What’s the right amount for HSA contributions?

You’ve decided to set up a Health Spending Account (HSA) for your team. Congrats!

HSAs are amazing. They give employers (like you) benefits with total transparency and cost control. At the same time, they give plan members (like your team) the flexibility to pay for the healthcare expenses that matter most to them. Huge value across the board!

But now you’re confronted with another question: I know an HSA is the right thing to do for my business and my team, but how much should I contribute?

The good news? You’re in the driver’s seat and can answer this question any way you like. There’s no insurance company forcing premiums on you.

The other good news? We’re here to help!

The obvious answer to your question is: it’s totally up to you! But that isn’t super helpful (and we pride ourselves on being helpful).

Instead, try these tricks to help come up with your perfect contribution.

Use your premium-based plan as a guide

If you have a premium-based health and dental plan that you’re ditching in favour of an HSA, then you can use past premiums to guide future contributions.

Matching your HSA contributions per employee to what you would have paid for their health and dental premiums accomplishes two things:

  • Your costs stay the same – no budget increases to worry about either now, or in the future.
  • Your team gets way more value – they can use these funds however they like, no plan maximums or limits on services.

If you’re struggling to fit the cost of benefits into your budget, you can always start with lower contributions. Your team will still get more value than what they’re able to claim using a premium-based plan.

Align HSA contributions with your compensation structure

At the end of the day, benefits are part of compensation. So, if you’re wondering how much is enough, look at them through the lens of creating compensation that’s competitive in your industry.

Various sources list the average cost of providing a full group benefits package (including insured coverage, travel, health, and dental, etc.) as 15% of payroll for larger companies, 5% for smaller companies. This could be higher or lower depending on what you include, or how big your company is, but it’s a good place to start before adjusting up or down.

While you’re thinking of benefits as compensation, remember that you can give team members different amounts in their HSA to fit their compensation package. We can set up classes where each class has a different HSA contribution. A class could be based on:

  • Role (Coordinator, Manager, Director, Executive);
  • Years of employment;
  • Single, Couple, Family;
  • Part-time vs full-time; or
  • Just about any way of differentiating that you can dream up!

Remember, with Blendable options like an HSA Classic or HSA Rollover, your team really does get the full value of every dollar in their pocket. So, their HSA truly is compensation (albeit more tax efficient and braggable than a simple raise).

Design an HSA to cover average health costs

Some employers see their HSA as a way to cover typical employee health costs. They want to go above and beyond a compensation lens, or seeing the HSA as a perk, and really support all aspects of employee health.

If this is you, then when deciding on contributions you should start with what Canadians pay for healthcare.

The Canadian Institute for Health Information pegged 2022 healthcare spending from private sources at about $2,600 per person. If you want your HSA to cover all an employee’s health care costs then you’d be funding an HSA at about $217/month for an individual, more for a family.

That number includes spending on premium-based health plans where the spending outweighs the claims, so we may want to lower it a bit to reflect that gap in value, but once again, it isn’t a bad starting point.

Sorry we couldn’t give you an easy answer

As with most things in life, there’s no right or wrong when it comes to HSA funding. The answer is always “it depends!”

You need to do what’s right for your industry, your company, your budget, your goals, and your team.

Whichever way you decide to fund your HSA, it’s already a step in the right direction. After all, we’re setting up a benefit plan to attract and retain great employees. An HSA gives them dollars in their pocket and real value (instead of throwing money at an insurance company).

Remember, no benefits plan is helpful if it isn’t sustainable. Ask yourself, “What would make me happy as an employee, and fits our company budget?” You can always increase the funding next year. Wouldn’t that be a welcome surprise for your team?

Need to bounce some ideas around? We’re here to chat!

Whether you’re ready to talk a little more, do some back-of-the-napkin calculations, or get serious with a spreadsheet, we’d love to help. Our Growth Team is standing by, so get in touch.

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