Lifestyle spending accounts have been around for years, but have gained traction in recent weeks as a way for employers to assist employees with unexpected expenses during an emergency or change in their routines.
In this Q&A-style post, we’ll give you a baseline overview of these accounts, how they work, how employees use them, and why they can be a helpful resource to your workforce in times of need.
Lifestyle spending accounts: What are they?
Sometimes known as Lifestyle Accounts or Lifestyle Benefits Programs, these are accounts funded exclusively by the employer, after taxes have been taken out. Because they are post-tax accounts, the IRS does not mandate eligible expenses; rather, the employer decides what they’d like to cover for employees.
What types of expenses do these accounts cover?
In short, these accounts can help employees pay for basically any expenses, up to an employer-determined limit. Due to the recent COVID-19 pandemic, many employers are opting to use these accounts to help assist with day-to-day expenses that may have become difficult for employees to pay during this time—whether it’s groceries, utilities, child care, rent and mortgage payments, or other bills.
Wait, I thought lifestyle spending accounts are for wellness or fitness services!
Not necessarily, though many employers use them that way to attract and retain candidates looking for more than your standard medical, dental, or vision benefits. Health and fitness services are common, such as gym memberships and personal training, as are ski passes and fitness equipment. But lifestyle spending accounts can also apply to transit, child care, home office equipment, cell phone bills, pet care, and more…just to name a few. Again, since a lifestyle spending account is not a pre-tax benefit, the employer has more freedom in determining categories for post-tax reimbursement.
Who is eligible to use these accounts?
Any employee can use these accounts, regardless of their full- or part-time status. They do not have to be a part of their employer’s group health plan.
Employers can also offer these accounts in a tiered approach based on employee status. For example, employers can offer a higher dollar amount to hourly workers who have experienced a reduction in hours (compared to full-time employees, for example).
Why would my organization offer one of these accounts?
Given the current health crisis, for employees, these accounts are great for those who aren’t eligible for traditional benefits, such as part-time or contingent staff who are hit hard by the pandemic. When the administration of the benefit is outsourced to a provider, it further offers a level of privacy for the employee. These accounts are also highly flexible and expandable as needs grow and change, allowing the benefit to accommodate the unique needs of multiple individuals.
For employers, these accounts can be set up and implemented quickly, as the post-tax nature of this offering eliminates cumbersome regulations. The “per-enrolled” employee pricing also makes this benefit affordable for small businesses.
Do these accounts count as eligible expenses under COBRA?
These accounts are not considered an eligible expense under COBRA. For more on COBRA-eligible expenses, you can see this blog post.
How are expenses reimbursed?
Lifestyle spending account expenses can be reimbursed through payroll or direct deposit/check. Through ConnectYourCare, employees can submit claims online or using the mobile app. The employer then issues reimbursements through employee paychecks.
Should my organization be offering these accounts?
With regards to COVID-19, organizations with the following populations may want to consider these accounts:
- A large population of hourly workers who’ve experienced reduced hours
- A high rate of employees who have children (to provide additional child care assistance)
- Those who have been directly impacted by COVID-19, such as teaching, child care, hospitality, manufacturing, and health care
Ready to learn more about these benefits?
