With health plan costs rising and employee expectations shifting, many employers are rethinking their contribution strategy heading into 2025. The right approach can reduce turnover, improve plan participation, and keep your benefits budget in check.
But contribution strategy isn’t one-size-fits-all. Whether you’re offering a traditional PPO, a high-deductible health plan, or something in between — how much you contribute (and how you structure it) matters.
At Cypress Benefit Solutions, we help employers balance cost control with competitiveness. Here’s what to consider as you finalize your strategy for 2025.
What Is a Contribution Strategy?
Your contribution strategy defines how much of the premium your company pays — and how much is passed along to employees. It also determines whether contributions are fixed-dollar amounts, percentage-based, or tiered by plan or dependent level.
Key Contribution Models to Consider
1. Fixed Dollar Contribution
You pay a set amount per employee per month (e.g., $400 toward medical coverage).
- ✅ Pros: Easy to budget and communicate
- ⚠️ Cons: May not keep up with premium increases
2. Percentage-Based Contribution
You cover a fixed percentage of the premium (e.g., 75% of employee-only coverage).
- ✅ Pros: Scales with plan cost; maintains ACA affordability more easily
- ⚠️ Cons: Costs can increase if premiums rise sharply
3. Tiered Contribution Strategy
You contribute more for employee-only coverage and less for dependents.
- ✅ Pros: Encourages coverage while managing family plan costs
- ⚠️ Cons: May feel less competitive for employees with dependents
4. Defined Contribution or “Cafeteria Plan”
You offer a set monthly allowance for employees to “spend” on the plan they choose.
- ✅ Pros: Highly customizable; supports employee choice
- ⚠️ Cons: May be confusing without proper education or technology
What to Consider When Choosing a Strategy
- Workforce Demographics: Younger teams may prioritize affordability, while older teams may prioritize coverage.
- Plan Participation Goals: Want more employees on your plan? Consider increasing employer contribution or incentivizing enrollment in lower-cost plans.
- Budget Predictability: Fixed-dollar contributions make year-over-year budgeting easier, especially with level-funded plans.
- Compliance: Ensure your contribution strategy meets ACA affordability thresholds (8.39% of income in 2025). We help you run these calculations.
Annual Review = Better Outcomes
Your contribution strategy shouldn’t stay static. Reviewing it each year allows you to:
- Maintain ACA compliance
- Stay competitive in your industry
- Protect your bottom line
- Reduce employee frustration at renewal
Whether you’re adjusting for affordability, shifting costs, or just trying to keep up with inflation, now is the time to review your contribution strategy.
Need help comparing your options or modeling the cost?
At Cypress Benefit Solutions, we do the math and the messaging — so you can make informed decisions your team understands.
