What are the implications of flexing core health benefits? 
Kylie Harrison investigates

How much do you trust your workforce? Not much, it seems, if flexible benefits schemes are anything to go by. Many employers loathe the idea of allowing their employees free rein regarding what and how much to flex, and nowhere is this more apparent than with health benefits.

In fact, far from their name suggests, flex schemes can be restrictive, with just a few measly concessions when it comes to bikes or childcare vouchers. Often private medical insurance (PMI) and long-term disability remain core benefits, as many employers do not trust their employees to make the right decision.

No to flexing health

UK PLC has a point. Benefits are not just there to satisfy ever-expectant employees: they answer strategic requirements for the company too. And the primary purpose of health benefits is to get employees back into the workplace faster and more efficiently than through the NHS. PMI was traditionally seen as a perk for the 'fat cats' in the top corporate echelons, but as more employers identify the true cost of absence, many are seeing it as a good investment.

Axa PPP Healthcare head of corporate healthcare development Dudley Lusted says: "You have to differentiate between what is in the interests of the employee, and what is in the interests of the employer. If you are more inclined towards the employee, then it is a benefit, and if you are more inclined towards the employer, it is a management tool. However, if you leave the employer out, you are going to shoot yourself in the foot."

A risk of allowing employees to flex their health benefits is that they rarely see the same cash value for the health benefit they have flexed out of. Even then, in some instances, the provider does not wish to encourage it. According to Punter Southall health consultant Julie Waddington, the majority of healthy employees do not see a need for PMI and will opt for cash, leaving only those likely to claim.

"Insurers are a lot more comfortable if it is set up as a core benefit," she says. "We have a client who allows staff to take cash, and Norwich Union has declined to give them a quote because it sees that as being a disincentive to take cover for those who are fit and healthy."

Yes to flexing health

The level of occupational health is a key factor in the debate on flexing health benefits. If it is good, then flexing out of health benefits may be less of an issue. "PMI is put in place as a benefit," says Gissings head of employee wellness Linda Torr. "It is seen as a perk, as well as a retention and recruitment tool, whereas occupational health and absence management is something a company does as part of its corporate social responsibility and duty of care, rather than a traditional benefit."

While she concedes that PMI helps employees receive treatment more quickly, she believes occupational health can make it more of a 'nice thing to have' than a vital tool. "Most absence management is provided as a duty of care, it is not linked to PMI," says Tor. "If employees have PMI in place they can use it, but otherwise it is down to occupational health."

Axa offers a range of preventative health measures, including health fairs and online screening, yet Axa PPP's Lusted takes the view that absence management boils down to general morale more than employee health. "If you offer proactive health measures, employees start to realise that the company thinks more of them and it become a better place to work. As a result, they are more engaged they make more effort," he says. "It is a virtuous circle and nothing to do with health. It is all to do with being positive about the place you are working in."

Cash or health?

If employees are allowed to opt out of their health benefits, should they be allowed to keep the equivalent of 600 to 1000 pounds in cash? According to Jardine Lloyd Thompson general manager, health and risk, Katherine Moxham, this rarely happens, although she believes that where an employee has alternate provision this is ideal. "If you and your partner both have PMI, then typically you would want to go for one. The reason employers don't want employees opting out is because they don’t know what their options are if they need urgent treatment."

Flex reward

Another option for health in flex schemes is to look at its role in taking a proactive approach to employees' health. The PruHealth approach of giving employees rewards if they join a gym or give up smoking is one that is finding a resonance with many employers. One way of doing this, according to Moxham, would be to allow employees to access cheaper PMI through flex: "If people look after themselves, eat sensibly and go to the gym, I wonder whether there is any mileage in providing them with cheaper PMI benefits. It is fairly common in the US, and if providers are doing this, then why not offer it in a flex plan?"

This is a controversial area. "If claims go down, then premiums go down," says Lusted. "What is new is the practice of providing incentives. People who do these things, do them; people who don't, don't. The price of claims goes up if people go to the gym regularly. That might sound facetious, but it is serious."

The future

At the moment, companies tend to fund their employees' PMI as a core benefit, while the flex part enables staff to cover dependents if there is enough money in the pot. Waddington does, however, foresee insurers becoming more flexible as time goes by. "In the future, there will be more modular products that provide a core level of cover, and then allow staff to choose what level of psychiatric, outpatient, dental or optical benefits they want," she explains. "There will be a lot more choice in the range of products that will allow people to truly flex."

Health screens in flex

New legislation means health screening must be offered to all employees or they will become eligible for tax. This has caused fears that there could be problems with offering it as part of a flexible benefits programme. However, Axa PPP Healthcare head of corporate healthcare development Dudley Lusted is unfazed. "You have to provide screening for everybody, but you don’t have to make everyone use it. So if you offer it to all employees and only a handful of people opt for it, it is not a taxable benefit. However, if you only offer it to a proportion of people, or senior staff, then it is a taxable benefit." As ERB goes to press, Axa is still checking whether companies will be able to offer different styles of screening, with a lower cost for general employees and more comprehensive ones for senior staff.