When it comes to employer-sponsored benefits, employees and employers are often not on the same page. In fact, a recent survey found employees’ satisfaction with their employer-offered benefits was 22 percentage points lower than what employers thought they were. One of the ways brokers can bring value to their clients is to reduce the satisfaction gap by helping employers to craft benefits packages that are truly valuable to their employees. 

So as you start to put together your benefits proposals for the upcoming open enrollment season, consider including these flexible benefits. In this post we’ll walk you through their benefits for both the employer and employee to help you start thinking about how to present these benefits to clients. Let’s get started.

Health Savings Accounts (HSAs)

HSAs are savings accounts into which employees and employers can deposit pretax money to pay for qualified medical expenses. They must be paired with a High Deductible Health Plan (HDHP) but otherwise offer a lot of flexibility in addition to cost savings for the employee and employer.

How offering an HSA benefits the employer

• It can help employers save money. HDHPs typically have the lowest annual premiums of the traditional health insurance plans. Since employees must be actively enrolled in an HDHP in order to open and contribute to an HSA, offering this type of flexible benefit can help employers encourage employees to choose this more economical health insurance option. Employee contributions to HSAs are also made pre tax, lowering their taxable income, which in turn lowers employers’ FICA responsibility. Employer contributions to HSAs are also deductible as a business expense.

• It can lead to a healthier workforce. Gallup found in a recent survey that employees that suffer from poor physical health and wellbeing are more likely to have unplanned absences from work and are more likely to utilize the healthcare system, both of which can be costly for employers. When employees have a way to pay for their medical care, they are more likely to seek the treatment they need and stay healthier overall. 

• It can help improve recruitment and retention efforts. HSAs are popular benefits among the workforce, especially HSAs that offer account holders the ability to invest their contributions. In fact, the popularity of HSAs and using these accounts as investment vehicles has increased steadily every year since the benefit’s creation in 2003. As of year-end 2023, U.S. HSA account holders had almost $77 billion in HSA deposits and $46.4 billion in HSA investments.

 How offering an HSA benefits the employee

• Employee contributions receive a triple tax advantage. Employee contributions are tax-free in the year they’re made, they grow tax-free and as long as they use their distributions for qualified medical expenses, distributions remain tax-free. That means employees are not only encouraged and able to build a sizable health safety net, they can save up to 37% on their medical expenses (depending on their tax bracket).

• Employees are more likely to be physically healthier. HDHPs cover preventative care 100% prior to deductible, so employees are encouraged to stay on top of their physical health before any issues arise. And should a health issue arise, they have a way to pay for their treatment costs.

• Employees own their HSA. That means their balances roll over from year-to-year and they maintain access to their account even if they leave the company. This can also provide an incentive for employees to increase their savings rates because they’ll never lose access to their money.

• Employees can invest their contributions. This allows them to build their safety net faster than if they were relying on contributions alone, and it can help them in retirement.

• Once employees retire, their HSA functions like any other retirement account, so it’s like a healthcare 401k. The difference is that distributions for qualified medical expenses remain tax-free, which is huge for retirees on a fixed income. Distributions for any other expenses are taxed at the appropriate income tax rate.

Flexible Spending Accounts (FSAs)

FSAs are accounts into which employees and employers can contribute pre-tax money to pay for healthcare and some everyday costs. These accounts can only be accessed through an employer, and as such, the employer owns the account. Employees only retain access to this account while employed by their employer. 

There are three types of FSAs that can be used to augment current benefits offerings: Health FSA which is used to pay for the widest range of health expenses, a Limited Purpose FSA which can only be used for dental and vision expenses, and a Dependent Care FSA which can be used to pay for child and adult day care services that allow the employee to work. Limited Purpose and Dependent Care FSAs can be contributed too alongside an HSA. The Health FSA can’t be contributed to while an employee contributes to an HSA.

Benefits for employer

• FSAs can be paired with any kind of health insurance. This gives employers lots of flexibility in terms of which health insurance options they want to offer and doesn’t require any changes to the status quo. This can also be simpler for HR departments to communicate. 

• Since the employer owns the FSAs, it absorbs any unused balances when employees leave the company and at the end of plan term. Employers can choose to allow employees to rollover their unused balance (up to the IRS limit) or a 2 ½ month grace period in which to use their remaining contributions.

