Voluntary Benefits: Bucking the Trend

The choices made when times are tough can often come back to haunt you

By Barbara Howe

According to LIMRA, the trade group for insurance and financial services companies, more than 57 percent of U.S. employers now offer voluntary benefits to their employees, and the market for voluntary benefits has remained steady for the past four years despite the down economy.

Now, there’s optimism that voluntary benefits are poised for growth. Eastbridge Consulting Group’s 2011 year-end Voluntary Confidence Index was up 7 percent from 2010, with 95 percent of respondents, including carriers, brokers and vendors, believing that voluntary sales would increase over the next 12 months. How did the voluntary benefits market buck the downward trend in the midst of tough economic times and consumer belt-tightening? There are at least three areas where voluntary benefits have shown their strength: increasing workforce diversity, medical inflation and lessons learned from past recessions.

Lessons Learned

At first glance it would seem logical for cash-strapped employers to cut back and offer leaner benefit packages. But many companies have learned that choices they make when the going gets tough can come back to haunt them when the economy improves.
In an October 2010 Deloitte survey of senior business leaders and HR executives designed to gauge post-recession talent trends, nearly two-thirds of the respondents said talent retention was one of their top two business challenges, followed by cost reduction. Savvy employers want to control and reduce costs, but they don’t want to make it difficult to attract and retain talent and threaten future organizational growth.

According to LIMRA, most companies provide new voluntary benefits to enhance their ancillary offering as opposed to replacing current employer-paid coverage with employee-funded benefits.

Using voluntary insurance to bolster the benefits package doesn’t cost the employer additional money, and employees appreciate the group discounts, easy access to benefits, and ability to design a benefits package that meet their personal needs.

Consumers have also learned from past recessions and understand that purchasing financial protection and other insurance products makes sense in a tough economy. Negative economic news often takes away notions of invincibility, making consumers more receptive to income-protection products such as voluntary life, disability and critical illness, even if employees pay for this protection out of their own pocket.

Brokers and other advisers who add voluntary benefits to their product and service offerings are in a great position to gain the trust of employers who want to provide valued benefits to attract and retain talent without busting their budgets.

One Size Doesn’t Fit All

Demographic changes also have an impact on the labor force and ultimately the employee benefit landscape. Consider the following statistics.

• According to the latest U.S. Census figures, about one in three U.S. residents is a minority. Four states and the District of Columbia are ‘majority minority,’ where minority groups constitute the majority of the state’s population.
• Older workers are making up a bigger portion of the workforce. There were 6.7 million people 65 and older who were in the labor force in 2010, and that percentage is expected to increase by 65 percent in less than a decade, according to the U.S. Bureau of Labor Statistics.
• Women now make up nearly 50 percent of the workforce and are more likely than men to earn a bachelor’s degree, 30.7 million women in 2010 vs. 29.2 million men.
• The number of minority-owned and women-owned businesses grew faster than the national rate of all U.S. businesses, according to the U.S. Census Bureau.

The workforce increasingly mirrors these demographic shifts and is more diverse along gender, generational, racial and ethnic lines.

A diverse workforce has diverse needs; ‘one size fits all’ benefit packages, consequently, are becoming a thing of the past. For example, the extended family is very common in many cultures with several generations living in the same household. This extended-family network often has a different sense of financial obligation to relatives than a household focused on the nuclear family. This type of cultural nuance often affects the purchase of protection products such as life, disability and critical illness insurance.

Voluntary benefits help employers provide additional financial coverage options that can be customized for an increasingly diverse workforce and have remained popular because it isn’t simply about shifting cost to employees. In fact, many employers are now offering a wide selection of benefits that they never would have offered if they weren't available on an employee-pay-all basis.

Medical Inflation and the Rise of Consumer Driven Health Plans

Medical coverage is still the core offering in an employee benefits package. Due to a continued rise in health care costs, more and more employers are now sharing the medical premium costs with employees. This shift has been happening over many years, and employees are accustomed to paying a portion of their benefits’ cost.

In addition to cost sharing, employers of all sizes are turning to consumer-driven health plans as a way to lower health premiums even further. According to AHIP, the number of people with a high-deductible plan coupled with a Health Savings Account rose by 63 percent between January 2008 and January 2010.

These high-deductible plans, especially when paired with a health savings account, engage employees in their health care decisions and expenditures and lower their monthly premium costs in exchange for a higher deductible.

A long-term hospital stay or disability, particularly early in the year before a deductible is fulfilled, may make it hard for some individuals to pay their out-of-pocket health care costs or meet routine, ongoing expenses such as rent or mortgage payments, credit card bills, or auto loans.

Critical illness plans are a great way for people to have added financial security at a relatively low cost, and these plans align perfectly with consumer-driven health plans. Critical illness insurance provides plan participants a lump-sum cash payout (upon diagnosis) that can be used as they see fit.

Many employers with high-deductible health plans have opted to use a portion of their premium savings to purchase a base amount of critical illness insurance for their employees and then allow their employees to buy-up on a voluntary basis for additional financial security in the event of a major illness.

Advisers who help benefit decision makers understand how the combination of voluntary critical illness insurance and consumer-driven health plans can help members and employers save money, improve health and expand protection are better positioned to stand out from their competitors.

More Integration

Lastly, more employers are seeking the integration of ancillary benefits with their core medical coverage by a single carrier to make it easier to coordinate their plan participants’ care across all lines of coverage. For example, when critical illness and disability insurance are integrated with medical coverage, experienced nurses can help answer questions from employees about their critical illness or disability, identify resources in the community, and work closely with the employees to coordinate their health care needs and get them back to work faster.

This is a great time for agents and brokers to diversify and grow their business by giving their clients access to robust voluntary benefit packages integrated with medical. More choices and better integration of voluntary benefits can lead to happier and healthier employees, without busting the budget.