Filling In Around the Edges

Voluntary benefits, at minimal employer cost, can expand employees’ benefits choices and cushion against health coverage cost-shifting.

By William Atkinson Nov 1, 2009
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November CoverPressured by rising expenses in a down economy, many employers have shifted some health coverage costs to plan participants. To help offset the losses that employees see in their benefits packages, employers are turning to so-called voluntary benefits. With their own advantages and drawbacks, these benefits require close evaluation by HR professionals.

Voluntary benefits—also called supplemental or ancillary benefits—include familiar insurance plans such as long-term and short-term disability, life, critical-illness, dental, vision, cancer, and long-term care. Among the products newer to the field of voluntary benefits are insurance for automobiles, homes and pets, as well as noninsurance benefits such as prepaid legal services, discounted vacation travel, computer purchasing and college-savings plans.

Employers’ costs are generally minimal, often limited to administrative expenses. And although employees who sign up for voluntary benefits pay almost all of the costs, their premiums typically reflect group discounting and thus are lower than the employees could obtain on their own.

Differences among voluntary, supplemental and ancillary benefits are subtle. "When I think of voluntary plans, I think of those that are 100 percent employee-funded," says Alexander Domaszewicz, a principal and senior consultant with Mercer Health & Benefits Services in Newport Beach, Calif. Critical-illness policies are considered supplemental, he continues, because they fill gaps, while "most employers consider dental and vision to be ancillary, since they support the medical plan." In this article, the term "voluntary" encompasses all of those categories.

"Voluntary benefits have been increasing over the last 20 years, and the rate of increase has been accelerating," says Jack Kwicien, managing partner with Daymark Advisors in Baltimore. "Voluntary is the only sector in insurance that is enjoying double-digit growth, and has for the last 10 years."

Insurers provide many voluntary benefits. And according to research by Eastbridge Consulting Group, an Avon, Conn., firm that offers insurers marketing and research services, term life insurance sales jumped 30 percent last year from 2007, critical-illness coverage went up 19 percent, and accidental death-and-dismemberment coverage rose 12 percent.

Noting that sales-increase rates can fluctuate year to year, Gil Lowerre, president of Eastbridge Consulting, says, "Voluntary is a growing trend, and evidence of that is coming from the broker community." He says 2008 voluntary-benefit sales overall were up almost 4 percent from 2007, and three-fourths of the increase was new coverage, not replacement or takeover business. "Pretty robust growth," he says. "It may also be a sign that the market is still a bit immature and hasn’t reached a saturation point."

Kwicien says more than 60 percent of employers offer at least one voluntary benefit, and 25 percent to 30 percent offer three or more. According to Mercer’s latest comprehensive annual employer survey on medical coverage, including some data on voluntary benefits, 79 percent of employers with 500 or more employees offer a dental preferred provider organization, 68 percent offer a vision plan and 24 percent offer long-term-care insurance.

Stakes for Everyone

When considering whether to offer or expand a menu of voluntary benefits, an employer should become familiar with the various perspectives on such offerings—how they’re regarded by vendors, employers and employees.

Vendors see voluntary benefits as a way to help make up for the revenue shortfall attributable to reductions in basic medical plans. "This economy is not the best for brokers to be selling employer-paid coverages in general, so voluntary is their primary focus," Lowerre says.

Second, Kwicien notes, brokers’ and carriers’ customer-acquisition costs are lower for group voluntary benefit plans than for individual policies. Once they contract with an employer, they have access to possibly hundreds or thousands of employees.

For employers, voluntary benefits make a difference, regardless of the economy. "In competitive labor markets and during a strong economy, such benefits can attract employees," Kwicien says. "In a weak economy, after rightsizing, the benefits can help retain the remaining employees."

Lowerre adds, "The more voluntary benefits employers offer, the more pressure it takes off them to add employer-paid benefits."

There’s an economic incentive for employees as well. Many see voluntary benefits as a way to gain more coverage at better prices. According to Kwicien, voluntary benefits can be a plus for employees even if they have to foot the entire bill. "They end up getting better deals on cost and quality, leading to more overall value than if they purchased the coverage by themselves," he says.

Designing the Menu

An early step for employers in developing a voluntary-benefits program is to determine employees’ preferences and their abilities to pay. "Look at the demographics of your workforce," says Doug Reys, SPHR, manager of compensation and benefits at Franklin International, an adhesives manufacturer in Columbus, Ohio. "For example, if you have a young workforce, a tuition benefit plan may be very popular, while it would likely not be for a graying workforce."

Robert N. Arnoff, president of Arnoff and Associates, a benefits consulting and brokerage firm in Bainbridge, Ohio, recommends routine employee benefits surveys, so you " ‘know the voice’ of your employees."

