A small company competing for engineering talent in a very competitive industry, Lafayette, La.-based information technology company Global Data Systems offers its 100 employees what it considers to be very competitive health plans with annual deductibles of $500 and $1,000 as a way to differentiate itself.
Even so, “there are companies in our area offering plans with even lower deductibles—in one case, a plan with a $350 deductible,” says Rich Stewart, SPHR, Global Data Systems’ director of health, safety, environmental and human resources. “There is a lot of competition now.” To keep up in the battle for talent, the company relies on its voluntary benefits (supplemental life insurance, vision coverage, dental insurance, short- and long-term disability, cancer coverage, and supplemental hospitalization policies) to expand what it can offer current and prospective employees.
Global Data Systems is not alone. Voluntary benefits have long been a relatively easy and inexpensive way to expand the benefits a company can offer employees. Now that the Affordable Care Act (ACA) and rising health care costs are pushing employers toward higher-deductible health plans and greater employee cost-sharing, these offerings are taking on a new role in many organizations’ overall benefits strategies.
“Our survey data indicates that employees are willing to pay 100 percent of the costs of certain benefits,” says Alyssa Williams, a voluntary benefits consultant with Mercer in Atlanta. “They just want the employer to serve as the access point.” In this new role, employers can use voluntary benefits as a way to help employees manage their growing financial exposure should they ever be hospitalized or have health problems that require a significant amount of care.
For many years, traditional voluntary benefits products such as disability and supplemental life insurance have played a role in life planning by providing financial help in the event of disability or death. However, with out-of-pocket medical costs growing into the tens of thousands of dollars in some cases, voluntary benefits can extend this type of financial protection to health care.
“Prior to health care reform, the discussion of voluntary benefits had always been kind of an afterthought,” says Bruce Sletten, leader of the voluntary benefits practice at Aon Hewitt in Dallas. Employers and employees alike are now looking to voluntary benefits to meet personal needs. “With such an emphasis on health care, the medical supplement plans like critical-illness policies tend to get a lot of attention,” he says. “This is especially true with high-deductible policies growing in popularity.”
Voluntary benefits products can either help fill in the financial gap of high-deductible health insurance policies for specific illnesses, such as cancer, or provide general gap coverage up to a certain dollar amount, such as $5,000, to cover out-of-pocket costs.
For example, a supplemental medical policy might offer a $1,000 benefit if a covered individual is hospitalized and $100 per day of the hospital stay. For an employee who has a health plan with a $2,500 deductible and a three-day hospital stay, the resulting $1,300 benefit can help offset the higher deductible. “With this coverage available, employers have more flexibility to offer higher-deductible health plans,” says David Peasall, human resources director at professional employer organization FrankCrum in Clearwater, Fla.
In some cases, employees may even find that the premium for a high-deductible health plan plus the premium for a supplemental voluntary medical plan is lower than the premium for a health plan with a lower deductible.
In addition, employers see voluntary benefits as an extension of the consumer-directed health care that high-deductible plans are designed to encourage. According to the results of the Aon Hewitt 2013 Health Care Survey, which polled 837 organizations, 10 percent of employers currently offer additional voluntary supplemental medical offerings, such as critical-illness coverage. “Employers offering a full portfolio of these products helps support the idea of employees as consumers,” according to the survey report. “Supplemental medical benefits allow employees to determine how they want to manage their risk when enrolling in a high-deductible plan.” Forty-four percent of responding employers planned to consider such an approach in the next three to five years.
Interest in this role for voluntary benefits is growing. A survey conducted by the insurance and financial services trade association LIMRA found that premium sales through voluntary benefits programs increased 9 percent in 2013 to $4.3 billion. Health insurance products saw even greater growth of 13 percent to $2.6 billion, with accident, critical-illness and vision insurance seeing double-digit increases for the third straight year.
Health-related insurance is not the only type of product offered through voluntary benefits, which can extend to everything from financial counseling and identity theft to pet insurance and umbrella liability coverage.
Figuring out which voluntary benefits to offer is an important decision. “We consider many things, such as current and future workforce demographics, culture, utilization rates, competitive data, and employee survey information,” says Jeff Tomschin, SPHR, GPHR, vice president, human resources, for Phillips Phillips Service Industries Inc., a diversified holding company with 500 full-time employees based in Livonia, Mich. The company’s goal for the program is to supplement the overall benefits strategy by allowing individual employees to choose what additional benefits may be important to them. In addition to long-term-care coverage, the company supplements its medical insurance with accident and critical-illness insurance that can help employees to cover the deductible within a high-deductible health plan.
Most Prevalent Voluntary Benefits
Employee demographics can influence which voluntary benefits to offer, according to Adam Calli, SPHR, director of human resources at Femme Comp Inc., a defense contractor based in Chantilly, Va. For example, because the organization has an older employee population, the company found a supplemental life insurance program to be more relevant than a 529 plan college savings program.
Calli suggests talking to employees and managers informally, in addition to convening focus groups and conducting surveys, in order to get a good sense of what employees will value in voluntary benefits. It’s not necessary to conduct a survey every year “unless the company has undergone some major change, like a merger or acquisition or a layoff, that could change the size and makeup of the workforce,” he notes.
Phillips Service Industries decided to expand its voluntary benefits offerings following the passage of the ACA. “We began offering long-term-care insurance to our employees in 2011, in response to proposals within the Affordable Care Act that would have created a national long-term-care program,” Tomschin says. That portion of the ACA has since been abandoned; however, Phillips Service Industries still chose to roll it out as a voluntary benefit. “It proved popular based on the group rates available and the guaranteed issue upon the initial offer,” he says.
