Flexible Benefits That Stretch to Fit Your Biz
Want to keep health care costs low and employees happy? Then you can't ignore flexible cafeteria-style benefits plans.
When unemployment rates hit rock bottom a few years ago, perks such as flexible benefits plans that let employees customize their own benefits were all the rage. Now that unemployment rates favor employers, you might not feel the need to consider such benefits. But experts say the arguments in favor of flexible benefits are still sound.
Cafeteria plans that let employees spend a preset amount to buy selections from an array of insurance and other benefits have been around for more than 20 years, according to Dallas Salisbury, CEO of the Employee Benefits Research Institute, a Washington, DC, think tank. During the 1980s, they increased in popularity until about 12 percent of the labor force was covered, and that's pretty much where they've stayed ever since.
One similarity between the current era and the 1980s is that both featured skyrocketing health-care costs. Employer costs for health care have been increasing at double-digit percentages annually and are forecasted to keep doing so for five more years, according to Rebecca Morrow, editor of the 2002 Benefits Management and Cost Reduction Survey, published by the Institute of Management and Administration (IOMA) in New York City.
Employers like cafeteria-style flexible plans because they shift some of the costs of health care onto employees, Morrow says. These plans were ranked as the most innovative benefit offering added during the past year by the companies IOMA surveyed.
But cafeteria plans aren't growing very fast, despite their cost-controlling features. That's mainly because most companies that are good candidates for them already have them, according to Salisbury. Those companies, along with their employees and insurers, are still embracing them.
Employers have also tried improving their benefits packages while controlling costs by offering voluntary benefits plans. These programs offer employees all kinds of insurance and other services, from health insurance for pets to travel planning and college savings plans. The employees pay the entire cost of any voluntary benefits they opt for, although they get the convenience of automatic paycheck deductions for the fees and obtain lower rates by purchasing as a group.
Several large insurers began pushing voluntary benefits a few years ago, but workers have been slow to warm up to benefits they must pay for. Even the most successful voluntary benefits have less than 10 percent enrollment. Still, for the time being at least, most other large insurers are continuing to offer voluntary benefits plans.
Web-based administration tools that let employees sign up for their own cafeteria-style flexible benefits may make these plans attractive to more companies. "Until recently, it was an expensive and complicated thing to do because of the integration of systems that employers had to do," Salisbury says. "Now, most of these are put together with a Web-based interface and individuals are able to do most of the stuff themselves."
It may be too soon for employers to drop their flexible benefits programs. Demographic trends indicate baby boomers will drop out of the work force in the next couple of years, and there aren't enough younger workers to replace them. Assuming the economy rebounds in 2003, that could bring on a labor shortage that may make the one that just ended seem mild and brief.
Having more customizable benefits makes employers more attractive to employees, Morrow notes. "Employers who change their benefits plans significantly could be in trouble when the economy picks up," she says. "To make massive changes now would be shortsighted."
Mark Henricks writes on business and technology for leading publications and is the author of Not Just a Living.