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Talking About Financial Matters That Affect You and Your Organization
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Sep 6th, 2016
Recently I came across a prospective client who was utilizing a health spending account to provide reimbursement of their plan member Health and Dental claims. The allocation was a modest amount that was quickly utilized by a number of plan members. Through the discussion with the prospective client we chatted about the goal of the existing program and how the plan was performing. The discussion led to some interesting perspectives on the defined contribution approach (health spending account versus traditional benefit plans).
While the plan sponsor wanted to provide additional compensation in light of the performance of the organization, they did not want to constrain themselves to a traditional benefit plan. Enter a health spending account. While providing tax-free reimbursement of CRA eligible expenses is a good form of compensation, the ability of such an account to truly deliver “benefits” is constrained by the reality of each individual plan member’s personal health situation. Traditional benefits provide leverage on the premiums by pooling the risk among the group of plan members. While this does create some “winners & losers” based on each plan member’s premiums versus claims, it does help offset the traditional unexpected nature of health expenses.
A defined contribution approach has merits for a plan sponsor. But how does reducing the plan sponsor’s risk and responsibility play out in reality?
Reality Check 1 – individual employees have no hope in wielding the same purchasing power as their employer
Reality Check 2 – the Canadian individual health and disability market is not large enough to deliver coverage and value similar to the average group insurance plan
Reality Check 3 – a fundamental covenant of employee benefits is to deliver coverage to plan members regardless of health assuming they are enrolled within required limitations, most if not all individual plans require proof of good health and exclude pre-existing conditions/treatments
Realist Check 4 – most individual consumers are overwhelmed with the process of purchasing relatively simple products like life insurance, not to mention more complex health, dental and disability coverage
Reality Check 5 – employee benefits are intended to protect an organization’s greatest asset – the productive employee, failure to access affordable protection may impact productivity of the employee
So what is a plan sponsor to do?
Treat employee benefits like an investment in your greatest asset. Determine the sustainable investment you can make and engage your workforce about their role and responsibilities.
Just because a plan is underwritten like a defined benefit plan does not mean that the plan sponsor has to take on the entire funding envelope. If plan members are claiming more, their benefits are increasing. If we relate this back to pension plans, if plan members want to increase their retirement benefit, they must increase their contribution. They would not expect otherwise.
So as you have already interpreted, it is not as easy as pushing a shopping cart down an isle.