Putting the Flex in Flexible Spending Accounts

When contemplating what employee benefits look like in an organization, it’s common to envision a traditional model – plans provide a certain percentage of coverage for XYZ health services in different buckets up to a certain amount every year. Think dental care, prescription coverage, professional services such as massage and chiropractor, etc... 

These types of traditional benefits plans can certainly work well for large employee populations, but a smaller organization may find this model to be less cost efficient for a variety of reasons, from employee demographics to modest budgets. An alternative that I often like to explore with clients is a Flexible Spending Account (FSA). I’ve seen many clients run their employee benefits plan with only a Health Spending Account, and the FSA model is another option that can be quite attractive because, well, the name says it all – it’s flexible!

A Flexible Spending Account sets aside funds for employees to pay for a variety of qualifying expenses (such as prescriptions, medical supplies, dental care, dependent care, and more). The FSA provides significant flexibility for the employee to use the account in whatever way they choose. For example, if an employee has access to benefits coverage elsewhere, they can use the FSA for alternative costs in life like Peloton, childcare, pet care, or anything else that might help reduce expenses in their life.  

Beyond its great flexibility, there are several advantages to this type of benefit. It provides cost certainty to the employer as the account will never exceed the budget set in the plan. It’s also particularly valued in organizations with a younger employee demographic because it allows them to use the account toward only the benefits they are interested in. This can create a lot of goodwill in your workforce – employees will think of their employer every time they benefit from something that was covered by the FSA.

There are some constraints within this model to be aware of, including the absence of coverage for high-cost drugs, emergency travel expenses, and paycheck protection. So even if the coverage is generous, it could still potentially leave employees vulnerable to high-cost or catastrophic expenses.  The FSA may not stretch very far for an employee who has several dependents (if they have a big family, they might use all their coverage for critical health needs like the dentist, leaving them no access to other services). There are also tax implications to be aware of – this benefit could be taxable to employees compared to a traditional benefit plan which has some tax efficiencies.

If you are in an organization that’s operating only with a spending account, you might want to consider a few add-ons to fill these gaps that aren’t too expensive. Common add-ons could be anything from coverage for high-cost drugs and critical illness to emergency out of country coverage, life insurance, and disability.

There are many ways to get creative with a flexible spending account – and that’s kind of the point! It’s meant provide flexibility for both the employee and you, the employer. For example, employees can also purchase their own personal health and dental insurance, and those premiums can be reimbursed through the spending account.

Together, we can find the right fit and best solution for your people. Get in touch with Shannon and let’s take a deep dive into thinking strategically about your benefits plan. Has your organization outgrown the current model? What gaps could you be filling? Let’s talk about it.