Health Spending Accounts (HSAs) provide an excellent alternative to traditional employee health benefits plans. They allow employees to determine for themselves how they spend their health care dollars and are useful when paying for expenses that aren’t traditionally covered.
However, it’s up to the employer to determine how much they contribute to their employees’ HSAs. When making this decision, there are two scenarios business owners might find themselves in.
If you have a client asking questions about how to determine contribution amounts, read on. Below, we’ll outline strategies for both scenarios:
Scenario #1: Small business owner who is also the only employee
In this case, you must calculate how much you typically spend per year on out-of-pocket health care costs.
Consider first how much your family spent on out-of-pocket health care costs last year, which is a good indicator of future spending. If you need to jog your memory, ask yourself the following questions and keep a running tab of costs you’d accrue from these services in a given year:
- Do you have dependants? How many?
- Are there any special need requirements for dental care? Do any of your children require orthodontics?
- How often do you and your family go to the dentist/hygienist?
- Does anyone wear glasses, contacts, dailies?
- Are your parents financially dependant on you?
- Does anyone see a naturopath?
- Does anyone have sports-related injuries that you seek physical therapy or massage for?
- Do you have any other health-related, out-of-pocket expenses?
The needs revealed by these questions will determine where we go next. Remember that for something to be covered in your province under an HSA, the service needs to be eligible under the Medical Tax Credit. You can find a full list of eligible expenses by Province on the Government of Canada’s website.
If you conclude that you have “average expenses,” without any exceptional costs, we can tell you that the average family spends approximately $2,500 to $4,500 on health care per year.
Other considerations to make include finding out if a spouse has coverage elsewhere. If they do, we do not typically recommend HAS complete. If not, HAS complete will be essential for you and your family, especially in the event of a major health disruption such as the diagnosis of a serious illness.
Medical expenses come on quickly and can accrue even faster. Ensure that you and your family are fully covered with HAS complete add-on, which provides prescription drug and catastrophic health insurance.
Scenario #2: An employer with employees and are interested in an HSA, but not sure where to start
Offering an HSA to your employers can set you apart from other employers who only offer a traditional plan. Especially if employees aren’t getting any value from their traditional plan, they would appreciate an HSA much more because it allows them to decide how to spend their own funds in ways that are meaningful to them.
As in scenario #1, you’ll want to know a bit about your employees’ lives and their families before deciding upon contributions. What is their particular job role? How long have they been in your employ? Are they single or married? Do they have children?
From here, you can choose several different strategies for determining HSA contributions:
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Based on Marriage/Family Status
In some cases, you may decide to offer different amounts for single employees versus those who are married and/or have families.
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Based on Job Role
Ask yourself what each of your employees do for you. What are their job functions? You may decide to assign different contribution amounts for different roles.
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Based on Years of Service
You may also want to reward specific employees who have been with you for a long time, making HSAs a great motivator for your employees.
You can always start small and build on the amount you allocate to each employee’s HSA as years-of-service anniversaries come around. Some companies select a range of contribution based on years of service with longer standing employees receiving a higher range of contribution.
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Based on Seniority
You might choose your contributions with seniority in mind as well. For example, if you have senior staff, they naturally earn a greater salary than a junior who just started with your company. In these cases, you might decide that your HSA contribution will be 10% of each person’s salary, for example.
Just remember that your employee will associate their experience with their benefits plan with you, their employer. Therefore, if you start too low for new employees, this may be frustrating for them in the event that funds are not even enough to pay for simple dental cleanings, etc.
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Based on Your Budget and Business Success
At the end of the day, your company budget is going to greatly affect your contributions, so some companies will speak openly with staff members about HSA contributions being related to business revenue and success.
In fact, the HSA is the best way to set up a benefits plan that will completely honour your budget and is different from traditional plans that can escalate in price over time. With an HSA, the cost is 100% fixed and will never go up unless you decide it should — for example when your business is doing well.
Keep in mind that contributions are tax-deductible for you as well as tax-free for the employee, so see it as a way to incentivize your staff to do great work.
Calculate Health Spending More Specifically With Our HSA Calculator
Our HSA calculator and “Help Me Decide” feature can be used to determine a more exact amount for clients’ health needs by walking them through common expenses. For more detailed information about starting HSAs for your clients, visit our HSA page. For questions, get in touch with your Benecaid Benefits Consultant or send us an email at advisors@benecaid.com.
For Benecaid Health Spending Account terms and conditions please click here.
