April 23, 2022

Modern alternatives to Wex for Lifestyle Spending Accounts (LSAs)

Lifestyle Spending Accounts (LSAs) are a broad category of benefits that have exploded in popularity amongst forward-thinking employers recently. Insurance brokers and consultants are increasingly asked by clients to create RFPs and find solutions for administering LSAs, and should be wary about recommending legacy vendors like WageWorks and Wex. LSAs are a paradigm shift in benefits and require fundamentally new thinking and technology. 

Knowing the landscape and making the right recommendation can be the difference between building and losing trust with a long-term client.

Paradigm shift in benefits

Formally established by the US government, Flexible Spending Accounts (FSAs) and Health Spending Accounts (HSAs) undoubtedly have their advantages. They enable employees to use pre-tax dollars on certain eligible expenses. The downside however is that they are both heavily regulated and, when it comes to FSAs, unused funds each year are forfeited by employees.

According to one report, of the $563M contributed to FSAs in 2019, about $108M was forfeited. That’s just about the average tax rate for an individual worker meaning that FSAs on the whole are a wash for the American workforce, and that’s before accounting for all the effort and fees for administering them.

LSAs on the other hand are an unregulated benefit that can be as flexible as an employer wants to meet the diverse needs of their workforce. They can include stipends for wellness, work from home, family care, pet care, fertility services, vacations, experiences, and anything else an employer wants to offer. The caveat is that the benefits are mostly treated as taxable income. But as the data shows, FSAs don’t live up to their tax advantaged reputation anyway, so LSAs are often a much better bang for the buck.

That’s why brokers should be cautious about defaulting to legacy vendors, even if that solution is already in place for other benefits the employer is offering. For decades legacy systems like Wex hav offered subpar solutions with underwhelming employee participation, whereas the entire purpose of LSAs is to increase employee participation by removing barriers and complexity.

From an administrative perspective, there is undoubtedly an appeal to a one-stop-shop for benefits. Unfortunately, legacy vendors and the half-baked LSA add-ons offered by health insurance providers come with outdated technology and regulations that feel designed to prevent employees from using them. In this labor market, the best employers prioritize their employees over modest vendor management convenience.

Betterment, a New York-based hyper-growth financial technology company, did an analysis of their wellness benefits and found that only 30% of the company was actually utilizing the program. “It was heavily IRS regulated,” explains Laura Craig, HR Business Partner. “So we wanted to pivot and provide employees with health and wellness benefits that actually truly allows [them] to personalize their wellness journey.” By switching to a modern solution, Betterment more than doubled participation.

Types of LSAs

It can certainly be stressful to venture outside traditional solutions to find a new vendor, and LSAs in particular can feel like the wild west. But overall there’s basically three types of technologies that power LSAs. There are pros and cons of each, and the ideal decision largely depends on budget and the type of workforce:

  • Single-purpose cards: Branded prepaid or corporate-issued cards with built-in spending limits that can be used toward eligible categories and merchants. This approach is best for companies with lower-income workers who can’t easily use their own money to make eligible purchases. Solutions to consider: Forma, ThrivePass, and Benepass.
  • Marketplaces: Portals with exclusive merchants and discounts give your workforce access to perks and wellness options. This approach is best for employers with a limited budget that can’t offer generous stipends but still want to spend on wellness. Solutions to consider: Holisticly and Fringe.
  • Card-connected: Using the newest financial technology available, benefits recipients can connect a personal card and bank account to make eligible purchases and receive reimbursements. This approach provides the best and most flexible employee experience, and is ideal for organizations with distributed and diverse workforces. JOON is currently the only card-connected solution in the market.

Alternatively, as a quick and dirty solution, employers might want to begin by running an LSA manually with spreadsheets and receipts. This provides an extra manual step for HR admins and employees, but can be a good way to get feedback and learn which long-term solution would be the best fit. Compt even offers a purpose-built spreadsheet for managing manual LSA programs.

Finding a long-term partner (bonus: RFP template)

Because LSAs are disconnected from traditional benefits, they don’t have to be rolled out on the same timelines and cycles as health insurance. SMBs often decide at any point throughout the year to invest more in employee wellbeing, so brokers should be prepared to make an immediate recommendation. 

Make sure to ask the following questions:

  • What are the proven results of administering an LSA with the vendor’s technology? Get specific details about employee engagement, satisfaction, retention, etc.
  • What is the vendor’s customer retention rate? What percentage of employers renew their subscriptions?
  • Can the employer implement the LSA quickly? Is it days or months?
  • How much administrative effort is required to manage the LSA program month-to-month?
  • Can the employer cancel any time if they aren’t seeing results? Or is there a long-term contract?

For logistics reasons, larger employers will frequently seek to run a competitive RFP process. But if brokers use the same RFP they’ve been using since the 1990s, the inevitable result will be an RFP winner that hasn’t shipped a line of code in decades. Here is a modern and editable RFP template for lifestyle spending accounts that will ensure the employer picks a modern solution that meets today’s objectives.

Reputation is everything and there’s significant upside to finding a long-term vendor partner that can be continually recommended. JOON is proud to work with many forward-thinking brokers and extends exclusive discounts to referred clients. We recognize the substantial and ongoing value that brokers bring to employers and enjoy collaborating with brokers to customize our technology to meet the unique needs of each client.