Income a Key Factor in Benefits Literacy and Enrollment



Lower-income households remain vulnerable to unforeseen medical costs

By Stephen Miller, CEBS Jun 9, 2015
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A June 2015 report reveals wide disparities between higher- and lower-income households in terms of financial preparedness, knowledge about health insurance and benefits enrollment.

Results from the 2015 WorkForces Report from Aflac, a provider of voluntary insurance benefits, show that 55 percent of employees in lower-income households (less than $50,000 in household income per year) are not prepared to pay for costs associated with an unanticipated serious illness or accident not covered by major medical insurance, compared with only 20 percent of employees in higher-income households (more than $100,000 in household income per year).

The study, conducted in January and February 2015, surveyed 1,977 employers and 5,337 employees at small, medium and large U.S. companies, shedding light on how employees at different ends of the household income spectrum are responding to the continued high cost of health care and the shift to greater consumer control over, and responsibility for, medical expenses.

A Bigger Bite from Household Budgets

Families are spending a larger portion of their income on health care today. Out-of-pocket health care costs, which include insurance premiums and deductibles, accounted for 9.6 percent of median income in 2013, almost doubling from 5.3 percent 10 years ago and increasing faster than the rate of inflation and average raises during those years.

According to a 2014 Society for Human Resource Management study, 7 out of 10 HR professionals indicated that employees’ personal financial challenges have a large impact or at least some impact on performance. One-half of the respondents reported that employee stress (50 percent) and the ability to focus on work (47 percent) are the aspects of employee performance most negatively affected by personal financial challenges.

Lack of Financial Preparation

The Aflac study shows that:

  • 78 percent of employees in lower-income households have less than $1,000 available for out-of-pocket costs associated with unexpected serious illnesses or accidents, compared with 19 percent of employees in higher-income households.

  • Almost half (49 percent) of employees in lower-income households have less than $500 available for those out-of-pocket costs, which is seven times the rate of employees in higher-income households with less than $500 available (7 percent).

  • Nearly twice as many (41 percent) employees in lower-income households say they would be unable to adjust to the large financial cost associated with a serious injury or illness, compared to 21 percent of employees in higher-income households.

Less Protected by Benefits

Employees with lower household income are less likely to take advantage of job-based health benefits offered through their employers, leaving them more vulnerable to the adverse impact of medical costs if faced with a health crisis. For example, the Aflac study indicates that:

  • Only 65 percent of employees in lower-income households who are offered employee benefits are enrolled in major medical insurance, compared with 81 percent of employees in higher-income households.
  • Only 1 in 4 employees in lower-income households are enrolled in disability insurance, compared with 56 percent of employees in higher-income households.

Lack of Benefits Knowledge

The study also finds that lower-income employees may not be taking all the steps they can to safeguard their health and financial security. Theseemployees spend less time researching their benefit options—half spend less than 30 minutes—which could lead them to make hasty benefits decisions and costly mistakes. Also, they may have less understanding of how their major medical insurance works, including newer plan options that are ra​pidly being adopted by employers. For instance, the survey shows that:

  • Only 19 percent of those in lower-income households say they are extremely or very knowledgeable about high-deductible health plans, compared to 37 percent of those in high-income households.
  • Only 20 percent of employees in lower-income households say they are extremely or very knowledgeable about flexible spending accounts, compared to 51 percent of those in higher-income households.

Bridging the Health Literacy Gap

“The continued shift of health care costs to employees should be balanced and supported by access to benefits options, education and resources,” according to the report, which advises that one of the key ways to tackle employees’ lack of knowledge about health insurance and gaps in enrollment is for employers to improve their benefits communications.

“By developing clear, easy-to-understand communications about their benefits offerings, employers can gain a better understanding of how to increase employee engagement and help bridge the health literacy gap in the workplace,” the report observes.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

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