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Cutting Costs with Voluntary Benefits: A Small Business Solution 
 

12/3/2010  By Thomas R. Giddens, Aflac 
 
Thomas R. Giddens

Small business in the U.S. has been a national focal point. Legislators and consumers alike turn to these businesses with hope that they will play an integral role in rebuilding the economy. These expectations have turned the Great Recession into the Great Balancing Act for small businesses—a struggle to balance business and employee needs. While it might seem that addressing rising costs of health care and motivating employees are conflicting components in this balancing act, it is possible to achieve both. If tackled simultaneously, a company’s HR assets can be turned into a profit lever.

A 2010 study conducted by Harris Interactive for Aflac identified the top three issues that U.S. businesses with three to 99 employees face; it found that each links directly to a company’s bottom line:

Increasing employee productivity (cited as a top issue by 51 percent of small business respondents).

Controlling health insurance costs (47 percent).

Retaining employees (43 percent).

Such complex issues can’t always be solved by one measure or tactic. However, adding employee-paid, group-rate voluntary insurance policies to the benefits mix can help a small business’ ability to control costs.

Controlling Health Insurance Costs

Health care costs continue to outpace inflation. The average cost of a family plan rose 3 percent from 2009 to 2010, but workers’ contributions to family health coverage jumped 14 percent as employers attempted to control costs, according to a report by the Kaiser Family Foundation.

Finding access to the coverage their employees need will continue to be a struggle. This is particularly true for small businesses, which because of their size could be impacted significantly by even a small misstep in managing health care costs.

Many small business owners and their employees are looking for more flexible benefits options as they seek to manage rising health care expenses. Providing the option of voluntary insurance policies to employees has no direct cost to the employer and might reduce corporate taxes by cutting FICA tax contributions. Moreover, the addition of voluntary plans to a company’s benefits offerings helps to satisfy the biggest benefits challenge for six out of 10 small businesses—offering robust benefits while staying within budget or cost constraints.

Curbing Productivity Loss

Financial and health struggles are significant distractions for employees. The 2010 Harris Interactive/Aflac study of U.S. small business owners found that:

47 percent of employees who work for a small business said they were dealing with a health or financial problem that impacted their ability to complete their jobs.

Roughly 58 percent of small business owners believe that their companies have lost 5 to 20 percent of productivity because employees are concerned about personal issues.

Another 32 percent of small business owners say they’ve lost at least 20 percent of work productivity.

The connection between health and finances is noteworthy—an unexpected illness or accident can threaten a worker’s financial stability and can harm their ability to obtain adequate medical care. In fact, 62 percent of personal bankruptcies in the U.S. in 2007 were caused by health problems, according to a 2009 Harvard research study.

Voluntary insurance plans range from accident, cancer/specified-disease and dental to life, short-term disability and vision. These plans help employees cope with out-of-pocket costs associated with serious accidents and illnesses—costs that major medical insurance is not designed to cover. Policyholders receive cash benefits in the event of a serious accident or illness; the benefits can be used to help pay for daily living expenses, such as rent, gas, groceries, travel expenses and child care, as well as unreimbursed medical expenses.

Limiting Turnover Costs, Boosting Retention

According to the U.S. Department of Labor, replacing an employee costs one-third of his or her annual salary. These expenses can derail management at even the best small business.

A company’s benefits package can impact employee retention directly. The 2010 Harris Interactive/Aflac study found that:

63 percent of small business owners think that their benefits packages are very influential in employee satisfaction and loyalty.

Another 18 percent believe that these packages are very influential in an employee’s decision to leave the company.

Voluntary benefits enhance a company’s benefits package, allowing it to compete better with larger organizations’ benefits programs while demonstrating to employees that they matter. Adding voluntary benefits as an option for employees might go a long way in helping to avoid the high price tag of turnover.

Despite intentions to bolster small business loans, lending standards remain stringent across the country, forcing small businesses to cut costs wherever possible. Financial distress and the rising costs of health care have caused many small businesses to cut back on major medical insurance coverage. While voluntary insurance might have been viewed as a nice-to-have benefit in years past, it is now a cost-effective supplement to core benefits and will continue to be essential to many small businesses.

Thomas R. Giddens joined Aflac in 1983 and most recently was appointed director of sales. Aflac is the largest provider of voluntary income replacement insurance policies for employees who get sick or hurt, and provides other types of supplemental health insurance coverage, protecting more than 50 million people worldwide.

Related Articles:

Employees Lack Life, Disability Coverage They Think They’ll Need, SHRM Online Benefits Discipline, November 2010

Small Businesses Find Value in Voluntary Benefits, SHRM Online Benefits Discipline, July 2008

Voluntary Benefits Poised to Increase, SHRM Online Benefits Discipline, October 2009

Voluntary Benefits Valued by Employees but Few Employers Measure Success, SHRM Online Benefits Discipline, February 2006

Voluntary Employee Benefits and Job Satisfaction, SHRM Research, December 2005

Quick Links:

SHRM Online Benefits Discipline

SHRM Online Health Care Reform web page

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