A fine line: Customizable benefits may not be as helpful as you think

The push to make benefits more personalized to employees has gained momentum. But could there be such a thing as too much customization?

Any company knows that a good benefits package is critical in attracting or retaining talent, and 75% of employees feel that access to benefits through an employer is now more important than ever before, according to a study by insurance company Prudential. But in an effort to give employees a more individualized selection, employers may be inadvertently setting their workers up for failure.

The issue isn’t the recent adoption of more expansive wellness benefits such as caregiving options for parents or mental health resources and PTO, according to Michael Schultz, founder of Aclaimant, a workflow solution for safety and risk management. It’s more so when companies lose a standard benefit plan altogether in exchange for something more individualized to their employee demographic.

“Adverse selection is always going to be the underlying problem,” he says. “You could be putting your people in a position that they’re negatively selecting against themselves.”

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Adverse selection becomes most dangerous in a healthcare setting, according to Schultz, as it can put employees at greater risk for bankruptcy, due to the inability to pay off medical bills. For example, a company with a lot of employees under the age of 30 may choose to “personalize” their healthcare plan by basing it off of a younger individual’s resistance to getting sick and favor options with higher deductibles — which is a good strategy, until it isn’t. During COVID, the demand for medical attention rose, but these plans could make it challenging to cover the full scope of healthcare needs.

“That's a problem,” Schultz says. “That's why customizable [plan design] has to also include a degree of what I call guardrails, to make sure that we don't put employees in a position to become financially destroyed.”

To avoid this risk, keeping a standard plan may be more sustainable in some instances, according to Schultz. From an economic perspective, a standard plan gives employers a degree of certainty around what’s covered.

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But with the right steps in place, companies can juggle both — as long as the personalized benefit plans come with personalized counsel and resources. If employers want to offer plans that extend past the classic thousand dollar deductible, additional tools and solutions should be part of the equation.

“It shouldn’t be if you can afford to offer the insurance, you can't afford to get sick — that doesn't make any sense,” Schultz says. “There needs to be greater checks and balances.”