In today’s benefits marketplace, health care spending accounts (HCSA) are increasing in popularity. An HCSA is a predetermined amount of money set aside by an employer for employees to use toward eligible health and wellness expenses. Traditionally an HCSA has been used as a ‘top-up’ for a benefits plan. However, in recent years, more employers have been choosing to opt out of a traditional benefits program and into the idea of HCSAs to all employees in lieu of a more formal health plan.
The good news
HCSAs are usually funded entirely by the employer. Employees access the account when they have an eligible claim, and the funds are replenished each year. Employees can direct their dollars towards the services and supplies they use the most. This translates into flexibility at no additional cost to them. These expenses include popular paramedical services like massage, physiotherapy, and chiropractor visits.
The main advantage for employers, on the other hand, is the fixed capped cost in a standalone HCSA. The maximum amount that every employee can spend (plus applicable administration fees) is a known budgetary expense and easy for businesses to account for.
And the not-so-good news
The biggest drawback to a standalone HCSA is that is can cut off coverage for employees that may need it most. Implementing a maximum on the overall amount that employees can spend is a shift away from the fundamental reason that many employers offer benefits in the first place – to protect workers and their families.
Removing the actual ‘insurance’ portion of a benefits plan transfers the potentially devastating impacts of an unexpected life event on employees. Death, disability, critical illness, or high-cost health claims can be costly without proper coverage. Should they choose to purchase their own insurance, employees run into the risk of not being able to secure coverage in cases of a pre-existing condition or being charged a higher rate than what an employer could obtain through a group plan.
A happy medium?
There are benefits and drawbacks to simply offering a standalone HCSA to employees. The potential loss of core risk coverage is the primary reason why HCSAs are commonly implemented as a top-up to more traditional offerings.
How do you find a solution that works for you? Talk to your employees about which benefits they would like to see in their plan. Investigate what your competitors are doing. Consider your budget and what options are available. Look at additional options, like cost-sharing models, to create a more robust offering. The key is to stay informed–no benefits plan is one-size-fits-all. An experienced group benefits advisor will work with you to find the unique solution that works for your business.
