Flex Benefit Plans
What are Flexible Benefit Plans?
Traditional Group Insurance plans developed in the 1960’s and remained relatively unchanged for thirty years. They provide the same coverage to all employees, usually on a compulsory basis. They offer the advantages of equal benefits for all staff, relatively simple administration, they are easy for employees to understand and offer the lowest cost possible. The disadvantage is that employees vary widely in their use of the plan and therefore the value they place on it.
Flexible Benefit Plans developed in the late 1980’s with the basic purpose of providing greater choice to the employees. This allows the individual to tailor their coverage to their own specific needs. Employees can re-direct the benefit dollars to the benefit they will use. This limits the subsidization factor of traditional plans and allows a more equal use of benefit dollars by each employee.
Why should an Employer be interested in Flex?
Employers most interested in Flexible Benefits are typically:
- Those who wish to be seen as a progressive employer
- Those trying to attract bright young talent who want more control over benefit choices
- Those trying to address the different and evolving needs of young families
- Those responding to employee demands for more choice
Currently, Flex Plans make up roughly 20% to 30% of all plans. Flex plans allow employees to choose benefits that are relevant to their needs and goals. They allow employees to:
- Make tax effective choices to save money and provide better benefits
- Coordinate with spousal coverage ensuring ultimate use of flex credits
- Use credits to fund other benefit choices that may be more important to them, such as Health Care Spending Accounts, RRSP contributions, personal and professional growth opportunities or to buy additional credits to optimize their benefits plan by either payroll deduction or selling vacation days
What are the Factors Discouraging Flex?
There are a number of considerations to be dealt with in determining if Flex is right for you. Employers who go with Flex must be aware of the following:
- As choice increases, so do your costs. Flex plans can cost more, up to 30% to 50% over Traditional Plans.
- Communication is the key to success. Employers must be willing to commit significant resources to promoting and explaining the plan.
- Employees with families may consider that flex plans provide single employees a better level of coverage where as the reverse is true for Traditional Plans.
- Ongoing administration will be more onerous for the employer.
- With some types of Flex, employees can delete some benefits to significantly "load-up" on others. Some may make poor choices, leaving them vulnerable to financial hardship.
These issues will arise for all employers implementing Flex Plans. In many cases they can be dealt with effectively if a strategy is put in place.
ENCOMPASS will work hard with your organization to ensure we have as smooth of a transition as possible.
Types of Flexible Benefit Plans:
When the term Flex Plan is used, most people think about a cafeteria style program where employees choose the benefits they want and discard the rest. In fact, there are relatively few cafeteria plans in existence. Most Flexible Benefit Plans represent a compromise between Traditional and Flex plans that seek to increase choice but limit the potential downsides.
There are four basic types of Flexible Benefit Plans that are available to you:
1. Cafeteria Plans: (usually embraced by very large employers)
This is the option with the greatest choice given to employees and potentially the greatest cost to the employer. Employees are each assigned a number of “Flex Credits” that can be used to purchase coverage. The employee designs their own plan based on their needs and the number of credits available. Often a minimum option is assigned for each benefit. This is particularly important for Life and Disability benefits.
Generally, this type of plan is 100% employer paid (although employees may pay for the disability coverage). Communicating this plan is key and will require a substantial investment in time and systems to be successful.
2. Core Plus Plans:
This approach provides a compulsory level of coverage for key benefits; usually Life, Disability and Catastrophic Health coverage. In addition, there will be additional levels of coverage that the employee can purchase and pay a percentage of the cost. This approach provides choice and allows employees to purchase additional coverage at a subsidized cost.
3. Traditional Plan with Flexible Options:
Many employers prefer to keep the traditional plan design but add options for employees to either purchase more coverage at group rates or have a “bank account” of dollars to use on health/dental expenses or other options such as Critical Illness insurance, additional Accidental Death insurance of a Health Spending Account.
4. Modular Plans:
Modular plans are the simplest kind of flex plan. In this type of plan, flex dollars are assigned by the employer and the employee would choose from normally three modules with different plan designs and different price tags. Any extra credits could be used in an HSA, RRSP, or any of the other options discussed previously.