Any do-it-yourself handyman’s toolbox isn’t complete without a roll a flexible multi-purpose cloth adhesive that has unlimited uses — a.k.a. duct tape. It’s been used for everything from repairing cracked tailpipes to preventing blisters and removing warts (it’s true). Comedian Jeff Foxworthy once said, “If you can’t fix it with duct tape, it’s broken.”
Some of the most common benefits plan complaints employers hear from their employees is there’s not enough coverage for things like paramedical practitioners, vision care and orthodontics. With limited budgets, employers considering improvements often struggle to decide which plan enhancements will deliver the most value to employees. Plus, enhancing any, or all, of these coverages doesn’t deliver additional value to employees who don’t use them.
Employers looking to improve some of their benefits plan’s shortcomings, while adding flexibility and value for all employees, need look no further than a health-care spending account. The accounts are sort of like duct tape for your benefits plan — an easy to implement, all-in-one solution to help address employee concerns with their benefits plan.
Think of health-care spending accounts as a bank account for employees, which can be used to reimburse medical and dental expenses either not fully covered, or not covered at all, by an employee group benefits program — usually anything the Canada Revenue Agency deems an eligible medical expense tax credit. Health-care spending accounts are employer-funded and non-taxable to employees like medical and dental benefits (except in Quebec where it is subject to provincial taxes).
So, how much should employers give employees? The accounts can range from a few hundred dollars to several thousand dollars per employee per year. There’s no magic formula for determining the right amount but employers should consider a number of factors, including need, competitiveness and budget. It should be a meaningful amount, so about $300 would be considered an absolute minimum, which is also the minimum requirement of some insurers. Amounts are often the same for all employees, but can differ by family status, job class, business unit, location and tenure.
Employers who aren’t able to increase their benefits budget by $300 or more per employee per year, could consider funding, or partially funding, a health-care spending account through reductions to other benefits. This is easier to achieve if your benefits program is very competitive, providing high levels of coverage for most benefits, but much more challenging if your benefits program is well below median. Reducing coinsurance from 100 per cent to 90 per cent or 80 per cent, adding deductibles and or making other cost-management changes may generate enough savings to fund or partially fund a health-care spending account. However, while a trade-off for a health-care spending account in exchange for reduced medical and dental coverage may appeal to some employees, others may not view it as an improvement. While most employees may like the idea of a flexible perk like a health-care spending account, if it requires a substantial trade-off, more often than not, the majority of employees are going to prefer to keep what they have.
Although enhancing employee value is usually the primary reason employers want to implement a health-care spending account, it’s not the only reason. They can be an effective part of a long-term cost management strategy. For plans that cover most medical and dental expenses at 100 per cent, reducing co-insurance to increase employee cost-sharing and “consumerism” at the point-of-purchase can help curb inflation. Replacing defined-benefits type coverage that’s subject to annual trends with defined-contribution type coverage, such as a health-care spending account, will likely help bend the inflation cost curve for employers.
While implementing a new spending account for employees is certainly more complex, than say repairing something with duct tape, it’s one of the easiest ways to improve flexibility and value for your employees — plus it help manage costs.
Kenneth MacDonald is associate vice-president, national accounts, for HUB International Ltd. These are the views of the author and not necessarily those of Benefits Canada.