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CAUT Bulletin Archives

May 2006

Flex Plans: Alluring but Bad News

At least two Canadian universities (Toronto and Guelph) have tried over the past year to get faculty to accept flexible benefit plans. So this seems a good time to outline what’s wrong with flex plans.

University administrators have a strong incentive to control health care costs. But what “control costs” means here is less a concern with general health care costs and more with containing benefit costs — the costs of the group health plan premiums they have to pay to fund the coverage their employees are entitled to under their collective agreements. There are obviously several ways of containing benefit costs in this sense.

One way is simply to hold the line on, if not reduce, coverage. For example, during the last round of negotiations at the University of Western Ontario, none of the suggested improvements our faculty association put forward about medical coverage was accepted, and we lost ground on out-of-country coverage.

Another cost-cutting strategy is to shift costs to employees. In the past, this has commonly been done by some form of cost sharing (for example, getting employees to pay half of the costs of benefit coverage). But there is another way to shift costs to employees: by introducing flexible benefit plans.

The initial appeal of these plans to employees rests on a simple premise. Plan participants get a specific dollar amount up front to buy the benefits appropriate to their stage in life. Have a young family? Well, you don’t really need coverage for dental implants but you do need orthodontics. Older and with the kids having left home? Well then, coverage for implants makes far more sense than orthodontics. (I’ve chosen orthodontics/implants as an example only because of the frequency with which these specific benefits have come up in conversations with faculty association members since I became the chair of the pensions and benefits committee, but you get the general idea). In this context, a typical flex plan would provide plan members with some basic coverage and also advance a certain dollar amount to purchase a variety of additional benefits.

So, just how does such an apparently appealing plan shift benefit costs to employees?

Well, think about it. The premiums employees pay for a certain level of coverage will always be a function of how much the carrier pays out for claims under that coverage. As costs go up, so will premiums. Let’s say you have a flex plan and you’re deciding what coverage to purchase with the dollar amount you’ve been allocated. If you guess wrong, you’ll end up with no coverage for what you need. But let’s assume you guess right. You only purchase the coverage you and your family are likely to need in the near future.

What this now means is that the number of employees contributing to specific portions of the plan is going to be a subset of all employees and those employees who are most “at risk,” that is, those employees (and families) who are especially likely to need those benefits over the next few years. Since the carrier is now only receiving premiums from a smaller group, and a group that is more likely to be making claims, it seems clear that in short order the cost of providing that coverage will go up and consequently premiums will increase.

Under a flexible benefit plan this is of no consequence whatsoever to the employers who provide plan participants with the cash to buy the benefits, but it will erode the coverage that individual members can purchase with the sum that is advanced to them. Voila: increased costs are passed to employees.

I might add that in Google, a search on the words “flexible benefits” will give back a number of sites maintained by consultant groups touting these plans to employers generally. All of these sites mention that flexible benefit plans are a way for employers to contain costs, but there are several that are honest enough to say this is done by passing costs on to employees.

A faculty union or association could work to offset some of the costs passed on to its members by negotiating an increase in the dollar amount that is advanced each year, but most of this increase would be spent on “treading water” — maintaining the initial level of coverage — rather than improved coverage.

Flexible benefits are not about improving benefit plans or meeting employee needs. More or less the same points have been made by any number of other individuals and groups. See for example (UTFA’s Reply Brief) Reply Submissions of the University of Toronto Faculty Association in the matter of an arbitration (salaries, benefits and pensions for 2005/06) between the University of Toronto Faculty Association and the Governing Council of the University of Toronto, December 7, 2005, pp. 26–31, available at That same brief points out that “none of the 16 major universities in Ontario has a cafeteria benefits system.”

Mike Carroll is chair of the University of Western Ontario Faculty Association’s pensions and benefits committee.

The views expressed are those of the author and not necessarily CAUT.