or HSA provider.

Making an Informed Choice

Separating an HSA from insured benefits is not about adding complexity. It is about choosing a structure that aligns with how an organization wants its benefits plan to function over time.

For some employers, this small administrative decision can improve stability, clarity, employee engagement, long-term flexibility, and overall cost management.

Speak With an Advisor

If you are reviewing your employee group benefits plan or preparing for renewal, an experienced advisor can help you evaluate whether a bundled or standalone Health Spending Account makes sense for your organization.

Speak with an advisor at Garrett Agencies to review your options and determine the approach that best fits your goals.