• FSAs can save employers money since the employee contributions are made pre tax. This lowers employees’ taxable income and thus employers’ FICA responsibility.

• There are several types of FSAs. Limited Purpose and Dependent Care FSAs can be used to fill gaps in the current benefits package without affecting employees’ ability to participate in other popular benefits like the HSA.

Benefits for employee

• FSA contributions and distributions are made pre tax, so employees can save up to 37% on their expenses (depending on their tax bracket).

• FSA contributions can be used for many everyday expenses like sunscreen and vitamins.

• FSAs can be paired with any kind of health insurance, giving employees lots of flexibility to curate the benefits plan that makes the most sense for them. The more personalized the benefits plan, the more likely the employee is to be satisfied with their benefits.

Health Reimbursement Arrangements (HRAs)

HRAs are accounts that are 100% funded by an employer through which employees can reimburse for specified expenses. They are only accessible as an employer-sponsored benefit and are wholly owned and mostly controlled by the employer. Because of this, the employer has more flexibility in the types of expenses they allow to be reimbursed for through this account. There are several types of HRAs that can be used to solve a specific problem or achieve a specific goal that an employer might have. Here are some of the most popular types of of HRAs:

1. Group Coverage HRAs, Standard or Integrated HRAs. This type of HRA must be paired with group health insurance coverage. The employee can participate in this type of HRA if they’re covered by their employer’s group health insurance plan, or a group plan through their spouse’s employer. This type of HRA helps employees pay for approved out-of-pocket medical expenses like copays and coinsurance requirements.

2. Individual Coverage HRAs (ICHRAs). This type of HRA can be used to enable employees to buy their own health insurance plan in the private market. Employers would offer this HRA in lieu of offering a group health plan, but should be sure to allocate enough money for each account so that employees can purchase affordable health insurance. Otherwise, employers could run afoul of ACA regulations.

3. Excepted Benefit HRAs (EBHRAs). These types of HRAs can be offered to help employees pay for costs associated with dental and vision care, short-term disability and short-term insurance coverage. 

4. Qualified Small Employer HRAs (QSEHRAs). This type of HRA is exclusively for small employers so they can offer employees a way to buy their own health insurance in lieu of offering a group health insurance plan. Just like with the ICHRAs, employers offering QSEHRAs must take care to allocate enough to each account so that employees’ health insurance plans are classified as “affordable” according to ACA regulations.

5. Retiree HRAs. These types of HRAs allow employers to continue to support former employees once they retire by reimbursing for some of their medical costs.

Benefits for employers

HRAs can offer many advantages to employers, including:

• HRAs give employers more control over the types of expenses for which employees can use the contributions. 

• Contributions to HRAs are tax deductible for the employer, lowering the cost to employ each worker.

• It could be more economical for an employer to offer an ICHRA or QSEHRA than a group health plan. 

• HRAs can help to ensure a healthier and more productive workforce because they have a way to pay for health expenses.

Benefits for employees

• HRAs are employer funded and tax-free for employees to use.

• Employees are more likely to be healthier because they have a way to pay for covered medical expenses.

• HRAs can be paired with any kind of health plan, and employees have the flexibility to enroll in a spouse’s group health insurance plan if it works better for their family.

Lifestyle Spending Accounts (LSAs)

LSAs are one of the most popular ways employers can support company culture by supporting their employees’ lives within and outside of work. LSAs are accounts into which employers put money to pay for specified expenses like home office expenses, gym memberships, pet care, and even personal hobbies. Employers have a lot of flexibility in how they structure these plans and can even use LSAs to promote certain company values like equity, environmental consciousness, and mental health.

Any reimbursements employees make through these accounts are taxable.

Benefits for employers

• LSAs are a great way to increase  employees’ compensation without increasing salaries across the board.

• LSAs can help improve retention and recruitment efforts by showing current and prospective employees that you care about their lives outside of work. 

• LSAs can be used to support company culture initiatives.

• LSAs can help to improve DEI initiatives by supporting issues that many employees encounter, such as family expansion, gender affirming surgery, financial planning needs, and remote working expenses.