By purchasing these benefits through a payroll deduction, employees gain access to administrative convenience and a vetted vendor. Most important, voluntary benefits provide group underwriting that allows insurers to spread the risk through the larger group and, as a result, offer insurance rates that are likely to be far lower than what employees could get for individual coverage on their own.
Top Emerging Voluntary Benefits
According to Towers Watson’s 2013 Voluntary Benefits and Services Survey results, the voluntary benefits listed below are becoming more popular.
Critical-illness insurance: Gives employees a lump-sum payout in the event of certain critical illnesses such as a stroke or heart attack.
Identity theft insurance: Covers the cost of certain expenses in the event that someone wrongfully obtains and uses an employee’s personal data.
Financial counseling services: Takes the form of one-on-one counseling with a certified financial professional or occasional seminars.
Pet insurance: Covers the cost of some injuries and illnesses to cats, dogs and, in some cases, exotic pets.
Long-term-care coverage: Reimburses for long-term-care costs that generally are not covered by health insurance, Medicare or Medicaid.
A successful voluntary benefits program must offer what employees need and want while also helping the organization meet its strategic goals. “There are only so many spendable dollars in anyone’s paycheck,” Sletten says.
When it comes to setting up a voluntary benefits program, employers have a number of vendor options available. If the organization uses a broker for any of its benefits, that individual can be a good place to start. “The broker can go to market and negotiate on your behalf as far as the required number of lives covered for the program to be viable, as well as price,” says Bill Dalicandro, vice president of consumer solutions with Unum Group in Portland, Maine. If the broker has been working with the organization on its benefits for any length of time, he or she may also have insight into what types of programs the employee population might respond to.
The private health insurance exchanges that have been developed rapidly since the passage of the ACA often allow employers to add various voluntary benefits to the overall menu of benefits they offer. Williams notes that, through Mercer’s private exchange, individuals can enroll in voluntary supplemental medical programs immediately after choosing a medical plan.
“Employees can look at their risk exposure with the medical plan they choose, whether that is a high-deductible plan or a lower-deductible plan, and then immediately move on to voluntary benefit options, including critical-illness, accident or hospital indemnity programs, while they are in that mindset of making medical decisions,” Williams says. She notes that Mercer’s internal data show that 34 percent EPL currently offers dental, vision, life, accidental death and dismemberment, and optional life insurance and is considering offering supplemental health, long-term-care and cancer insurance during its next open enrollment period.
Making a Difference For Smaller Organizations
Voluntary benefits programs allow smaller companies to offer a wider array of benefits than they otherwise would be able to. “We must continuously find ways to remain competitive and attract and retain top talent while evaluating costs associated with those benefits,” says Cathy E. Hulsey, SPHR, vice president of human resources for EPL Inc.,
a Birmingham, Ala.-based, 90-employee provider of services to credit unions.
“The costs of our voluntary benefits are minimal in comparison to the benefits derived from employee engagement, morale, productivity and retention,” Hulsey says. Because certain voluntary benefits, such as supplemental medical coverage, can be paid for with pretax dollars, the resulting reduction in payroll taxes could offset any administrative or other costs associated with offering these programs. Furthermore, insurance-based products frequently are offered at group rates that are much lower than what most employees would pay for an individual policy.
of employees with family coverage who chose a high-deductible health plan opted to purchase one or more supplemental medical plans.
To be viable, voluntary benefits programs require a certain number of employees to participate. But even then, the carrier could alter the program. For example, Femme Comp, which has about 300 employees, offered long-term-care coverage until its carrier stopped providing the product to companies with fewer than 500 employees. Examples such as this show why it is important to make sure that employees have the option to convert their coverage to an individual policy if such a change occurs or if they leave the company.
Rolling It Out
When rolling out a new voluntary benefits plan, Aon Hewitt’s Sletten suggests a three-year strategy. During the first year, the employer can roll out products related to health care coverage, followed by income protection products such as disability in the second, and consumer products such as auto and homeowners insurance, identity theft, and discount purchase programs in the third.
No matter what products they offer, employers should be prepared to provide some level of enrollment support and education to help employees understand these programs, how they work and under what circumstances benefits would be paid. “Some employers use this opportunity to educate employees on other aspects of the benefits program, such as the merits of filling out a health risk assessment or discussing whether to choose a high-deductible health plan and how these voluntary products can complement that choice,” Dalicandro says.
Femme Comp has adopted a strategy of rolling out a new voluntary benefit, including supplemental life insurance and long-term-care insurance, each year to show a continual expansion of the benefits program. Each new voluntary benefit is chosen based on preferences identified in employee surveys. “While you can’t give employees everything they want, you can parcel out new benefits a little bit at a time,” Calli says. “It can give employees a sense that the company is always trying to offer something new.”
The presence of these new voluntary benefits can also help ease tensions over other benefits changes, such as higher employee premium contributions and discontinued programs. Calli recalled the 2013 enrollment period in which the company had been hit with a very large increase in the cost of health benefits. To offset that cost without sacrificing the competitiveness of the health plan, the company made changes to other benefit programs—for example, reducing company-paid group term life insurance coverage and raising premiums on dental and vision plans.
“It’s like that song—‘a spoonful of sugar helps the medicine go down,’ ” Calli says. “Sometimes, we have to make changes because of costs. So having a new program to share during open enrollment—especially one that offers group rates that are less than someone can get on their own—is obviously beneficial.”
Joanne Sammer is a New Jersey-based business and financial writer.