This piece was featured in the August 2024 issue of Voluntary Benefits Voice Magazine
The buzz for Lifestyle Spending Accounts (LSAs) is mirroring their nigh-on meteoric rise in both interest and actual implementation. That two recent reports on LSAs come in at 34 and 59 pages speaks to how these plans are rapidly transforming employers’ and consultants’ approach to increasing employee satisfaction and engagement by better addressing employee stress and frustration across diverse lifestyles and rapidly changing needs.

The re-emergence of LSAs
The dynamics of the employer-employee relationship continue evolve and shapeshift in both expected and unexpected ways. One thing, however, is still crystal clear: employers are keen on meeting employees’ increasing demands for more flexible and comprehensive benefits packages. According to the 2024 Lifestyle Spending Accounts Benchmark Report by Forma (citing a Mercer study), 70% of employers are considering adding an LSA to their benefits package. That’s both remarkable – and not so surprising – given that the entire industry continues to grapple with the growing gap between traditional health insurance and the holistic well-being needs of employees. LSAs offer a versatile solution, addressing various aspects of wellness, from physical and mental health to financial well-being and family care.

Flexibility and personalization: core benefits of LSAs
One of the most compelling advantages of LSAs is their flexibility. Unlike Health Spending Accounts (HSAs) and Flexible Spending Accounts (FSAs), which are heavily regulated, LSAs are largely unregulated, so it’s much easier to tailor them to meet the diverse needs of the employees at any given company, as well as the diverse needs of the employers themselves. Whether well-being-oriented stipends, work-from-home allowances, family care support, pet care, or even caregiving, belonging and connection, LSAs can handle them all.

According to the JOON LSA Report 2024, the flexibility of LSAs enables employers to consolidate multiple benefit categories under one umbrella, providing a seamless and user-friendly experience for employees. This consolidation not only reduces administrative overhead but also increases employee engagement by offering benefits that are truly valuable to them. 

Enhancing employee satisfaction and reducing stress
The ability to personalize benefits through LSAs plays a crucial role in enhancing employee satisfaction and reducing stress. The JOON report highlights that a successful LSA program can significantly impact workforce engagement and appreciation. For example, companies that implement LSAs often see improvements in employee responses to engagement surveys, with higher scores in areas such as recommending the company as a great place to work and believing that their managers genuinely care about their well-being.

Furthermore, LSAs help alleviate the stress associated with rigid and complicated benefits programs. Traditional pre-tax benefits, while offering tax advantages, often come with a host of regulations and limitations that can be frustrating for employees. LSAs, in contrast, provide a straightforward and adaptable benefits solution. Employees can use their benefits as needed without worrying about restrictive merchant lists or pre-determined contribution limits.

Adding psychographic insights: enhancing the perceived value of LSAs
Incorporating psychographic insights into how LSAs are offered (and evaluated) can significantly enhance their perceived value. By understanding the attitudes, interests, and lifestyles of employees, employers can tailor benefits that resonate on a deeper level with the diverse world views and attitudes of their employees. For instance, employees interested in wellness might value gym memberships and mindfulness apps, while those focused on professional development may prefer stipends for courses and certifications.

Then, there’s the opportunity for truly new business intelligence by mining into LSA enrollment and utilization patterns, broken out by employees’ psychographic profiles. How valuable would it be to know that the types that want to “be in charge” are 2x more likely to use lifestyle and holistic well-being benefits. Or that those whose families are their top priority spend 3x every other type on work-from-home, flex-time and caregiving benefits? By aligning benefits with employees’ personal goals and interests, LSAs become more relevant and appreciated. This alignment not only boosts utilization but also strengthens the emotional connection employees have with their employer, which can translate in stronger trust- and support-based cultures.

Delivering on both employer and consultant goals
Most employers actively seek to design plans that enhance employee engagement, improve retention, and attract top talent. And they want their consultants to be proactive in helping them select and configure the right mix of programs to do just that. LSAs’ broad flexibility and personalization capabilities are fueling this dramatic rise in excitement, and shortening the decision time frames for implementing them. 

