Building a better voluntary program

Sales of voluntary products dged up last year by about a 4%, according to the latest Eastbridge Consulting Group tally. But as often as not, employers’ menus of voluntary offerings have developed over time in somewhat haphazard ways that don’t necessarily support the organizations’ overarching human capital and total compensation strategies.

“Some people will just throw everything against the wall and see what sticks,” says Robert Shestack, executive vice president & voluntary benefits national practice leader for AmWINS Group.

In fact, employers increasingly are zero-basing their voluntary offerings in the context of the bigger picture. And when they’re not, consultants are nudging them in that direction to ensure that, in the words of Amy Hollis, voluntary benefits practice leader for Towers Watson, “the whole is more than the sum of its parts.”

Also see: Workforce demographics increase demand for vision benefits

Since “voluntary” is a relative concept, given the varying degree of employer subsidies today for a variety of traditionally employee-paid benefits, the “whole” that Hollis refers to can also encompass traditional employer-paid benefits as well. “With both, you have to ask yourself the same question: ‘Why am I doing this?’” says Lawrence Singer, a senior VP at Segal Group.

Overexposure risk

Although one might think there is no reason not to offer employees a vast menu of voluntary benefits, particularly when there is no cost involved, harm can indeed come from doing so, Singer warns.

“Employees have a limited ability to purchase things,” he says. “When employees buys things ad hoc, the employer loses the opportunity to educate them about what their greatest needs might really be,” he adds.

A driving force behind the greater scrutiny that many employers are applying to the design of their voluntary offerings is the ongoing fallout from the Affordable Care Act. The degree to which the ACA has played a significant role in escalating health benefit costs can be debated. What is beyond debate, however, is the punishing impact the ACA’s 40% excise will have on employers and employees in 2018 to the extent the value of their health benefits exceed the “Cadillac tax” thresholds.

Also see: Maximizing life, disability enrollment tied to timing, pairing with health

For example, employer contributions to health savings accounts (HSAs) associated with high-deductible health plans are included in the calculation of a benefit plan’s value for excise tax purposes. However, employer support for certain benefits traditionally offered purely on a voluntary basis, such as critical illness or accident insurance, will not be, according to Brian Russell, a Principal in Mercer’s voluntary benefits unit.

That could mean some employers might decide to shift dollars from HSA contributions to subsidizing those kinds of insurance, Russell suggests. Employees with limited savings covered by a high deductible plan could face a cash crunch if they or any of their dependents had a serious accident or sustained a critical illness. But that could be addressed if employees took advantage of the employer subsidy and purchased that kind of coverage.

When helping employers to take a fresh look at their voluntary benefits menu, Barbara Gniewek, a principal with PricewaterhouseCoopers, first explores a client’s “objectives for talent,” and the corporate culture. “Some are all about productivity; others are about creating a certain kind of workplace environment that fosters creativity,” she explains.

After getting a feel for that, she updates them on the evolution of voluntary products, and the gaps in the employers’ current offerings that they might fill.

Essential questions

Hollis also starts at that 35,000-foot level, then drills down to assessing five more factors that would shape any recommendations she would offer:

• What are your current core benefits today and what challenges do you face with them?

• What are the relevant benefit trends in your industry?

• What is the demographic profile of your current employee population, and what kind of people are you trying to attract?

• How have your current voluntary offerings been performing, in terms of participation levels and claims filed (i.e., are employees who have purchased the benefit actually taking advantage of it)?

• How are you communicating and enrolling employees?

Not to be lost in this process is employee needs. People often need a little help getting over the hump to purchase adequate life insurance, long-term disability, and related coverage that many would rather not think about. Today, only one-third of employees have a relationship with an insurance agent, according to Shestack. That means employers by default can play that vital role.

