Spending Accounts are the New Flexible Benefits

By Dan Eisner, Employee Benefits Advisor

Employees have always wanted choice and flexibility in their employee benefits programs, but it has not always been easy to provide that, until now. The need for employee choice and flexibility has never been greater, driven by the diverse and evolving needs of a multi-generational workforce and the growing importance of supporting Diversity, Equity and Inclusion initiatives.

There are various types of flexible benefits programs. Examples include: full cafeteria, core plus options, and modular flex programs. These flex programs have been around for the past 30 to 40 years, and there really hasn’t been much new in terms of their design and administration. Surprisingly, the proportion of organizations offering flexible benefits plans has not changed much (based on research from Signal49 Research, formerly The Conference Board of Canada):

• 2015 – 29% of organizations offer employees a flexible benefits plan, with nearly two thirds of those offering a core plus options plan and 22% of those plans offering modular plans
• 2019 – 30% of organizations offer employees a flexible benefits plan, with 56% of those offering a core plus options plan and 38% of those plans offering modular plans
• 2026 – More than one in five organizations offer modular and flex options for most extended health and dental items

This naturally raises the question: why haven't more plan sponsors embraced greater choice and flexibility to employees within their benefits programs? Based on my 25 years of experience in the employee benefits industry, I would like to offer some insights:

• First, flexible benefits programs are mostly offered by larger organizations and public sector organizations, where the relatively higher administration and communications costs of those programs can be spread over a larger base of employees.
• Second, there is a significant amount of time, energy and resources needed to manage these programs, particularly around the additional employee communications and administration requirements of flexible benefits programs.
• Third, plan sponsors who have offered flexible benefits often express frustration about employees having choice and flexibility, but few making any meaningful changes from year to year.
• Last, flexible benefits programs typically require additional support from advisors, which involves additional costs.

A lot has changed in recent years and there is a new type of flexible benefits program. The increased prevalence of both Health Spending Accounts (HSAs) and Wellness Spending Accounts (WSAs) over the past five years seems to support a simpler model for employee choice and flexibility. By attaching these types of programs to a traditional employee benefits plan, employees achieve greater flexibility without the need for complex plan administration and costly communications. As well, some specialty providers in the market have enhanced the employee experience via well-developed employee websites and apps. Unlike with traditional flexible benefits programs, the proportion of organizations offering spending account plans has been increasing (based on research from Signal49 Research, formerly The Conference Board of Canada):

• 2015 – Approximately 26% offer an HSA in connection with a traditional benefits plan, 27% as part of a flexible benefits plan, and 5% on a stand-alone basis (no data available on WSAs)
• 2019 – Approximately 31% of organizations offer an HSA in connection with a traditional benefits plan, 25% as part of a flexible benefits plan, and 6% on a stand-alone basis (no data available on WSAs)
• 2026 – Nearly seven in ten organizations (69.5%) offer an HSA, either as part of a flexible benefits plan (35.7%) or as a stand-alone plan (33.8%), and WSAs are offered by 31.4% of organizations

Building on the increased prevalence of spending accounts, why not move beyond HSAs and WSAs? The advent of Flexible Spending Accounts (FSAs) has provided further choice and flexibility that employees truly value and appreciate. Employees have the ability to allocate their annual credits between either or both of their HSA and WSA, and to change those allocations from year to year as their needs change. Where employees have additional coverage through a spouse’s benefits plan, they can further customize their choices based on their available dual coverage. For healthy employees, those who rarely take advantage of their HSAs given that they often have limited claims, they can allocate their credits to their WSA to support them in staying healthy and well.

Welcome to a new age of flexible benefits where the programs are simpler and easier for employees to understand and coordinate with their changing personal needs. Incidentally, the programs are also simpler and less costly for the plan sponsor to manage! Truly a win-win situation for both employers and employees when it comes to choice and flexibility in employee benefits programs.

Should you have any questions about the above, please do not hesitate to contact me or any member of our team at ZLC Employee Benefits Solutions.

Most employee benefits advisors come from an insurance background, but Dan Eisner began his career as a CPA and now he has almost 25 years’ experience in the group benefits industry. This unique experience allows him to:

• Challenge the norms and historical practices in the employee benefits industry
• Facilitate better discussions between HR and Finance professionals
• Analyze benefits plans through a financial and risk-management lens
• Support CFOs and Finance teams with cost forecasting and sustainability modeling
• Align employee benefits strategy with long-term corporate goals and HR strategies
• Leverage the most experienced team in the industry at ZLC Employee Benefits Solutions

ZLC Employee Benefits Solutions is one of the fastest growing advisors for employee benefits and group retirement programs in Vancouver and we are fortunate to have the best people, resources, and clients. We provide value by leveraging one of the most skilled benefits teams – collectively over 500 years of experience within our team of 23 employee benefits specialists. We have been working with businesses ranging from 3 to over 75,000 plan members for over 40 years.