Benefits for employees

• LSAs provide financial support for hobbies, and expenses employees would normally have to pay for like setting up their home office, fitness classes, pet care, bike and scooter shares, and more.

• LSAs can help improve employees’ mental and physical health.

• LSAs can help employees increase their personal and professional development outside of work.

Commuter benefits

Commuter benefits are accounts into which employees can deposit pre tax money to pay for their commuting costs. Since the average commuter pays approximately 19% of their salary on their commute, being able to save up to 37% (depending on their tax bracket) on these costs could help employees find more room in their budgets. 

Expenses eligible for reimbursement through a commuter benefit include mass transit fares for trains, ferries, subways, buses, etc. Employees can also reimburse for parking at mass transit depots and near their office, and carpooling costs. Employers can also choose to offer employees a stipend for rideshare costs, mileage, etc.

Benefits for employers

• Commuter benefits are a low-cost incentive to get employees to come back into the office.

• Commuter benefits are employee-funded unless employers choose to offer a stipend for ride share services, etc.

• Commuter benefits can help improve company culture since many employees feel employers should help pay for their commute if employers are requiring them to be in the office.

Benefits for employees

• Commuter benefits help employees save money on their commute through pre-tax contributions.

• Commuter benefits are flexible since the employee can contribute what they need for their own commute.

• Commuter benefits support a variety of ways an employee could choose to commute, so they can find the best vehicle for their situation, especially with post-tax add ons like bike and scooter shares. 

Putting together benefits bundles

While putting your clients’ benefits package together, you could suggest they go through a different administrator for each plan or account. That would mean they had to manage all of those relationships and administer all of those benefits individually, not to mention the amount of duplicate paperwork their HR team would have to complete. But if you can bundle at least two (or, preferably more) of their benefits under one provider’s umbrella, they can improve the efficiency with which their benefits are administered and potentially lower their cost to offer them.

In addition to this efficiency and lower cost, their employees won’t have to access multiple different provider systems in order to use their accounts. That means their HR team could field fewer employee questions and their benefits would be easier for their employees to use. If their benefits are easier for employees to use, they are more likely to realize the benefit of the plan or account, and feel satisfied with the company’s benefits offerings. The more satisfied they are, the more engaged they are, and the less likely they are to leave. And the closer the company can get to realizing their business goals.

Some examples of benefits that bundle well together are:

1. HSA + Limited Purpose Flexible Spending Account (LPFSA) + Lifestyle Spending Account (LSA) + Commuter Benefit. The HSA would help employees save for their qualified medical expenses and retirement tax-free, the LPFSA would give them a way to save for dental and vision expenses (so they can save their HSA money over the long term), the LSA would enable the company to support employees’ wellness journeys and lives outside of work, and the commuter benefit would be an incentive for the employees to come back to the office.

2. Healthcare FSA + LSA + Commuter. The Healthcare FSA would give employees a tax-free way to pay for everyday health expenses, employers could support employees’ personal lives through the LSA, and by offering the commuter benefit, employers can help employees pay for this unpopular expense.

3. Group Coverage Health Reimbursement Arrangement (HRA) + LPFSA + Dependent Care FSA. Employers can use the Group Coverage HRA to help employees pay for approved out-of-pocket medical expenses, the LPFSA would enable employees to pay for their dental and vision expenses tax-free, and the Dependent Care FSA gives parents and other caregivers a tax-free way to pay for child care that allows them to work. 

Each of these bundles offers a tax-free way for the employee to save and pay for their expenses, a way for the employer to directly pay for employees’ expenses, and a way to ease the burden of going to work. But these are just examples of benefit bundles. In order to craft the best bundle for your employees, you should assess their needs and compare them with the benefit options available.

How Lively can help

We understand that benefits brokers have to have a breadth of knowledge across the entire benefits industry. And because brokers have to “go broad” in terms of their understanding of the entire employer benefit landscape, they might not have the depth of knowledge that would be helpful when it comes to flexible benefits. That’s where Lively comes in. 

We’re your partner, your consultant, your right-hand person, when it comes to presenting these important but sometimes undervalued benefits. We can help you convey the information employers need to hear in order to understand just how integral these types of accounts can be to helping them achieve their goals. 

If you’re ready to partner with a best-in-class health and wellness benefits administration platform, reach out today!