Spending accounts and cafeteria plans: how à la carte benefits work

Healthcare spending accounts

This article is based on research for our recent eGuide, How to create a benefits package.

We’ve already talked about the basic options available to small business owners when it comes to health insurance.

Today, we’re going to dive a little deeper into one of the plan types: spending accounts.

Though healthcare spending accounts (or HCSAs) are less well-known to employers (and employees, for that matter), they’re gaining a lot of traction.

Why? The ever-diversifying demographics of the workplace.

With workers ranging from 60-plus years old to as young as 21 or 22, health needs are very different from one employee to the next – and it’s hard to address all of them with a traditional plan.

In fact, according to the Sanofi Canada Healthcare Survey, only 53 per cent of employees feel that their health plan meets their needs extremely well or very well – and that number drops to 48 per cent with employees aged 55 to 64.

À la carte benefits to the rescue. Here’s what you need to know.

How HCSAs work

With healthcare spending accounts, employees are essentially allocated a pre-determined amount of money to cover their medical and dental needs.

Employees can then pick and choose from a variety of health benefits, including dental, drug coverage, massage, and so on. HCSAs can alternatively be used to supplement standard health insurance with additional, more flexible options.

HCSAs are usually still tax deductible, as with traditional plans, and are offered through a third-party insurance provider.

In many cases, employees simply submit their claims and are reimbursed as with any traditional health insurance plan. With some newer providers, employees use an app or website to do paperless claims with near-instant reimbursement.

How HCSAs benefit employers

A more flexible spending account allows workers to spend their benefits on what they need, and not waste coverage on things they don’t.

But healthcare spending accounts can also be more cost-effective for small business owners. As opposed to a traditional plan where a company pays a premium per employee, and then pays a deductible on each claim, an HCSA lets you set your spending limit up front.

You’re basically just putting your benefits budget into a bank account, and then giving each employee access to a portion of it – which means less administration costs as well.

Companies can even fine-tune the coverage to each employee or tier – meaning, executives or specialized roles could get more than entry-level positions.

Whether you are using an HCSA as stand-alone coverage or supplementing a more traditional plan, it’s also a great way to entice top talent to your company.

The promise of more personalized, à la carte coverage is an attractive one. According to the Sanofi survey, 54 per cent of employees would prefer a flex plan to their traditional one.

Spending accounts for non-health benefits

While healthcare spending accounts relate solely to health-related offerings (hence the name), employers are bringing the same a la cart features to their entire suite of benefits.

This is sometimes called a “cafeteria plan” – employees are given access to a wide range of options that they can pick and choose from to create their own personalized benefits plan, based on a credits system or a monetary maximum.

It might include health benefits as part of the offerings, but it also might include RRSP contributions, a gym membership, or even the option to upgrade any of the previous benefits to a higher level of coverage.

Another way to offer flexible benefits is to supplement a traditional or HCSA plan with a “lifestyle spending account” which works in the same way as HCSAs, but offers employees a set amount of money to use toward their general wellness.

This might include yoga classes, art therapy, gym clothes, a bike purchase, health supplements – in general, anything that will improve the team’s overall wellbeing.

This is increasingly gaining popularity as employers recognize the importance of preventative health and wellness as a way to boost productivity and increase engagement – not to mention reduce dependency on health insurance. According to the Sanofi survey, 86 per cent of employees working in a company with a “wellness culture” are satisfied with their job.

The general idea behind all of these plans is to offer employees a more flexible approach to benefits. In doing so, you can expect to see turnover drop and engagement go up – and more top talent wanting to join your team.

For more on à la carte benefits, download our free eGuide, How to create a benefits package, today.

See also:
6 cool workplace wellness programs
Understanding small business health insurance


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