Many HR professionals continue to stare down a double-barreled challenge of rising costs and employee expectations for benefits that address individual needs.
When the concept of flexible benefits first found its way into Canada from the U.S. in the early 1980s, it held out a tantalizing promise: greater control over escalating health-care costs, and an enhanced ability to meet the changing benefit needs of employees with increasingly diverse lifestyles and preferences.
After a slow start, flex began to spread widely and now appears in some form or other in approximately 40 per cent of benefit plans. Even the opportunity for employees to elect additional amounts of optional life coverage is a type of flexible benefit.
THE COMPLEXITY OF CHOICE
With choice inevitably comes the complications of complexity. Insurer-provided benefits, such as life and health coverage, may be only part of an overall flexible benefits program with a plan sponsor offering other benefits such as additional vacation, legal services, non-occupational education support and fitness club memberships.
Together they play a role in fulfilling the larger responsibility assumed by the plan sponsor to present an integrated total compensation picture to the workforce that encompasses, in addition to the life, health and other benefits, such elements as salary, incentives, statutory benefits and retirement benefits.
Given the total compensation that employers are managing, the complexity of offering, recording, confirming and administering plan member choices on insured benefits is certainly one of the reasons more sponsors have not yet opted for flex.
With dedicated human resources and/or benefits professionals on staff, larger organizations are generally better equipped to work through these challenges than smaller or mid-sized groups. They may also have access to consulting organizations with particular expertise in advising on the issues related to flexible benefits.
THE COMMUNICATIONS IMPERATIVE
An oft-cited concern about flexible benefits programs that has held them back from greater prevalence in the marketplace is the need to communicate more effectively and on an on-going basis to employees about their benefits than is the case with traditional plans. In addition to introducing the whole concept of flex to employees, a structured communications initiative must prepare them to make important choices about parts of their compensation that they may have never given much thought.
Different plan designs, the mechanics of flex credits, cost implications of selecting particular options, the operation of health spending accounts (if included), the administration related to employees being active decision-makers in their benefits, the issue of annual re-enrollments, the list goes on, but all must be communicated to employees through a variety of media both before and after the implementation of a flex program.
The communication channels are not limited to printed bulletins and e-mails; they also include the verbal interactions employees have with plan administrators, as well as the quality of customer service that employees receive.
Additionally, employees must have some understanding of government benefit plans, spousal group benefit programs and any individual benefit plans in which they participate if they are to co-ordinate benefits and maximize the opportunities presented through a flex program. Although there is an effort in building such awareness, it brings an important advantage: it fosters in employees a greater awareness of their benefit plans and the costs associated with them.
Should a plan sponsor develop a customized communications program about flex? Or should it be outsourced to a third party? Although the right answer depends on many factors, chief among them would be the internal expertise and resources available in the plan sponsor’s organization and the general level of benefits knowledge in the employee population. The availability of resources through the insurer is also an important factor in terms of what the plan sponsor will be responsible for.
MOTIVATION FOR BENEFITS
The motivation behind an employer’s decision to offer benefits in the first place is another element that influences the jump to flex. There is a larger environmental consideration to which some employers are responding: in the face of mounting financial pressures on the public and private sectors to deliver services more efficiently, Canadians are demanding benefit solutions that address individual health issues as they feel that health intervention should be as much about improving health as about treating disease. How an employer responds to that challenge goes to the heart of the organization’s benefits philosophy.
Employers should ask themselves: Are you providing a benefits package out of the necessity to stay competitive, with little thought about employee preferences? Or, does your benefit plan take into consideration the individual and diverse needs of your workforce, with a willingness to include non-traditional offerings?
The employer with the latter philosophy is much more likely to make the investments in time and capital required with a flexible benefits approach.
Regardless of whether the choice is for traditional or flex, the employer still must ensure that the benefits program is an integrated component of a total compensation program that responds to the strategic objectives of the organization.
CONSULTANTS AND KNOWLEDGE TRANSFER
Given the attendant challenges of implementing flex, plan advisors are not always convinced of the ultimate value of flex to their clients. They may have legitimate concerns about the increased dependency of plan sponsors on support. Certainly, knowledge and the transfer of that knowledge from advisor to sponsor is an issue.
At a minimum, the advisor needs a mature understanding of the implications and intricacies of flexible benefits in order to play a leading role in educating the plan sponsor about the challenges that come with any switch to flex; more importantly, it is the advisor’s role to ensure that the plan sponsor’s objectives will be met with a flex program.
