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Guide to Understanding a Modern Flexible Benefits Plan

Today’s workforce is more diverse than it’s ever been. As a result, it’s increasingly difficult for plan sponsors to ensure their group benefit plans meet the individual needs of their populations, and are valued by their plan members – especially with the cost pressures of running a business in today’s environment.

Adding a level of flexibility can address both of these issues by allowing plan members to direct their benefit dollars to where they need them most, without increasing plan sponsors’ costs. It’s a win-win.  

Examples of flexible benefit plans include:

Optional coverage

Optional coverage provides plan members the opportunity to purchase additional coverage that suits their needs—at no cost to the plan sponsor. These products are provided at discounted rates in most cases (e.g., optional life, optional accidental death, and dismemberment, (AD&D) and optional critical illness).

Health spending accounts or personal spending accounts

Spending accounts add a layer of flexibility for plan members by allowing them to direct the account allocations to the coverage they value most, without adding complicated administration.

Modular flexible benefit plans

This can include a type of flexible benefits plan that offers pre-packaged bundles. In general, the packages incorporate health and dental benefits and allow plan sponsors to offer flexibility without the administrative burden of more complicated flexible benefit plans. Offering pre-packaged bundles can also address some anti-selection risk, in which individuals tend to make coverage choices most favorable to them but more costly to the plan sponsor, which can end up increasing the cost of the plan.

Core plus flexible benefit plans

Another type of flexible benefits plan is one in which plan members are offered core coverage and credits to buy up coverage. Core options generally include base coverage for benefits that may be considered catastrophic in nature, such as life insurance, AD&D, disability benefits, prescription drug benefits, out-of-country coverage, and basic dental services. Buy-up options would generally include additional perks such as additional life insurance coverage, higher replacement ratio or inflation options for disability, and higher maximums on expenses such as paramedical or vision care.. Buy-up options typically include some form of contribution from plan members.

Cafeteria-type flexible benefit plans

This is a type of flexible benefits plan where plan members are offered credits they can apply to  a variety of coverage types which include life, disability, medical, and dental along with options outside of normal offerings such as legal services, pet insurance, elder care, day care, or even home and auto insurance.

Economic downturns, diversified workforces, evolving needs of plan members, and competitive international job markets are forcing HR professionals and plan sponsors to get creative and become more flexible. The good news is that options exist and there are more tools available than ever before. In our next post, we’ll be sharing key factors to consider when offering a flexible benefits plan.

People Corporation is pleased to work with the International Foundation of Employee Benefit Plans. You can find an expanded version of this blog post and more in their May/June 2020 issue of Plans  & Trust magazine.
Colleen Baker is the Vice President of Enterprise Solutions at People Corporation.

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