Health care costs have doubled over the past decade. With employees encouraged to stay in the workforce longer, coupled with rising health care costs, employers are increasingly looking at flexible benefits as a way to provide greater cost certainty. Selecting the benefit coverage that meet the needs of your family is key to getting the most out of your flex benefits, otherwise you could end up paying more for less coverage over traditional plans.
Type of Flex Plans
Flexible benefits typically come in two flavours – core-plus and modular. Core-plus provide a minimum level of coverage where employees purchase additional coverage, as required.
Modular plans allow employees to choose the level of benefit coverage based on their family structure – single, couple or family. Modular plans are popular because they are ideal for meeting the needs of a diverse workforce. Employees are provided with flex credits, typically based on a percentage of their base salary, plus a flat dollar amount based on their family structure to allocate to benefits – medical, dental, life and disability insurance – and their health spending account (HSA).
- Win-win situation for employers and employees. Employees select the benefits that matter most – this provides employers with greater cost certainty and eliminates the open-ended liability of traditional plans. Employees typically can allocate their excess flex credits to their HSA or receive taxable cash.
- Employees can pay their healthcare expenses in a tax-efficient manner through the convenience of payroll deduction.
- Employees can opt out or go with basic coverage if they are covered under their spouse’s benefits plan.
- Employees can allocate flex credits to their HSA and pay for benefits not covered under basic coverage (i.e. orthodontic coverage beyond lifetime limit or health expenses not covered by provincial health care).
- Perks like additional vacation days can sometimes be purchased with flex credits.
- Enrollment is conducted conveniently online.
- Eliminates the over-utilization of benefits since employees have a greater understanding of cost.
If you’re a young, healthy individual, flex benefits are a great way to select the benefits that meet your needs and receive the balance in cash. For example, a traditional benefit plan may only provide $3,000 lifetime orthodontic coverage, while with flex benefits, flex credits can be allocated to your HSA to cover the excess.
If you’re already covered under your spouse’s plan, you can opt out and use the flex benefits towards group life insurance, disability insurance or additional vacation days. Flex benefits are flexible – you can often use your current year’s HSA to cover expenses incurred in previous years.
- Enrollment period: Once a year you must select your coverage for the following year. Choose wisely, as you’re locked-in for a year or longer. Usually you can only make changes if you have a qualifying life event i.e. marriage or the birth of a child.
- Cost increases are passed onto employees – benefit coverage cost increases yearly, although flex credits may not increase at the same level.
- Deductible may be higher. Employees may have to pay expenses previously covered under traditional plans.
- Flex credits vary greatly from employer to employer.
- Remaining balance in HSA may be forfeited if not used by the end of the calendar year.
- Flex credits are based on base salary. Entry-level employees receive less flex credits than senior employees.
Flex benefits put the onus on employees to select their benefit coverage for the coming year. If you forget to enroll by the deadline or you’re on maternity leave, you may be locked into enhanced coverage and end up using all your flex credits on coverage you don’t need.
It’s important to find out about your flex credits – flex credits can vary from a paltry $400 to $3,000 or more per year. It’s crucial to plan your health benefits for the upcoming year. If you allocate $500 to your HSA and only use $300, $200 may be forfeited at the end of the year. Also, if you suddenly become ill, you may have insufficient coverage if you selected only basic and have to pay the rest out of pocket.
Flex benefits are only as good as the coverage provided by your employer. If you have a no-frills benefit plan with low flex credits, you’ll need to choose your coverage wisely. Since employees have no control whether their employer offers flex or traditional benefits, it all comes down to choosing the benefits that matter most. Coverage differs greatly for flex benefits from employer to employer, so speak with your human resources department to find out more.
Has your employer recently switched to flex benefits? Do you prefer flex benefits over traditional benefits? Do you still have the same level of coverage?
About the Author: Sean Cooper is a single, 20-something year old, first time home buyer located in Toronto. He has experience in the financial sector as a Pension Analyst, RESP administrator and Income Tax Preparer. He holds a Bachelor of Commerce in business management from Ryerson University. You can read some of his other articles here.