Health Benefits in 2021
Have you heard the words “benefits are outdated” in recent years? It’s certainly a phrase we’ve heard thrown around that, as benefits consultants, can’t quite wrap our heads around. After all – when did staying healthy go out of fashion? After a deeper dig, we learned these sentiments largely stem from younger workers. Workers with conflicting priorities as they balance the struggle of rising living costs, worsened mental health, and a global pandemic.
Understandably, going to the dentist every six months tends to fall back on the list of priorities. Rather, young workers freshly graduated are struggling to compete with their peers in the job market. Their brains are far from how to pay for an RMT, and instead are wondering how they can save for a rainy day, live a healthy lifestyle, pick up a new hobby, continue learning and improving their skills, and eat a balanced diet. Somewhere along the way, Millennials and Gen Z (who now collectively account for 53% of the labour force), realized traditional employee benefits are no more useful than simply paying for the occasional expense out of pocket.
So what's the solution?
The frugal employer might do away with benefits altogether after hearing these sentiments. The savvy employer, on the other hand, understands benefits need to set a new precedent for improving quality of life. They understand to accommodate every need of a diverse workforce (and your workforce should be diverse!) would be very resource intensive. To think of how much data collection HR would require to satisfy every need of every person on their payroll? No. Or to simply choose benefits that satisfy some of the population but not others? Also not the right answer. No, the savvy employer chooses flexibility – they choose a health care spending account.
How Does a Health Care Spending Account Work?
Still not sold on flexible spending? Insurance can be complicated even for the best of benefit professionals, so let’s start with how an HSCA works. To start with the basics, an HCSA allows employees to choose how they allocate their health care dollars. Should an employee choose to spend on her daughter’s orthodontics, or an athlete on an RMT massage, they can choose. Two employees may have vastly different needs which fixed allocations of coverage fail to account for.
In other words, an HCSA is like a large pot of money, with a set amount available to each employee. The plan sponsor (the employer) determines the amount available to employees upon renewal. It covers various employee health care needs for employees or their dependents, and reduces waste of unused benefits. When an average benefits plan costs about 10% of payroll, or $9000, employers should hope that money is spent appropriately.
Healthcare Spending Accounts Benefit the Employer too
While all managers want the best for their people, the bottom line can’t be ignored. Thankfully, HCSAs are also flexible for the employer. Typically they come with no set amount. Rather, the amount in the pool of money depends on what the employer can afford monthly per employee. A good rule of thumb is to consider what coverage your organization already offers employees. From here, budget out what other expenses (that are not explicitly covered already) are likely to come up. (You could also just audit your plan with CloudAdvisors – then you don’t have to guess). Overall, the amount in an HCSA should contain enough to cover a meaningful expense. It should contain enough to make the HCSA worthwhile to implement.
What’s more – if your organization struggles to find the budget for set health benefits and flexible sums, a common option is to create a combination plan by trading off coverage levels. What does this mean? It means you might opt to cover 80% of dental rather than 100%, if it means you can give employees $300 to spend as they please. Again, health care spending accounts are flexible for the employer. Each provider will offer you a different plan at a different price. Each organization will have different levels of diversity with different health care priorities.
Tax Benefits for the Employer
Regardless of these differences, a health care spending account remains fully tax deductible for your business and employees receive the benefits 100% tax-free. This is particularly useful for small business owners, as you can save thousands through an HCSA when compared to health insurance or paying out of pocket. As with any business decision, weigh your alternatives, assess the costs involved, and read help articles like this one hoping it can make your decision for you. In case you’re particularly stumped, here’s some scenarios where a health care spending account might be the right choice for you:
Reasons to add an HSA
1. Your workforce varies largely in age.
A new mom, versus a recent graduate, versus someone a year from retirement will have very different health requests. While these milestones can be marked as different stages in life, they can more easily be summarized into the category of age. If your workforce happens to have a number of long time employees in addition to an influx of young hires, a health care spending account may be your best bet to keeping everyone happy. As employees age, surprise surgeries become a more frequent occurrence. Meanwhile, employees with a number of dependents may have specialized concerns in other areas. Whichever the case, age is a good qualifier of diversity in health needs.
2. You have a globalized workforce.
Do you have offices in various cities globally? For various reasons, small companies may employ workers remotely, which may present a problem in terms of benefits. Different countries come with a variety of cultures and values – some which may value the benefits you’ve chosen for them and other less so. While you can select certain benefits for your different offices, you can also elect for a health care spending account and let employees make those decisions themselves. Don’t let your benefits go to waste simply because you thought you knew what was best for employees – leave that decision up to them.
3. Your employees have requested more flexibility.
Did your employees ask you for a health care spending account? Is it within budget? If it’s within your goals to improve company culture and employee happiness, then abiding by the requests of your employees is within your best interest. If it’s been made known your employees are keen for more flexibility to their benefits, a health care spending account is an easy first step to make.
4. There have been numerous requests for plan updates.
Similarly, have you been made aware your plan is out of date? Your advisor (or CloudAdvisors benchmarking report) may have made you aware your current benefits plan is overdue for a revamp. In that case, opting for a health care spending account can help quickly bring your plan into 2021. While an HCSA should not be used as a band aid fix for a bad benefits plan – it’s a first step any company can take to make employees feel prioritized and appreciated.
5. You want to recruit competitively.
An often overlooked, though incredibly important piece in recruiting, is the competitiveness of your benefits plan. Companies that go above and beyond the bare minimum of dental and prescription coverage have found success in listing their benefits under their careers page to attract new recruits. If your company is struggling to find or retain better talent, start by looking to your benefits. Top talent knows they’re worth great benefits – and many won’t bother applying to a company that doesn’t appear to prioritize their staff’s wellbeing.
Final Thoughts
A health care spending account is a simple and affordable way to offer employees more flexibility in their working arrangements. It grants them more autonomy to make health care choices that are best for themselves and their dependants. Whether your goal is to recruit competitively, retain loyal employees, offer flexibility, or make employees feel appreciated – a health care spending account is a simple and affordable first step. As always, remember to consult your benefits advisor, check your CALEB insights with CloudAdvisors, and consult your employees first.
