Asia’s organizations need strategies for attracting and retaining a workforce that will ensure long-term business success, and one of the most important tools for attracting the best employees is to offer the best in employee benefits. But providing the best benefits doesn’t always mean the most generous traditional benefit package of life, health and accident insurance.

Instead, Asian companies and their HR leaders are realizing that a more flexible and personalized approach to employee benefits is the key to attracting quality workers, especially in a world of demographically diverse employees who value different benefits at different life stages. And with so much concern about escalating benefit costs at businesses of every size and industry, it’s no surprise that flexible benefits—or Flex, as they are called—are becoming an important strategy.

Flex differs from traditional benefits in important ways, of course. The traditional benefit package is essentially a defined-benefit approach in which the employer decides on which benefits to offer, absorbs future cost increases, and provides the same benefits to all employees, who often undervalue the cost. By contrast, Flex relies more on a defined-contribution approach which provides each employee a fixed amount of Flex credits based on their salary, performance, tenure, marital status, and/or level. Employees use these credits to select their benefits. Any credits left over after selecting the core insurance is typically used to choose from a menu of benefits available through the plan’s Flexible Spending Accounts (FSAs).

With the escalating cost of healthcare, employers have the option of shifting some of the cost increases to employees for cost-sharing. Thus, employees also share in future cost increases, and gain a greater understanding of the cost and value of their benefits, while choosing the benefits that best meet their needs.

What does Flex mean to today’s employees? A young college graduate just entering the workforce might not value personal insurance as much as a new mobile phone, holiday subsidies or gym membership, while a working parent would embrace child care and extra coverage for newborns. Similarly, a 55-year-old empty nester would value additional medical protection, education subsidies for college-aged children and saving for retirement. With Flex, these diverse employee constituencies can tailor their benefits packages to suit their needs and wants, making the benefit choices that fit well with their priorities, their families and their phase of the lifecycle. This empowering aspect of Flex is one of its key strengths.

Flex in Singapore

A recent Mercer survey of 176 Singapore companies across 10 industries revealed that 28 percent of them currently offer Flex. To 90% of the companies that do not offer Flex, the rising cost of benefits are a concern, and more than 80% of them are considering benefit cost-sharing with employees as a cost-savings measure. Nearly 100% of those companies either use their benefit offerings as a means of attracting and retaining workers or plan to do so.

By contrast, 84% of companies with Flex not only credit the strategy with helping them meet the needs of a diverse staff, but 48% of them stated that Flex helps to contain costs. That’s because employees with Flex can, for example, reduce their insurance coverage to trade off against other benefits which they value more. Thus, employers only pay the cost of benefits that their employees use, which helps to reduce inefficiencies and overall benefits costs.

The Mercer survey revealed that the most popular items utilized by employees with Flex accounts were lifestyle benefits (60%) such as holidays, mobile phones, education, and child care. Medical benefits came in second (58%) including GP, dental, maternity, and optical. Personal insurance plans came in slightly ahead of wellness benefits such as health screening, spa and fitness (22% and 20%, respectively). These statistics clearly reflect the value of Flex to employee populations in Asia that are in the earlier phases of their careers and in their family-building years.

Flex Solutions and Challenges

To HR leaders, of course, the value of Flex has a great deal to do with its potential for attracting and retaining the right talent in its prime career years. But the parallel capacity of Flex for containing costs is an equally vital factor. Nothing illustrates this better than a case study, in which Mercer worked with one Singapore company that sought a long-term solution to the problem of escalating medical benefits costs. Employee feedback from focus groups noted such factors as employee requests for more benefits, varied benefit needs, and a need to raise employee awareness of medical costs.

The solution included a Flex plan that was designed to reward low medical utilization through credit carry-forwards that can be used to top up employees’ Medisave accounts. In addition, employees were able to buy ‘as charged Shield plans’ as part of the Flex spending account options—a solution that addresses the growing demand for portable medical solutions.

Even so, companies express concern about the challenges of implementing Flex. In the Mercer survey of Singapore companies, nearly 80% of those which did not offer Flex were concerned about program costs and implementation. Understandably, these concerns were fed by a lack of confidence about finding a qualified outsourcing vendor to administer the Flex plans (38% of non-Flex survey respondents); a lack of market data about Flex (27%); and a concern by one quarter of all non-Flex respondents that employees would have difficulty understanding the Flex concept.

These challenges should not be taken lightly, but they can be effectively addressed. For example, program and implementation costs may be offset to some degree by the shifting of benefit cost increases to employees—indeed, this trend is only increasing, as reflected in the Mercer Singapore survey by the 83% of companies without Flex that are considering future cost-sharing with employees. As for respondents’ worries about finding a qualified outsourcing partner, these concerns are, arguably, addressable —today’s leading outsourcing vendors offer significant experience and total capability in Flex administration. And as for employees’ having trouble understanding the Flex concept, it’s important to keep in mind the potential of Flex to attract and retain the sort of talent that clearly perceives the value of Flex. It’s also extremely important to have a comprehensive communications program to fully educate employees to maximize the effectiveness of your company’s benefits dollars.

Still, the decision to offer Flex requires more than just a consideration.of the pros and cons. It takes nothing less than a strategic collaboration between HR leadership and top management to determine whether the long-term benefits of Flex will outweigh any short-term pain.

Rosaline Chow Koo

Worldwide Partner, Asia Pacific business leader of Health & Benefits and Asia Business Leader for HR Services

Mercer

www.mercer.com.