Such survey forms may be available to employers from brokers or carriers. New York City-based insurance provider MetLife, for example, offers survey tools and "an employee-benefits benchmarking tool," says Randy Stram, vice president of employee benefits sales. "This shows the prevalent benefits that are offered by other employers in their industries, in their geographic areas, and by size."

Another determination for the employer: Whether a proposed benefit is really a financial plus for employees, Reys says. "For example," he says, "if you offer home insurance and auto insurance, you need to be sure that you are offering employees a better deal than they can get themselves from their own agent, broker or over the Internet.

"In my early years," Reys continues. "I saw some vendors come in and sell really expensive plans to employees that had relatively low payoffs. These represented big chunks from employee paychecks. You have to question: Did they really understand what they were buying? And were these benefits worth the cost to the employees?"

Domaszewicz too cautions that employers should be careful to avoid offering more and richer benefits than employees can afford. Signing up for more than they need "can make it difficult for some employees," he says.

Decisions Upfront

Two early decisions when building a voluntary-benefits program are choosing a vendor and deciding how much of each benefit’s cost the employer will support.

Vendor selection is based on the size of the company. "If you are a small employer, you may want to use a broker," Arnoff says. "If you are larger, you may want to use a consultant where there is no commission"—a consultant whose fee is not based on the value of the benefits the employer chooses. "And if you are very large, it may make more sense to go direct" to the provider, such as an insurance carrier.

"Start with your existing brokers and carriers," Kwicien says, "but many of them may not offer voluntary benefits." In such instances, the employer could create a request for proposal for dissemination to vendors. And "check with your benefits consultant, if you have one," he continues. "Look for some firms that specialize in voluntary benefits."

Apportioning the costs depends on the company and the type of benefit. Some companies pick up part of the tab for certain benefits, while other employers leave it to participants to pay all costs except those for setting up and administering the programs.

As they reduce their support of employee health costs, many employers fund—or at least partially fund—dental and vision plans, largely because they don’t want to appear that "they’re just taking things away from employees," says Domaszewicz.

Franklin International has created a strategic plan that includes what the company will and won’t cover for voluntary benefits. "A few years ago, we decided we wanted a good medical plan," says Reys. "It didn’t have to be the best, though, because we wanted it to be affordable. This has since guided our benefit design philosophy, in terms of the voluntary benefits we offer, and what we pay."

Franklin covers long-term disability for exempt employees but not unionized workers. Vision is voluntary, as is supplemental life. "Our dental is highly subsidized, though," says Reys. "We pay more than what most companies do for that."

Determining value

Calculating employers’ return on investment (ROI) for benefits is no easy task. "We haven’t been able to quantify it in terms of ROI, but we do know that there is a strong correlation between job satisfaction and overall satisfaction with the benefits," Stram says. In a recent MetLife survey, "73 percent of employees who are highly satisfied with their benefits are also satisfied with their jobs. Only 22 percent of employees who are not satisfied with their benefits are satisfied with their jobs."

Another way to try to measure the value of voluntary benefits is to gauge their popularity, according to Eastbridge’s Lowerre. "It is difficult to measure the perceived impact on morale," he explains. "It is more tangible to base it on participation. For example, if only 5 percent of employees sign up for a benefit, you’re not getting as much ‘bang’ for the cost and effort of administering the program as you would if 50 percent of your employees signed up."

Calculating voluntary benefits’ value for employees can be difficult as well. "Determining the ROI for something that is employee-paid is tricky, because there is so little employer investment," Reys says. "However, at least you can say that any good will you get from your employees" is a positive outcome.

An Employer Responsibility

Always bear in mind, experts say, that for employees, a benefit offered is a benefit endorsed. Says Reys: "Employees think that if the company is offering it, then the company has checked it out, and it must be a good deal. As such, when I as an employer offer a benefit, I want to know that I would stand behind it, and that I would buy it myself."

Some companies offer benefits only because they are free—except for administrative costs—and want employees to think they are getting something of value when in fact the employer may not have done the due diligence on behalf of the employees, Reys notes. "You need to shop as aggressively for benefits when employee money is at stake as you would if your own money was at stake."

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The author is a business writer based in Carterville, Ill.

Web Extras

SHRM article: Benefits: Cost Outranks Need as a Top Consideration (SHRM Online Benefits Discipline)

SHRM research article: Voluntary Employee Benefits Series Part I: Voluntary Benefits & Job Satisfaction

SHRM article: Voluntary Benefits: No Longer on the Fringe (SHRM Online Benefits Discipline)

Article: Voluntary Sales Record Another Year of Growth (Eastbridge Consulting Group)

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