© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the September 2005 edition of BENEFITS CANADA magazine.
Benefits Trends: Boosting flexibility
Flex plans are catching on with employers who are looking to provide benefits choice—at a reduced cost. But even flex could be more flexible.
By Anna Sharratt

FLEX EQUALS SUCCESS, RIGHT? A NEW STUDY FROM HEWITT Associates certainly shows employers think so. Of the 200 Canadian employers it polled for its July survey, 52% currently offer or plan to offer flex plans in the next two years. And another 33% plan to offer them in the future. Respondents point to the positives flex plans can yield: an increase in staff retention and containment of rising benefits costs. It seems to be a win-win situation.

But consultants caution that the road to flex can be fraught with challenges. They warn of administrative hurdles, hidden costs, communication issues and anti-selection. “In a perfect world, flex plans are great,” says Mike Trowell, consultant with Comprehensive Benefit Solutions in Mississauga, Ont. “But in reality, there are a lot of negatives that go along with them. Companies find themselves overrun with administrative problems and constantly keeping on top of the plan, making changes and also informing employees of what they need to be aware of. “

Todd McLean, a partner with Eckler Partners in Toronto agrees. “I think that, inevitably, plan sponsors tend to underestimate how much work [flex benefits] are because there are a lot of moving parts to them.”

Trowell says one surprise is often members’ selections. Many sponsors offer three benefits plan options: Plans A, B and C. But the majority of members end up in one plan. “So it makes you think—is it worthwhile implementing a flex care plan if only 20% of employees are picking different plans?” he says.

Additionally, members choose the plan they know they will use most to save themselves money. This creates anti-selection—the process by which a member selects a plan based on the knowledge they will have higher-than-average claims.

Trowell advocates what his firms calls “pseudo flex”—taking the best that flex has to offer and eliminating its downsides. Step one is to survey employees on their needs before creating the plan and to design one based on the findings. He says the option to make future changes to the plan is still open to sponsors. But the administrative costs of setting up three plans are eliminated.

Another option is to employ health spending accounts(HSAs) as a cost-containment component of a flex plan. HSAs are benefit spending accounts, in which an employer annually puts aside a set amount of money for each employee, leaving the decision of how to spend it up to the member. The money can be used for a predetermined list of services, such as vision care, prescription drugs, dental care and massage therapy. That way, the employer knows how much money to budget annually for benefits costs and plan members have the flexibility to spend it as they choose. Though the concept isn’t a new one, it has been slow to catch on in Canada. “The interest in them is very high but the implementation of them is something different,” says Trowell.

One attractive aspect of HSAs is their predictability. McLean says that, should provincial governments offload health expenses to sponsors, “an HSA is a good way to cover off those expenses without increasing the plan sponsor’s costs.” He adds HSAs are simple to administer and easy for members to understand.

Will there be increased flexibility around benefits plans down the road? The answer depends on whether sponsors will feel more comfortable paying higher prices for their benefits in traditional flex plans or letting their employees make their own benefits choices using HSAs. “I think it’s a bit of an evolution,” says McLean. “Employers were a bit nervous to let employees make benefits decisions. Now, they’re much more used to the idea.”

Anna Sharratt is managing editor of BENEFITS CANADA.