Lifestyle Spending Accounts (LSAs) or “Wellness Spending Accounts (WSA’s) have become a popular benefit among employees and employers alike. After all, who wouldn’t want to be reimbursed for essential expenses? This appeal is rooted in the simplicity of getting money back for things you already spend on, making LSAs a no-brainer for many.
A key reason for their popularity is the flexibility they offer. Giving employees choices in their benefit plans has always been attractive. LSAs allow employees to spend their allocated funds on what matters most to them, be it gym memberships, running shoes, or other health-related expenses. This flexibility is supposed to enhance the overall employee experience, making benefits more personalized and relevant.
However, the objectives behind LSAs merit deeper consideration. Are we merely aiming to reduce out-of-pocket expenses for employees, or is there a broader goal of fostering healthier behaviors? Ideally, these accounts should incentivize new habits that positively impact health. Not behaviors that they have already converted to habits or rituals. Encouraging sustained healthy behavior through financial incentives can be complex and may not always yield the desired long-term results.
Alternatives to LSAs, such as cash bonuses or Visa gift cards, present their own challenges. While a cash bonus is straightforward and appreciated, it lacks the targeted nature of LSAs. LSAs can specifically direct spending towards health-related expenses/categories, promoting wellness more effectively than a generic cash bonus. Don’t forget that either way – this is all just cash in the hands of the employee… so it is all a taxable benefit. Something we sometimes forget to consider.
The attractiveness of LSAs lies in their ability to link benefits with healthy expenses. By earmarking funds for gym memberships or running shoes, employers subtly encourage healthier lifestyles. However, once these accounts are established, changing or removing them can be problematic. Employees may come to rely on these benefits, and any changes could lead to disappointment.
In conclusion, while LSAs are popular for their flexibility and targeted health benefits, their long-term impact on behavior and the challenges of altering these benefits require careful consideration. Balancing immediate financial relief with the goal of promoting lasting healthy habits remains a key challenge for employers. Let us know if you would like to discuss your options as it relates to Lifestyle Spending Accounts. Join our November Client Roundtable to participate in more learning and debate on this subject.