Benchmark Study: Employer Decisions Regarding Flexible Spending Accounts in 2014 [Preview]
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The 2014 Flexible Spending Accounts (FSAs) Benchmark Study highlights changes in FSA options, revealing that over half of companies adopted a $500 carryover option instead of a grace period, primarily to address employees' concerns about losing unused funds. The study also notes that participation rates varied widely, with many employees contributing significantly, and many organizations expressed intent to enhance communication about FSA benefits moving forward. Looking ahead, there is a trend of adapting FSA offerings to meet employee needs, suggesting increasing satisfaction with the rollover option among employers and employees alike.
Benchmark Study: Employer Decisions Regarding Flexible Spending Accounts in 2014 [Preview]
- 1. 2014 Flexible Spending Accounts (FSAs) B E N C H M A R K S T U D Y healthcaretrendsinstitute.org
- 2. 2 2014FLEXIBLESPENDINGACCOUNTS(FSAS Background In the fall of 2013, the U.S. Treasury Department issued new rules allowing employers a $500 carryover option for their employees’ FSA money. Many companies had to work quickly to determine the viability of offering this new option versus going with the grace period allowing employees to roll over their entire unused account balance into the following year to pay for medical expenses incurred during the first 2 ½ months of the next plan year before the money is forfeited. Other organizations were already in the process of their 2014 open enrollment period and thus began their consideration of offering the new FSA option for their 2015 plan year. The Flexible Spending Account Benchmark Study gathered results from participants in all company sizes regarding their FSA approach in 2013 through 2015. Flexible spending accounts (FSA) provide employees a way to deduct pretax dollars from their paycheck to pay for certain types of medical, vision and dental expenses. These accounts offer companies a way to help employees manage their health care costs.
- 3. 3 2014FLEXIBLESPENDINGACCOUNTS(FSAS Insights: When the FSA plan changes became effective for plan year 2014, over half of companies (51%) adopted the rollover option versus 49 percent who elected to offer a grace period of up to 75 days. In the past, employees may have forgone signing up for an FSA and the accompanying tax benefits for fear of losing their pretax money that they put in. It appears employers recognized the stumbling block of the old use-it-or-lose-it rule, which 68 percent of survey participants cited as their primary reason to adopt the rollover option in 2014. In 2014, did your organization: What was the primary reason you adopted the rollover option for 2014?
- 4. 4 2014FLEXIBLESPENDINGACCOUNTS(FSAS What was the average employee contribution to his/her healthcare FSA? What percentage of benefits-eligible employees participated in a healthcare FSA in 2014? Insights: There was a wide range of responses related to employee participation in 2014. Nearly 40 percent (37.3%) reported 20 percent to 40 percent participation, while 26 percent reported up to 20 percent participation, and almost 20 percent said 40 to 60 percent of employees participated in a healthcare FSA. Employees funded their FSAs with up to $2,500. The largest group at 66.7 percent contributed between $1,001 and $2,000 in 2014, which was a slight increase from 2013 contributions.
- 5. 5 2014FLEXIBLESPENDINGACCOUNTS(FSAS Insights: In preparing to offer FSA benefits, employers indicated taking a range of steps. The majority of survey participants (64%) independently researched the topic, while one-third considered feedback from employees. Almost 30 percent consulted a benefits advisor for insights and advice. While most companies, at 66 percent, didn’t experience any challenges as a result of adopting the rollover option, almost 20 percent reported administrative roadblocks, followed by 17 percent with system compatibility issues. Others grappled with employee education and communication concerns. How did you prepare for offering healthcare FSA benefit in light of 2014 modification? What challenges did you experience as a result of adopting the rollover option?
- 6. 6 2014FLEXIBLESPENDINGACCOUNTS(FSAS Insights: Moving forward, a full two-thirds say they will change their systems or processes to better manage FSA benefits and plan to increase employee communication/education efforts to better explain the benefit program. Luckily, no challenges were too great to deter from the rollover option in the foreseeable future. This may explain why almost 67 percent reported that they will be adopting the rollover option for 2015. There were a wide variety of FSA program communication tactics respondents said they’d explore for plan year 2015, which include providing a handout (41.5%) or sending an e-mail (33.8%) to employees to communicate changes. Did your challenge(s) with adopting the rollover option result in any of the following? Are you adopting the rollover option for 2015? How will you communicate healthcare FSA benefits to employees in 2015?
- 7. 7 2014FLEXIBLESPENDINGACCOUNTS(FSAS Why did you choose not to adopt the rollover option for 2015? Insights: Planning for plan year 2015, there were a number of reasons given for not wanting to adopt the rollover option including 37 percent did not want to change their system or processes to manage the change and 20.4 percent did not want to increase employee communication efforts to explain the new benefit and are happy with the grace period option. However, of those that did not offer the rollover option in 2014, 40.5 percent stated they will consider the option in the future. Will you consider offering the rollover option in the future?
- 8. 8 2014FLEXIBLESPENDINGACCOUNTS(FSAS Survey Summary/Conclusion Looking ahead, employers will optimize their FSA programs to fit the needs of their employees. More companies may now choose to participate and receive payroll tax reductions if they know they will have greater employee interest due to the new rollover option. Employee satisfaction with being able to roll over $500 annually should grow with its adoption by employers. We will continue to examine trends that emerge from 2015 and future plan year program participation to gauge how the new rollover option also affects companies’ benefits goals and employee healthcare savings behaviors. Any changes that employees make to their administration and communication strategies will shed light on workforce engagement with FSAs and the ongoing success/adoption of these employee benefit programs.
- 9. 9 2014FLEXIBLESPENDINGACCOUNTS(FSAS About the Healthcare Trends Institute The Healthcare Trends Institute is an educational platform to help employers, third-party administrators, health plans, brokers, banks, payroll providers, consumers, and other stakeholders keep up with the rapidly changing healthcare benefits industry. It covers a range of topics related to the administration and management of healthcare benefits. To ensure all content and programs achieve the highest level of quality and relevancy, the Institute is guided by an Editorial Advisory Board comprised of subject-matter experts that represent diverse aspects and perspectives within the healthcare benefits industry. More information is available at www.healthcaretrendsinstitute.org Tiffany Wirth, Executive Director Healthcare Trends Institute 4324 20th Avenue, SW, Ste. 200 Fargo, ND 58103 P 701.499.7215 E info@HealthcareTrendsInstitute. org ABOUT EVOLUTION1, INC. – A WEX COMPANY At Evolution1, Inc. – a WEX Company, we simplify the business of healthcare. We do that through innovative cloud-based payment and technology solutions that administer and manage consumer-directed and defined contribution accounts. But we don’t do it alone. Our network of partner organizations enables us to deliver our industry-leading and award-winning solution to 125,000 employers and more than 11,000,000 consumers across the country. Together we take the complexity out of defined contribution, HSAs, HRAs, FSAs, VEBAs, PRAs, wellness plans, and transit plans. Learn more at www.evolution1.com.