This is a series of educational articles on Flexible Benefit Plans for Employers sponsored by Innovative Benefits.
A flexible benefit plan is a tax advantaged insurance coverage that allows employees to select from a pool of choices. Potential choices include cash, retirement plan contributions, vacation days, and insurance.
It represents a way to help employees gain access to individual insurance products that they might not otherwise be able to afford.Because insurance agents tend to focus on high income/net worth individuals in the public market, many employees don’t have access to individual insurance products.Flexible benefit packages offer convenience and value to employees by offering better packages than they could purchase on their own in the retail market. By offering these plans and educating employees on the benefits employers can create tremendous goodwill with their employees.
Fully employed individuals purchasing through the employers program find that this program offers convenience and value far above what they could purchase on their own.Since “group” plans offer more volume, insurance companiees can offer better and more competitive rates than are available in the retail market.
A further advantage of this program is the benefit of communication and education that an employer can bring to employees during the enrollment process. Having a two way dialogue with the employee can help them understand what they are getting for the money and why it’s an advantage for them to pay for this additional coverage at reduced rates.
There are 3 basic types of plans:
1. Flexible Spending Account
2. Health Reimbursement Arrangements
3. Health Savings Account
Flexible Spending Account: Health care flexible spending accounts are employer-established benefit plans that reimburse employees for specified medical expenses as they are incurred.
There is no statutory limit on the amount of money that can be contributed to health care flexible spending accounts. However, some companies place a limit of $2,000 to $3,000 on flexible spending accounts. Once the amount of contribution has been designated during the open enrollment period that occurs once each year, the employee is not allowed to change the amount or drop out of the plan during the year unless he or she experiences a change of family status.
Health Reimbursement Accounts:Health reimbursement arrangements, also known as “health reimbursement accounts” or “personal care accounts,” are a type of health insurance plan that reimburses employees for qualified medical expenses.
Health reimbursement accounts consist of funds set aside by employers to reimburse employees for qualified medical expenses, just as an insurance plan will reimburse covered individuals for the cost of services incurred.
Health Savings Accounts:Health savings accounts are savings accounts used to pay for unreimbursed health care expenses. These accounts can accumulate tax-deferred interest similar to individual retirement accounts (IRAs). Authorized by Title III of the Health Insurance Portability and Accountability Act of 1996, medical savings accounts became available starting on January 1, 1997.
Funds are controlled and owned by the account holder. The employee or the employer–never both–makes contributions.
There are many options available for creating a flexible benefit plan that works for you employees and your business.