Also see: Small employers overestimate cost of LTD insurance

That does not mean, however, that employers should give short shrift to other voluntary benefit categories, particularly if they are seeking ways to distinguish themselves. In a recent survey of 248 employers conducted by EBN, one respondent expressed an interest in “programs and services that are ‘out of the box’ and mirror some of the unconventional services offered by start-up employers and high-tech companies.” Examples included preferred buyer programs for luxury goods, timesharing programs and “affinity relationships.”

Being at the cutting edge with voluntary benefit offerings can fulfill an employee value proposition, but getting some statistical validation can help. “An employer can have a certain vision,” notes Russell, “but it’s a good idea to see what’s going on in the marketplace.”

Polling employees themselves is also a good way to get a reality check. However, employers should exercise caution not to inadvertently raise employee expectations about benefits they have no intention to offer.

In-demand benefits

Sometimes strong demand is evident for somewhat unconventional voluntary benefit products that have been available for many years. Pet insurance, for example, was reported to be in “high demand” by 5.4% of employers surveyed by EBN, and another 43.2% reported that it was “somewhat in demand.”

The percentage of employers offering pet insurance in that survey sample, 16.1%, was in the same ballpark as those offering supplemental health insurance and identity theft protection. In other recent research, the PwC Health and Well-being Touchstone Survey, 24% of employers offered pet insurance. Only 1% provided any subsidy for the benefit, however.

Also see: Awareness spurs growth in pet insurance

When the time comes to adjust the voluntary menu, Hollis says employers can decide to offer something they don’t have today, modify and upgrade an existing product based on new offerings on the market, modify communication and enrollment practices, or remove an offering altogether.

In Hollis’ experience, dramatic cutbacks in the voluntary benefits menu are rare when employers are keeping an eye out for offerings with minimal participation. It becomes more of an issue of which products to bring focus to. “They may have decided that of their current 30 options, they’re going to concentrate on 25, to clear the noise” of too much information, she says.

Focus on demographics

A fundamental principle in voluntary benefit menu design is recognizing the varying needs of differing demographic segments. Few  younger employees, for example, will be tempted by long-term care insurance, but might instead find accident coverage far more appropriate.

Also, employers are advised to think not only in terms of their current workforce, but the kind of employees they are trying to attract.

Enrollment and communication strategies need to be tailored by employee demographic as well.

Also see: Voluntary benefits in 2015: What employers need to know

In fact, research has shown that the quality and strength of a voluntary benefits communication effort often can have more of an impact on employee satisfaction than the richness of the program itself, Shestack says.

Even so, he notes that there are limits to what a strong communication effort can accomplish if employees are asked to digest too much new information. Thus even if you have identified, for example, four or six new voluntary products that might make your offering more consistent with your strategic aims, offering two or three in the first year, and the rest in the following, might be the better way to go. “We try to be very methodical about it,” he says.

SIDEBAR

The hierarchy of perils

Educate first, then present possible solutions.

That’s what Lawrence Singer, a senior vice president of Segal Group, believes is the best path to getting the most mileage out of a coherently designed voluntary benefits program.

Singer talks about the “perils” employees face, and how they vary according to each employee’s circumstances. “I think it’s good to go peril-by-peril,” he says.

Viewed from that perspective, employees are better equipped to make the most rational benefit selections, and perhaps more greatly appreciate their employer’s effort to help them minimize their exposure to those perils.

Take, for example, the risk of “premature death.” Employees need to consider the financial implications of that eventuality, before they are shown a bewildering array of life insurance products.

Also see: Exchanges give voluntary benefits a boost

Similarly, a “peril” related to life insurance is the prospect of not being able to purchase it – or not at an affordable price. Thus part of the peril-sensitizing process that Singer advocates would include educating employees about the various ways life insurance is sold (e.g., group versus individually underwritten), and how the timing of the purchase affects the cost.

The same approach can be applied to disability, serious accidents, critical illness, and all the other hazards people face. Although the word “peril” might be considered overly dramatic by some, getting employees to look at voluntary benefits through the lens of a hierarchy of risk could change their basic approach to voluntary benefit selection.

Richard Stolz is a freelance writer based in Rockville, Maryland.