Employers with flexible benefit plans already in place are unanimousthat, if given the opportunity to reconsider, they would implement aflex program again. Clearly, flex is alive and very well in Canada. Why, then,have some suggested that flexible benefit programs have run theircourse?
Reports of the death of flex have been greatly exaggerated.
At least that’s according to the 194 Canadian employers that participated in a recent Centre Associates survey entitled, Flex-ability: Employer Attitudes to Flexible Benefits. According to the findings, 41 per cent of Canadian employers already had a flex plan, that is: a benefit program that allows participants to control how some of the benefit expenditures are spent, in place*. This is a marked increase over the number of firms with flex even just five years ago.
In addition, another 4 per cent of respondents to the 2005 survey were in the midst of implementing a flexible benefits plan, and 8 per cent anticipated implementing flex within two years. What was most noteworthy, however, as far as the longevity of flex is concerned, was the additional one-third of organizations that expected to implement a flexible benefits program at some point, though didn’t have a specific timeframe in mind. In total, 85 per cent of employers either have a flexible plan in place or expect to implement one at some point.
In addition to 85 per cent of these employers supporting flex plans, all of those with flex already in place were unanimous that, if given the opportunity to reconsider, they would implement a flexible benefit program again.
Clearly, flex is alive and very well in Canada. Why then have some suggested that flexible benefit programs have run their course? The issue is partly one of semantics.
There is no question that the definition of flex has become broader over the years. When the first flex plan was implemented in Canada in 1984, it consisted of a Core Plus Options Plus Credits program as described below. In recent years, the range of flexible benefit plans that meet this definition has expanded considerably to include any of the following plans listed below. They range from “simplified flex”-any of the first three plans-to something more complex.
- Health spending accounts. In most provinces, users can receive tax-free reimbursement of health care expenses.
- Modular plan. This is an option in which several benefits are grouped together in a package and employees can choose between different packages. For example, life insurance, disability insurance, medical and dental coverage can be grouped together in three packages: high, medium and low. Employees can then choose the package or bundle that best suits them.
- Net pricing. These don’t use a credits-and-price-tag structure. Instead, employees are shown the net cost (equal to the price tags minus the credits of the full flex approach). If the net cost is positive, the employee pays the amount using payroll deductions. If, on the other hand, the cost is negative, the amount is normally deposited into a health spending account
- Core plus options plus credits plan. Under this model, employees can choose from a range of options in several benefit areas. The lowest option (core) may provide coverage in some benefit areas. Employees pay for options with employer-provided credits and/or payroll deductions. Credits can be used for a variety of benefits.
- Full flexible benefits. These combine a core plus options plus credits plan with a health spending account.Some might argue that a health spending account falls outside the traditional flex plan. While this is true, it does meet the definition of offering employees choice over how employer benefit dollars are spent. The simpler administration and communication requirements associated with a health spending account also afford more organizations-of all sizes-an opportunity to introduce an element of flexibility into their benefit programs.
Meeting changing needs
The very nature of flexible benefit programs only heightens their appeal in the face of both ever-increasing healthcare costs and changing workforce demographics.
As in previous years, Flex-ability survey respondents with flex plans indicated that the two main reasons to implement flex continue to be to better meet employee needs and to more effectively contain future benefit cost increases.
When it comes to meeting employee needs, plan sponsors are realizing success: a staggering 100 per cent of respondents with flex reported that flex is meeting or exceeding expectations around addressing employee needs. Given the increasing diversity of employees in terms of age, gender, ethnicity and lifestyle, the ability to provide a benefit program that appeals to a broad range of workers will only become more important.
While the two main reasons for providing flexible benefits haven’t changed, their priority has. For the first time since Centre Associates began conducting this survey, the perceived ability of flex to contain future benefit cost increases was considered to be the greater advantage than meeting diverse employee needs.
However, the level of satisfaction with flex as a cost containment measure was 78 per cent. Participants may not have been as adamant in their endorsement of flex as a means to contain costs due to the fact that many organizations-particularly those with fewer employees in their plans-still bear most of such increases.
Organizations with 1,000 or fewer employees in their flex plans indicated they are less likely to require employees to share any portion of cost increases: 30 per cent cover the entire increase themselves, as compared to 9 per cent for respondents with more than 1,000 employees in their plan. When employees are required to share the increase, plans covering more than 1,000 employees look to employees to pick up a larger portion: 42 per cent require employees to share half or more of the increase, as compared to 30 per cent of those respondents with fewer employees in their plan.
As costs continue to escalate, we may anticipate that there will be more sharing of increases. If that is the case, flex plans enable employers to shift some of the burden to employees with relative ease.
Flex in the future
Perspectives on the continued existence of flex may also vary depending on whom you talk to. Recent analysis of the prevalence of flexible benefits plans by industry indicates that manufacturers of personal products along with energy/oil companies have embraced flex programs wholeheartedly, with 75 per cent and 74 per cent of organizations in these sectors respectively offering flexible benefits. However, at the other end of the spectrum, hotel/real estate companies and universities are not currently big proponents of flex, with only 9 per cent of the former and 5 per cent of the latter providing flex plans.
It is also incumbent on employers that have flexible benefit programs to do a “scan of the plan” from time to time to see whether design modifications need to be made. The original objectives for introducing a flex plan may have changed-or changed priority. The make-up of the workforce may have altered, requiring some tweaks to coverage. If attraction and retention are issues, perhaps the organization will want to consider adding some innovative but cost-effective benefits as well. Advances in technology-particularly in the past few years-may well have resulted in more effective ways to administer and communicate flexible benefits. In short, before burying a flex plan that doesn’t meet current needs and objectives, consider resurrecting it by means of a “re-flex” revamp.
Flexible benefit programs have definitely changed over the last two decades. The fact that their metamorphosis has resulted in something so very different from the first flex programs does not mean that they are no longer a viable option. They are simply exhibiting the flexibility that made them attractive to employers from the start.
*Note: Our definition of flex excludes a benefits program where employees are allowed to choose only optional employee-paid benefits (i.e., optional life insurance).
Bob McKay is an actuary with Hewitt Associates. Bob is also the editor of the Canadian Handbook of Flexible Benefits. He can be reached at Bob.McKay@hewitt.com.