With a flexible benefit plan, employees are able to choose the benefits and the level of coverage that's right for them.  Rather than provide a defined (one size fits all) package of benefits under a traditional benefits plan, a plan sponsor supplies plan members with benefit options (flex benefits). Plan members use credits allocated by the plan sponsor to purchase their benefits coverage, with different levels of coverage provided for each benefit type.

When Plan Sponsors ask about flexible benefits, they are often told that flex benefits are only available to very large groups – and that is usually correct.  An Insurer cannot offer flexible benefits to a small business because the "safety of large numbers" is diminished when an employee can choose whether to enrol in and pay for Long Term Disability, or Vision Care benefits, or even certain Dental benefits.  Generally speaking, benefits which are truly flexible, from which employees may pick and choose, are not feasible for groups under, say, 500 employees – and more likely 1,000 employees.  At the lower end, any employee choice must, by necessity, be limited.  Flex plans may also generate additional fixed charges such as a “per head” fee due to the system requirements and increased administration and communication costs of the Insurer.

What is a Health Spending Account (HSA)?

A Health Spending Account can, in a way, create a “flex” benefit for your employee group.  These are notional “bank accounts” an Employer would fund and make available to employees to reimburse uninsured expenses such as eyeglasses, deductibles, or extra massage therapy,  to name several.  Usually the accounts are small – say $300 to $500 per year for each employee – but they  help offset expenses and can provide an element of flexibility for employees.  An H.S.A. will always be welcomed by the employees, but good communication is needed to ensure it is not misunderstood.  A small H.S.A. doesn’t go very far either.  While many employers will cancel their Vision Benefit and more elective elements such as massage and chiropractor, this may not free up enough premium to entirely “pay for” implementing the Health Spending Account in its place.  Since this is an expense which must be borne entirely by the employer (no cost sharing with the employee) you will need to rearrange your other payroll deductions, if applicable.  On the positive side, an HSA will be successful in freezing at least one element of your total Insurance cost as this changes the focus from a defined benefit to a defined contribution type of arrangement.

On our next blog, we will discuss Administrative-Services-Only (ASO) Accounting as alternate underwriting methods to consider.