In this age of rising benefit expenses and tighter bottom lines, no one would blame employers for looking for ways to enhance their employee benefit menu at little or no cost. For many companies, voluntary benefits have fulfilled that role over the years. But organizations often fall short in conveying the value that these offerings add to the total rewards package.
Voluntary benefits are products—such as life, disability, critical-illness and accident insurance, as well as pet coverage, ID theft protection, legal services and financial counseling—offered through an employer but paid for partially or solely by workers through payroll deferral. The attraction of these benefits is that they can offer individual employees group rates that they would likely be unable to obtain on their own.
In a 2013 survey of CFOs by benefits provider Prudential Financial, 74 percent agreed or strongly agreed that offering voluntary benefits is a cost-effective way to increase employees’ satisfaction with overall benefits. The percentage of CFOs who agreed with that statement increased significantly from just a year earlier, when a similar survey found that 56 percent agreed that voluntary benefits boost workers’ satisfaction with the benefits package.
Similarly, a 2013 survey of employee benefits professionals at midsize and large businesses, conducted by consultancy Towers Watson, showed that employers strongly believe that voluntary benefits will become more important to their total rewards strategy over the next five years. The primary reasons companies said they adopt voluntary options are to provide personalized benefits that fit employees’ needs and lifestyles (83 percent) and to enrich their total rewards packages (74 percent).
Top Voluntary Benefits Being Considered for 2015
% that offered in 2013
% considering offering by 2015
Source: Towers Watson 2013 Voluntary Benefits and Services Survey, conducted March/April 2013 among employee benefit professionals at midsize and large companies.
However, simply offering voluntary benefits does not necessarily raise employee satisfaction. Organizations are encouraged to take the following steps to ensure that voluntary benefits are recognized as adding value to the overall rewards mix.
Tailoring to Employee Needs
There is a whole array of voluntary benefits an employer can offer. However, a well-tailored program that reflects the makeup of the workforce can be more effective. “I don’t think it is a good idea for employers to have a megamenu of voluntary benefits,” said Amy Hollis, a principal at Buck Consultants in Atlanta. “That could confuse or overwhelm employees.”
Instead, Hollis suggests that businesses tailor the voluntary-benefit menu based on employee demographics (including age, income level and marital status) while looking for ways to enhance the core benefits package. “Employees want choices, and they want to be able to customize whatever packages are available to them.”
Employee demographics and behavior can also affect the overall impact a voluntary-benefits program can have in general. “There is interest in optimizing these programs,” said David Lusk, a principal at Deloitte Consulting in Seattle. “The first thing employers need to recognize is that meaningful participation rates are going to vary dramatically based on what is offered, the cost of the benefits, and the makeup of the workforce.” For example, a company with a consistently high turnover rate and lower-paid workers may not generate much additional satisfaction, compared with an organization that has a longer-tenured workforce with a higher level of disposable income. In the latter case, said Lusk, “You can leverage these programs quite nicely.”
Integrating with Core Benefits
It is not unusual for voluntary benefits to be a neglected part of the overall benefits program, particularly during open enrollment, when businesses are focused on helping employees understand and make choices about core benefit programs, like health care coverage.
However, another way to increase overall employee satisfaction is to integrate voluntary benefits as much as possible with employer-paid core benefit programs. “Don’t push voluntary benefits to the side,” Hollis urged. “They should be presented as part of the overall benefits the organization offers, in order to enhance the perceived value of those benefits by employees.” This should be backed up during the enrollment period by strategic communication that highlights logical connections between core employer-paid benefits and employee-paid voluntary benefits.
For example, an organization that pays for a baseline short-term-disability program could enhance the initiative by offering a voluntary, employee-paid layer of disability benefits. More important, the employer can emphasize that addition by communicating the voluntary program as it publicizes the core disability program.
Allowing for Personal Customization
Voluntary benefits can deliver advantages such as choice, convenience and affordability. Employees can select from an array of options to customize their benefits package to fit their lifestyle. “Personalization is a key factor in the plan design for voluntary benefits and services,” said Beth Grellner, group health and benefits practice leader at Towers Watson. “In contrast to older generations, Generation Y employees are interested in benefit plans that are customized to their needs. Companies that are reliant on these younger employees can evaluate new voluntary benefit and service models to fit these needs.”
Making Sure Products Provide value
The best way to sour workers on any benefit program, particularly an employee-paid one, is to offer products that do not provide a clear and convenient benefit. In short, employees must be able to access and use the benefits they purchase when they need them. Lusk recalled a situation in which employees using a legal-services benefit had to contact several attorneys purported to be participating in the program before finding one who actually was still active.
Other voluntary benefits may offer the convenience of paying for them through a payroll deduction but not provide much in the way of savings. For example, group home and auto insurance may not offer prices that are much different from those that individuals could get on their own, because these policies must still be underwritten based on the specific factors in each case, such as the value and location of someone’s house. By contrast, voluntary life insurance provides guaranteed issue coverage and offers an important benefit to individuals who would pay more or even be excluded from coverage when purchasing a policy through the individual market.
Filling Coverage Holes
Voluntary benefits can also help fill coverage holes when an employer cuts back on or eliminates a specific benefit program. Given the changes brought by health care reform, employer cost shifting, increasing deductibles and the looming Cadillac tax, employees might value voluntary benefits more if these programs help them plug perceived gaps in their health care coverage. For instance, middle-age workers might gravitate toward critical-illness coverage, while those with young families might prefer an accident or injury policy that provides some level of cost protection if a child is injured participating in sports or other activities.
“Those products can help fill in the gaps in out-of-pocket expenses,” said Hollis. “The goal is to help employees to reduce their financial exposure but not in the way that is going to cause them to overextend themselves.”
As a general rule, voluntary-benefits programs must be chosen, managed and communicated with care in order to achieve the employer’s goals. “Employers need to be strategic and thoughtful around what they are offering, then teach and consult with employees about these benefits through communications,” said Hollis. “The message can focus on how these voluntary benefits fill in a gap, provide savings or convenience to the employee, or give employees access to something that they would not get on the open market on their own.”
Concern for Critical-Illness Costs
Many workers fear the financialimpact of a critical illness even more than dying from one, according to Well-Placed Fears: Workers’ Perceptions of Critical Illness, a 2013 report by benefits provider Sun Life Financial Inc. Such concerns may be driven by a rise in out-of-pocket health care costs as employer-sponsored health plans require workers to shoulder an increasing share of medical costs.
To highlight this trend, the report estimated the per-person out-of-pocket medical costs for individuals with health insurance who experience a critical illness, including cancer ($6,740), stroke ($17,680) and heart attack ($14,234). The cost estimates were based on claims data from more than 300,000 of the firm’s stop-loss insurance claims.
Among other findings noted:
- More than one-third (36 percent) of U.S. workers believe they have critical-illness coverage when industry estimates suggest that under 5 percent of workers actually have this coverage.
- Two-thirds (66 percent) of workers who personally experienced a critical illness had to make financial sacrifices to meet uncovered medical or nonmedical costs, despite owning health insurance.
- More than one-third (37 percent) of workers who survived a critical illness found themselves out of work for four months or longer, and 12 percent of workers who experienced a critical illness declared bankruptcy.
Joanne Sammer is a New Jersey-based business and financial writer.
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