As an integrated part of your reward strategy, flexible spending accounts can be valuable in terms of employee engagement, satisfaction and in helping you to attract and retain the right talent.
For many organisations, Benefit Spending Accounts form an integral part of their employee benefits programme. Usually, employers provide Benefits Spending Accounts when they want to increase employee choice while still controlling costs. Normally, there are annual limits or allowances available, and the Spending Accounts operate on a reimbursement basis.
What are Benefit Spending Accounts?
Benefit Spending Accounts can be structured to provide reimbursement for employees against a pre-defined type or range of expenses. Common examples include Outpatient Medical, Health Screening and Flexible Spending Accounts. In many cases the annual allowance(s) allocated to employees depend on a variety of factors including marital or family status and seniority within the organisation. In some instances, multiple accounts may be available to employees or even their dependants.
Reimbursement claims, often supported by either hard or soft copy receipts, are typically submitted by employees on a monthly basis with a specified cut-off date by which they must be received, and subsequently approved, for reimbursement in either the current or following payroll period. It is worth noting that some employers may not actually adjudicate claims but instead automatically approve them until the allowance has been exhausted. This is often where the annual allowance provided to employees is lower.
Benefit Spending Accounts can operate anywhere but, in our experience, they are most commonly used within the Asia Pacific region.
Why are Benefit Spending Accounts Important?
Benefit Spending Accounts allow employers to provide greater choice and flexibility within their benefits scheme to cater for their diverse employee populations. This can make them an attractive element of an overall reward strategy as companies seek to attract and retain key talent.
Benefit Spending Accounts liberate employees in two main areas: First, by using a Flexible Spending Account employees can choose what they want from an extended selection of benefit categories; Second, as Benefits Spending Accounts are set up to reimburse employees, they let employees choose their own benefit provider. This is especially important when it comes to medical related benefits like outpatient medical and dental services. Organisations are likely to experience a high volume of complaints when employees are constrained to a medical provider panel due to the personal nature and emotional impact of these kinds of treatment.
Increasing Employee Engagement
When employees are given choice and flexibility, there is a direct increase in employee engagement and overall satisfaction with benefits. This explains why, for many employees in the Asia Pacific region, Benefit Spending Accounts are the most valued element of their total reward package.
The increased engagement levels can also be attributed to the reimbursement nature of the Benefit Spending Accounts, which often makes interaction with this benefit more frequent than with others. Crucially, because Benefit Spending Accounts have such a strong effect on increasing employee engagement and appreciation, employers are able to maximise the value from their investment in this benefit.
Utilisation and Cost Control
Benefit Spending Accounts can be used as a tool to control use and uptake of benefits and, ultimately, costs. It is not uncommon for ‘abuse’ in the form of over-use to occur when benefits like medical and dental services are provided without limits, and for dependants. Over time this uncontrolled over-use may lead to spiralling costs. This is sometimes evident where outpatient medical benefits are fully insured and no proper control mechanism is put in place. But with Benefits Spending Accounts, alongside defining and implementing the annual limit, employers can also use other mechanisms - including co-payments and frequency limits - to control uptake.
In some countries, including Singapore and Malaysia, employees may enjoy tax efficiencies when allocating and spending a portion of their compensation on specific Spending Account claim types, including certain medical-related claims.
This naturally makes Benefit Spending Accounts even more attractive to employees, especially where the majority of company funded benefits received are considered taxable.
Administration - Key Considerations
Due to the high volume of claims, and potentially high number of rules surrounding their use, it is important that employers carefully consider how Benefit Spending Accounts will be administered to ensure that the process is as streamlined and automated as possible. This will help remove the potentially significant administration burden and mitigate the risk of errors during the processing of claims.
Another consideration is how quickly employees are reimbursed after making a claim against the Benefit Spending Account.
Where employees face a lag time of several months between making a claim to receiving the associated reimbursement, engagement with, and the appreciation of, Benefit Spending Accounts can be significantly reduced.
With the level of choice and flexibility available to employees via Benefit Spending Accounts, it is imperative that clear parameters are defined and well communicated to ensure that they are used in line with the scheme rules. Strong, clear communications are needed to support employees throughout the whole experience. An example of this is the generation of automated emails to employees at each key stage of the claims and reimbursement process.
Benefit Spending Accounts are potentially a great way for employers to offer choice and flexibility to employees, at the same time as controlling costs.
Spending Accounts can play a key role in increasing employee engagement with a benefits scheme although it is important that employers consider carefully the administration requirements associated with Spending Accounts and how best to manage these.