According to the Forma report, LSAs can be implemented with as little as 1% of existing payroll, offering a high return on investment. Metrics such as productivity boost, retention rate, and accelerated time-to-hire all improve when LSAs are part of the benefits package.

The JOON report emphasizes the importance of utilizing modern LSA technologies that offer a card-connected experience, making it easier for employees to use their benefits and for employers to administer the program.

The VB chassis and the LSA turbocharger
While accident, hospital indemnity, critical illness and life with long-term care may still be the “standard VB chassis,” so to speak, LSAs can function as a turbocharger: employees can get “exactly what they need and want for today,” while backstopping tomorrow’s risks with more traditional VBs – which, as we all know, are also evolving at a much more rapid pace than just a few years ago. Add in AI, APIs, and claims integration to recommendation and decision support tools, and wow. This ain’t your father’s old sedan. 

Expanding data analytics and reporting with LSAs
LSAs provide a unique opportunity to expand data analytics capabilities around employee uptake and utilization patterns. By analyzing how employees use their LSAs, employers can gain insights into what benefits are most valued and identify trends and preferences within the workforce. This data can be correlated with Social Determinants of Health (SDOH) to better understand how different factors such as socioeconomic status, education, and environment impact benefit utilization.

Employers and consultants can use these insights to calibrate core health plans and traditional voluntary benefits more precisely. For example, if data shows a high uptake of mental health services through LSAs, employers might consider enhancing mental health coverage in their core health plans. Similarly, if LSAs reveal a strong interest in fitness and wellness programs, companies can introduce more comprehensive wellness initiatives. 

Best practices for implementing LSAs
Implementing an effective LSA program requires careful planning and execution. The JOON report outlines several best practices for creating, launching, and administering LSAs:

• Analyze Workforce Needs - Conduct surveys and one-on-one conversations to understand the unique needs and preferences of the workforce. This ensures that the benefits offered are aligned with employee priorities.

• Keep It Simple - Start with a straightforward program, focusing on popular categories such as health and wellness. Avoid overcomplicating the program with too many rules and restrictions.

• Set Appropriate Allowances - Offer sustainable allowances that enable employees to actively engage in the program. Monthly "use it or lose it" allowances are particularly effective in encouraging employees to prioritize their wellness.

• Remove Friction - Ensure that the benefits program is easy to use and free from administrative burdens. Avoid requiring proof of usage or attendance, which can signal distrust and reduce engagement.

• Continuously Iterate - Regularly analyze utilization and feedback to fine-tune the program. Pilot new benefits with a subset of employees before rolling them out company-wide. 

The future of LSAs
As employers continue to navigate the challenges of a competitive labor market and evolving employee expectations, LSAs are poised to become a cornerstone of modern benefits programs. Their inherent flexibility and personalization capabilities make them an ideal solution for addressing the diverse needs of today's workforce. By adopting LSAs, employers can not only enhance employee satisfaction and engagement but also build a more productive and motivated workforce.

As they integrate psychographic insights and advanced data analytics, both CHROs and CFOs will better understand the psychological and social factors that influence employee behavior. This will take core, voluntary, and LSA plan designs and complementarities to the next level. Companies can not only meet, but exceed employee expectations, create increasingly targeted and customizable benefit portfolios, and increase the relevance and value of their employee experience across increasingly diverse workforces.

As core, voluntary and LSA data is increasingly correlated to SDOH data, employers will gain a closer-to-360-degree view of factors influencing employee health and well-being, leading to more informed decision-making and better resource allocation.

The last word
Lifestyle Spending Accounts are perhaps the most promising new pathway for transforming voluntary benefits. By delivering flexibility, personalization, and ease of use, LSAs help employers and benefit consultants achieve their goals while providing employees with the support they need to thrive. As more organizations recognize the value of LSAs, these accounts will undoubtedly play a pivotal role in shaping the future of employee benefits. The integration of psychographic insights and data analytics further enhances the potential of LSAs, enabling employers to create more precise, effective, and impactful benefits programs that drive engagement, satisfaction, and overall well-being, all of which are critical to shaping the future of employee benefits.

~ Mark Head
© 2024. All Rights Reserved.

Click the green button or the blue button (below) to visit our scheduling pages.