While some advisors are highly expert in this role, others may have had less opportunity to respond to flex and, accordingly, be less enthusiastic about recommending such a radical departure from the current program.
SERVICE OFFERINGS AND SYSTEMS
The industry itself has not been quick off the mark with the delivery mechanisms and supporting systems necessary to earning a wider acceptance for flexible benefits. The lack of standardized service offerings, packaging such elements as member elections and enrolment, confirmations, annual re-enrolments, communications and member changes, has arguably been a barrier to the growth of flex, particularly for smaller and mid-sized groups.
Unlike so many products in the banking and financial services sectors, flex — and especially its critical service components — has not yet attained the highly structured form necessary for it to be adopted easily by more plan sponsors.
The need for more efficient administration systems has also presented another barrier. Although the quality of numerous insurers’ flex administration systems is variable, the future may be brighter for flex as more insurers implement sophisticated and integrated Web-based systems, or outsource such services to a limited number of third-party specialists.
With administration duties concentrated in fewer hands, the industry can likely anticipate the development of more sophisticated systems that can do justice to flex. Several third-party administrators offer these services directly to the plan sponsor and do not depend on the insurer to provide enrolment services but rather only to support the plan design from a claims administration perspective.
The rising interest in the health spending account (HSA) has also served to supplant, in some instances, the need for full flexible benefits. While the HSA was originally conceived of as a component of a flexible benefits program, many employers are finding that the traditional plan with an employer-funded HSA balance to be used at the discretion of the employee on eligible health-related expenses is all they need to provide employees with an expanded range of tax-effective benefits.
THE FUTURE
Until the administration and communication efforts necessary for flexible benefits program edge closer to a commodity orientation, flex will continue to be more prevalent in large organizations than in smaller groups. But demographic trends and the clear desire of Canadian employees for access to a wider range of tax-effective benefits will push the industry toward more flexible and innovative forms of benefits and compensation.
There is also a significant transformation taking place in the Canadian health-care marketplace. As the private sector is pressured to deliver more services more efficiently this same pressure is forcing the plan sponsor off centre stage as the decision-maker on benefits and into the wings as an advisory resource.
In this new setting, employees can expect to purchase credible individual benefits from a wide range of offerings in a group environment. It’s worth noting that in order to facilitate these benefit transactions in a tax-effective manner, a flexible benefits program or some variation on it will have to be in their future.
Ashim Khemani is senior vice-president, group markets with Toronto-based Liberty Health. He can be reached at [email protected] or www.coverme.com.
After a slow start, flex began to spread widely and now appears in some form or other in approximately 40 per cent of benefit plans. Even the opportunity for employees to elect additional amounts of optional life coverage is a type of flexible benefit.
THE COMPLEXITY OF CHOICE
With choice inevitably comes the complications of complexity. Insurer-provided benefits, such as life and health coverage, may be only part of an overall flexible benefits program with a plan sponsor offering other benefits such as additional vacation, legal services, non-occupational education support and fitness club memberships.
Together they play a role in fulfilling the larger responsibility assumed by the plan sponsor to present an integrated total compensation picture to the workforce that encompasses, in addition to the life, health and other benefits, such elements as salary, incentives, statutory benefits and retirement benefits.
Given the total compensation that employers are managing, the complexity of offering, recording, confirming and administering plan member choices on insured benefits is certainly one of the reasons more sponsors have not yet opted for flex.
With dedicated human resources and/or benefits professionals on staff, larger organizations are generally better equipped to work through these challenges than smaller or mid-sized groups. They may also have access to consulting organizations with particular expertise in advising on the issues related to flexible benefits.
THE COMMUNICATIONS IMPERATIVE
An oft-cited concern about flexible benefits programs that has held them back from greater prevalence in the marketplace is the need to communicate more effectively and on an on-going basis to employees about their benefits than is the case with traditional plans. In addition to introducing the whole concept of flex to employees, a structured communications initiative must prepare them to make important choices about parts of their compensation that they may have never given much thought.
Different plan designs, the mechanics of flex credits, cost implications of selecting particular options, the operation of health spending accounts (if included), the administration related to employees being active decision-makers in their benefits, the issue of annual re-enrollments, the list goes on, but all must be communicated to employees through a variety of media both before and after the implementation of a flex program.
The communication channels are not limited to printed bulletins and e-mails; they also include the verbal interactions employees have with plan administrators, as well as the quality of customer service that employees receive.
Additionally, employees must have some understanding of government benefit plans, spousal group benefit programs and any individual benefit plans in which they participate if they are to co-ordinate benefits and maximize the opportunities presented through a flex program. Although there is an effort in building such awareness, it brings an important advantage: it fosters in employees a greater awareness of their benefit plans and the costs associated with them.
