The University Record, February 20, 1995

Committee outlines Phase II of flexible benefit plan

Editor's Note: The following has been provided by the Flexible Benefits Committee.

The updated Flexible Benefits Committee has been working since late November to build on the Phase I flexible benefits recommendations originally communicated in 1994.

The major thrust of the Phase II effort involves converting to a plan in which employees are provided with flexible dollars (flex dollars) to buy benefits and in which each benefit has a price tag.

This contrasts with the 1995 (current) plan, which allows employees to buy benefits by making contributions where required, but no flex dollars are provided.

How a flex dollars plan works

In a flex dollars plan, employees are provided with flex dollars to buy benefits. Each benefit has a price tag, and is bought with either pre- or after-tax dollars, depending on legal constraints. (Pre-tax dollars aren't taxed. They are equivalent to obtaining a tax deduction when the benefit is purchased.)

Flex dollars come from the University's share of employee benefit costs. If there are flex dollars left over after an employee buys the benefits desired, they are paid in cash over each pay period.

Sources of flex dollars

Flex dollars will come from the current University cost for these benefits:

• Health

• Dental

• Life insurance

Some flex dollars also will be paid in cash (or may be made available to purchase other benefits) to those who opt out of medical and dental coverage.

The University has committed to continuing free health and dental coverage for one-person coverage, and to continue the existing cost-sharing formula for dependent health and dental coverage through 1997.

The Flexible Benefits Committee also has determined that there will be no change in the number of medical and dental options offered in 1996. The options available now will be available in 1996 without substantial change.

The committee also has recommended that the issue of improved mental health/substance abuse coverage be explored.

Making flex dollars work

To make flex dollars work, the committee identified the following constraints:

• Flex dollars must vary by benefit type (medical or dental) and by coverage category elected, and must be uniform by coverage category elected (one-person, two-person, three- or more person).

• Since flex credits must vary by coverage category elected, flex prices must be set to duplicate as closely as possible the University's commitment to the employee's share of the cost for each coverage option.

• An individual should receive more flex credits by opting out of coverage than by opting down to a less expensive option.

Because the comprehensive major medical plan has the lowest price tag in the medical options, this will result in leftover flex credits for anyone who elects it, zero cost for those who elect one-person coverage in other medical options, and the existing cost (plus potential inflation in 1996) for those electing two- or three-person coverage in other medical options, or for anyone electing the enhanced dental option.

The committee still is considering how to structure flex dollars with the life insurance options, and will provide a progress report on this and other issues in a future article.

Here's how it works:

Step 1: Flex dollars provided by the University

minus

Step 2: Prices of the pre-tax benefit options (such as health, dental, vision, employee life insurance, flexible spending accounts)

results

If benefits are less than credits: Cash left over, a taxable addition to paycheck

If benefits are greater than credits: A net pre-tax deduction from paycheck

then

After-tax deductions are taken for any after-tax benefit options (such as dependent life insurance or group purchasing benefits such a group auto and homeowners insurance)

resulting in either Net taxable cash or an additional net after-tax contribution or benefit