A HEALTHY YOU
Lifestyle Spending Accounts Offer Choice and Flexibility for Employers and Employees
Flexibility and personal choice are increasingly the name of the game for employers these days as low unemployment rates challenge their ability to find – and keep – workers at all levels.
The widespread popularity of the hybrid workplace speaks to the value of choice and more personal autonomy. More to the point is the blowback to employers that try to retract their remote work policies. One study found that fully flexible companies were able to add jobs at more than twice the rate of those demanding full-time officing.
In this environment, a surprising number are looking at doubling down their bets on the flexibility game with a benefit variation known as lifestyle spending accounts (LSAs). These are employer-funded, taxable accounts that employees can spend on their individual wellness perks – a newer variation on health savings accounts, flexible spending accounts or health reimbursement arrangements.
While LSAs have been around for five or six years, their relevance has shot up after the post-pandemic employment climate. It reinforced the trend for creating a quality employee experience that revolved around individualized – versus cookie-cutter – benefits and employment structures.
In fact, this year, LSAs have become one of the most popular perks offered by companies – rising to 51% from only 37% in 2022. And while they have been mostly adopted by big business, smaller firms are also getting on board, with a 33% gain among mid-sized employers and 10% among small companies.
Understanding the Value of Flexibility and Choice
The idea is that employees can prioritize wellness activities that they choose, for expenses not usually covered by traditional benefits. They can use LSA funds for any number of everyday health needs, depending on what the employer designates as eligible expenses. That could span their physical health or spending on fitness classes or athletic clothes. Family support services – think daycare or pet care – are other popular categories. Remote work costs could be eligible, too, such as internet services or office equipment.
The flexibility also extends to how the LSAs are set up. Typically, these are reimbursement accounts, to which only an employer can contribute. The funds can roll over annually or re-set with the new year. And the employer chooses the products, services and expenses the LSAs can be used for. Its flexibility gives employers an opportunity to address benefit gaps and make its benefits program more inclusive.
LSAs can be offered as a perk and “thank you” for being a valued employee with no requirements for receiving it. They can also be used as a replacement for a more traditional and less flexible incentive, a premium differential. And while $800 off one’s health insurance is a nice financial reward; the execution of this incentive happens behind the scenes which lowers the saliency of it. Employers who have successfully implemented an LSA as an incentive for their wellness program get high marks from employees. The ability to use funds toward a personal health-related expense creates a positive experience for the employee. Some clients report hearing stories about what things their employees purchased. In my 20+ years in workforce wellbeing I’ve received very few fun anecdotes about healthcare savings.
By partnering with a vendor administrator, the employer can offer inclusive perks with a comparatively small investment of HR time and benefit funding. HR teams can save money through program and vendor consolidation by adding the LSA to an existing FSA, HRA or HAS contract to leverage buying power and favorable contracts.
Pay Attention to Compliance and Other Issues
While LSAs are worth looking into, employers are cautioned to stay on top of compliance issues that might pose a complication if not handled correctly.
One occurs if the LSA is used for medical care, which is to be discouraged, as then it becomes a Health Reimbursement Account (HRA). Unlike the LSA, the HRA must be integrated into the health plan. Only those enrolled can participate, and if it’s a high deductible health plan (HDHP), the HRA would have to be compliant. Further, this would also trigger ERISA, COBRA and HIPAA rules.
This makes it important to pay attention to what constitutes medical care and such services’ inclusion in the LSA.
Medical care includes the diagnosis, cure mitigation, treatment or prevention of disease or other undertakings affecting any body structure or function. It does not, though, include treatments or services merely beneficial to an individual’s general health. This means expenses such as therapy sessions, chiropractic care and acupuncture are likely to be medical care. That may, though less commonly, apply to vitamins, massages and gym memberships.
Also worth noting is that medical travel equates to medical expenses, so certain travel expenses, say those related to the termination of a pregnancy, would not qualify for LSA reimbursement.
As you ponder the value of adding an LSA to your list of benefits, whether it’s an incentive option or a perk, please keep these compliance considerations in mind.
I believe that when an employer offers great benefits and targeted wellbeing services that are combined with honest and caring communication AND valued incentives, it increases trust, and helps employees feel valued, which leads to greater levels of satisfaction and retention.
About the Author
Philip Swayze is the Vice President of Health & Performance for global insurance brokerage HUB International’s East Region. In this role, he provides strategic wellbeing consulting support to HUB clients from Maine to Maryland. He works closely with the HUB Employee Benefits Team, and other Health & Performance Consultants on client program design and implementation. Philip is one of the four leaders of HUB’s National Health & Performance practice.
Prior to working with HUB, Philip managed his own wellness consulting and strategic marketing practice. He has more than 20 years of experience working in consulting, sales, product development, marketing, and communications within the healthcare field. Over the years, he has worked for HealthNEXT, Abacus Health Solutions, Plus One Health Management, The Health & Wellness Institute, Blue Cross & Blue Shield of Rhode Island and PR firm, Manning, Selvage & Lee.
Philip stays active in the health and well-being field through his work with the Health Enhancement Research Organization (HERO) where he has been a Think Tank member for the past 15 years. He is the co-chair of the Mental Health Workgroup, an Executive Steering Committee Member for the Small-Mid Size Employee Wellbeing Workgroup and a contributing member to the Employee Experience Workgroup. Philip is also an award-winning volunteer, Board Member and Programs Committee Co-Chair with the Worksite Wellness Council of Massachusetts.
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