Should a plan sponsor develop a customized communications program about flex? Or should it be outsourced to a third party? Although the right answer depends on many factors, chief among them would be the internal expertise and resources available in the plan sponsor’s organization and the general level of benefits knowledge in the employee population. The availability of resources through the insurer is also an important factor in terms of what the plan sponsor will be responsible for.
MOTIVATION FOR BENEFITS
The motivation behind an employer’s decision to offer benefits in the first place is another element that influences the jump to flex. There is a larger environmental consideration to which some employers are responding: in the face of mounting financial pressures on the public and private sectors to deliver services more efficiently, Canadians are demanding benefit solutions that address individual health issues as they feel that health intervention should be as much about improving health as about treating disease. How an employer responds to that challenge goes to the heart of the organization’s benefits philosophy.
Employers should ask themselves: Are you providing a benefits package out of the necessity to stay competitive, with little thought about employee preferences? Or, does your benefit plan take into consideration the individual and diverse needs of your workforce, with a willingness to include non-traditional offerings?
The employer with the latter philosophy is much more likely to make the investments in time and capital required with a flexible benefits approach.
Regardless of whether the choice is for traditional or flex, the employer still must ensure that the benefits program is an integrated component of a total compensation program that responds to the strategic objectives of the organization.
CONSULTANTS AND KNOWLEDGE TRANSFER
Given the attendant challenges of implementing flex, plan advisors are not always convinced of the ultimate value of flex to their clients. They may have legitimate concerns about the increased dependency of plan sponsors on support. Certainly, knowledge and the transfer of that knowledge from advisor to sponsor is an issue.
At a minimum, the advisor needs a mature understanding of the implications and intricacies of flexible benefits in order to play a leading role in educating the plan sponsor about the challenges that come with any switch to flex; more importantly, it is the advisor’s role to ensure that the plan sponsor’s objectives will be met with a flex program.
While some advisors are highly expert in this role, others may have had less opportunity to respond to flex and, accordingly, be less enthusiastic about recommending such a radical departure from the current program.
SERVICE OFFERINGS AND SYSTEMS
The industry itself has not been quick off the mark with the delivery mechanisms and supporting systems necessary to earning a wider acceptance for flexible benefits. The lack of standardized service offerings, packaging such elements as member elections and enrolment, confirmations, annual re-enrolments, communications and member changes, has arguably been a barrier to the growth of flex, particularly for smaller and mid-sized groups.
Unlike so many products in the banking and financial services sectors, flex — and especially its critical service components — has not yet attained the highly structured form necessary for it to be adopted easily by more plan sponsors.
The need for more efficient administration systems has also presented another barrier. Although the quality of numerous insurers’ flex administration systems is variable, the future may be brighter for flex as more insurers implement sophisticated and integrated Web-based systems, or outsource such services to a limited number of third-party specialists.
With administration duties concentrated in fewer hands, the industry can likely anticipate the development of more sophisticated systems that can do justice to flex. Several third-party administrators offer these services directly to the plan sponsor and do not depend on the insurer to provide enrolment services but rather only to support the plan design from a claims administration perspective.
The rising interest in the health spending account (HSA) has also served to supplant, in some instances, the need for full flexible benefits. While the HSA was originally conceived of as a component of a flexible benefits program, many employers are finding that the traditional plan with an employer-funded HSA balance to be used at the discretion of the employee on eligible health-related expenses is all they need to provide employees with an expanded range of tax-effective benefits.
THE FUTURE
Until the administration and communication efforts necessary for flexible benefits program edge closer to a commodity orientation, flex will continue to be more prevalent in large organizations than in smaller groups. But demographic trends and the clear desire of Canadian employees for access to a wider range of tax-effective benefits will push the industry toward more flexible and innovative forms of benefits and compensation.
There is also a significant transformation taking place in the Canadian health-care marketplace. As the private sector is pressured to deliver more services more efficiently this same pressure is forcing the plan sponsor off centre stage as the decision-maker on benefits and into the wings as an advisory resource.
In this new setting, employees can expect to purchase credible individual benefits from a wide range of offerings in a group environment. It’s worth noting that in order to facilitate these benefit transactions in a tax-effective manner, a flexible benefits program or some variation on it will have to be in their future.
Ashim Khemani is senior vice-president, group markets with Toronto-based Liberty Health. He can be reached at [email protected] or www.coverme.com.
