Is a Flex plan right for your business?

June 13

When it comes to employee retention, it’s no secret that employee benefit plans are a crucial piece of the compensation package. After all, meeting the health and wellness needs of employees has become one of the most important aspects of businesses both large and small. If an employee doesn’t feel physically and psychologically supported at work, they are simply going to find employment elsewhere.

But understanding that every employee is different and has unique needs is essential to building an effective employee benefit plan. A one-size-fits-all approach to benefit plans is not as effective as it once was and doesn’t necessarily meet the needs of today’s multi-generational workforce. Instead, some employers are taking a more modern approach and moving towards offering “flexible” spending account benefit plans.

Two models of flex plans

Flexible benefit plans — or flex plans — come in two models, each of which give employees more control in creating a benefits plan that meets their unique needs. The concept behind these flex plans is that each employee is allocated a specific amount of benefit “money” to spend on the benefit options they believe they most need. With flex plans, the options are either grouped together in buckets (modular plans) or offered as a menu of choices (cafeteria plans). In both cases, employees who want benefits above and beyond the benefit “money” allotted to them can do so by paying the additional premiums out-of-pocket.

While flex plans give employees control over their health plans, they can come at a risk for employers, particularly smaller ones, because enough employees must choose each option to make the premiums financially viable for the business.

Large businesses with a lot of employees spread the risk around and prevent an imbalance of premiums versus claims in each flexible option, whereas smaller businesses do not. To make flex benefits a practical financial solution to employee benefit plans, a company should have more than 500 employees.

To achieve a similar amount of flexibility without the financial risk, companies with fewer than 500 employees should instead consider including Healthcare Spending Accounts in their employee benefit plans.

Healthcare Spending Accounts vs. flex plans

Like flex plans, Healthcare Spending Accounts offer benefit flexibility to employees to meet their unique needs. And like flex plans, every employee is allocated a fixed amount of benefit “money” to spend. However, unlike flex plans, claims submitted are simply deducted from the allocated benefit money up to the total dollar amount available, giving employees the freedom to choose exactly how they need to spend their health benefits money.  In most cases, the reimbursement of claim dollars is at 100% of the claim.  However, some plans allow for partial reimbursement (80%) so that the account is treated with some cost sharing.

One employee may need new prescription glasses and choose to go for monthly massages whereas another employee may not even wear glasses but may need dental work. With Healthcare Spending Accounts, each employee can make their own health benefit choices, using their allocated funds for only what is important to them.

The ability to choose comes with greater financial responsibility because employees directly connect the value of their benefits to you, their employer, and are more likely to be budget conscious with their allocated funds than they are with group benefits. Because when the pre-determined amount is gone, it’s gone.

For employees, Healthcare Spending Accounts provide freedom and choice, and for employers, Healthcare Spending Accounts provide financial certainty.

Hybrid employee benefit plans

While Healthcare Spending Accounts are an effective solution to giving employees the flexibility they desire, the best-designed employee benefit plans are the ones that combine aspects of both the old, one-size-fits-all approach and the new flexible-to-meet-unique-needs approach to doing things.

Hybrid plans combine Healthcare Spending Accounts with core insurance, disability and drug plans. These plans give employees the flexibility they want without having to take on the riskier items on their own. Those benefits are still well served under traditional model employee benefit plans.

Thorpe Benefits has been designing these hybrid type plans for clients for over a decade. They not only help attract new hires, but they encourage employees to remain loyal by boosting morale, job satisfaction and overall productivity. Learn what else makes great benefit plans great.

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