Voluntary benefits are seen as a palatable alternative to no employer-paid coverage or more costly policies in the individual insurance market, suggests the first in a series of research briefs based on Prudential Financial Inc.’s fifth annual study of employee benefits.
It’s no wonder this is happening between a sluggish economy and landmark health care legislation, researchers note, though the trend first took hold years earlier when employees began to shoulder greater financial responsibility for their benefits. Not surprisingly, businesses hurt most by the economy are leading this nationwide shift.
The Rise in the Employee-Driven Benefits Model, as the title implies, traces the emergence of a new paradigm through the eyes of 1,358 benefits decision-makers, 703 group insurance brokers and advisers, and 1,200 working Americans.
“When times are tough, on either the economic or personal front, people have a greater awareness of the necessity for insurance protection,” observes Andy Mako, senior vice president of product, marketing and strategic initiatives for Prudential’s group insurance business.
He says the notion is borne out by 20% of employees reporting that they added a new voluntary benefits plan and 25% increased coverage in the face of greater cost-shifting, while just 10% decreased or dropped coverage. Also, he explains, they’re finding that workplace coverage is not only easy and convenient, but also affordable.
A strategy view of this thinking shows a convergence of “ideas about benefit cutbacks, financial literacy education and consumer-directed health plans being woven together to tell the larger industry story about why the employee-driven model is starting to make sense to more companies,” according to Mako.
Voluntary benefit options are expected to grow substantially during the next five years, with 22% of employers and 14% of brokers and advisers predicting such a development. This trend is expected to “allow for more employee choice and personalization, as well as enhance the perceived value of the overall benefits package,” Prudential researchers explain.
Nearly half the employers polled said the economic climate is affecting their employee benefits strategy. Among the voluntary benefit plan sponsors surveyed, 42% expect the economy will increase participation in these plans, while as many as 63% of brokers and advisers share this belief.
In addition, 40% believe the Patient Protection and Affordable Care Act will have a significant impact on how benefits are funded and 36% said the same about the number of benefits that will be offered.
Two-thirds of employees credit voluntary benefits with increasing the value of their overall benefits package compared to 59% last year, but they’d like more guidance to better understand certain products. For example, employees are interested in additional help and/or advice on critical illness (39%), as well as disability and long-term care insurance (34% apiece).
On the employer side, 43% of those respondents are taking a closer look at cost-sharing alternatives. Indeed, this issue went from the lowest-rated benefits strategy in 2007 to near the top of that priority list and grew the most in importance (by more than 15 percentage points) during that three-year period. “Giving more financial responsibility to employees through consumer-directed health plans, etc.” also increased 13 percentage points to 34% from 21% in the same timeframe.
Looking ahead, about half of the employers surveyed said they expect cost-sharing and/or giving employees more responsibility to be “highly important” by the year 2015 – a 20 percentage point increase from today.
Mako believes the employee-driven model is here to stay. While the pace of benefits cuts or cost-shifting may slow once the economy recovers fully, he points out, "there’s little chance that the industry will revert to the paternalistic model, since controlling benefits costs will continue to be important to employers."
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