Although it may be hard to believe, it’s back to school season. And while we typically associate the early autumnal months with adolescent education, it’s also prime time for adult education — that is, health benefits education in preparation for the start of open enrollment in November.
That education is most certainly needed: Most organizations don’t take the time to explain health options to their employees, discussing which plans make the most sense based on their particular situations. Rather, the majority of companies tend to take a passive approach when it comes to health benefits, sharing one-and-done messages or pamphlets about the company’s healthcare offerings before putting the onus on their employees to independently research and select their health plans.
The problem with this passive approach is that most employees don’t take it upon themselves to research their benefits options. In fact, a study by Aflac found that 23% of Americans would rather clean their toilets than research their benefits options.
As a result, what we typically see is employees selecting benefits packages based on input from parents, friends and colleagues — none of whom, in most scenarios, are any more adept at benefits selection than the employee. Nor do these parents, friends and colleagues always have the necessary insight into that employee’s, or that employee’s family’s, health needs. What happens, then, is employees elect health plans without completely understanding the implications of those health plans — putting themselves at greater risk of poor coverage and higher insurance costs.
Higher healthcare costs
Consider a woman who, without input or recommendations from her employer, enrolls in a higher premium/lower deductible plan but chooses not to set up a health savings account. After enrolling, she is diagnosed with a significant medical issue. The expenses amount to $10,000. Because the treatment occurred at an in-network hospital, all the associated expenses are pre-negotiated. However, the woman still needs to pay $2,013 in out-of-pocket expenses to meet the remaining deductible.
If the woman had set up an HSA during open enrollment and begun saving her own money (up to $4,650 in 2017) to help fund these medical expenses, she could have prevented a “cash crunch” at an important time in her life. Instead of worrying about the where the money would come from, she would have been able to focus on improving her health. And because HSAs are exempt from federal and FICA taxes, she would not have had to pay taxes on those contributions. At a 25% federal tax bracket including FICA tax savings, she would have saved more than $650. Additionally, if the woman had considered adding hospital indemnity insurance at open enrollment, a large portion of her deductible expenses could have been paid for by the policy.
Even more dire are situations relating to long-term disability insurance. Some of the most common long-term disabilities include musculoskeletal disorders, connective tissue disorders and cancer. These disabilities often force employees to take off time from work, with the average long-term disability absence lasting almost three years, according to the Council for Disability Awareness.
Disability insurance protects employees’ income if they are injured or ill and unable to work. Simply put, disability insurance is crucial. Many employers offer voluntary short-term disability insurance for employees to purchase. By purchasing STD and paying for the benefit with after-tax income, the employee protects a portion of his/her income. The STD benefit would be received tax free.
Once short-term disability benefits expire, long-term disability insurance pays a percentage of employees’ salaries — usually 50 to 60%, depending on the policy. However, there are different ways to approach LTD insurance that could drastically impact what employees would receive should they become disabled. Employees need to understand that:
· LTD premiums paid by the employer become a taxable benefit to the employee when disability income is received. This could be devastating to an individual’s financial wellbeing. If the LTD benefit pays 60% of the employee’s salary and that 60% has to be taxed, the employee is left with a significantly reduced income.
· Alternatively, if the employee pays for taxes on the premium that the employer pays on his/her behalf, future disability income may be considered tax free. Sixty percent of an employee’s income that is not taxed would likely be close to his/her normal take home pay. For many employees, the cost to pay the taxes on the LTD premium is inconsequential, but the benefit of doing so may prevent significant financial hardship.
If employees, unclear about the implications of disability insurance, poorly elect their coverage, they could find themselves paying a great deal for a long time and suffer significant financial harm.
Higher healthcare costs = frustrated employees
When employees are frustrated with high healthcare costs, it’s not uncommon that they start to blame their employer for providing “bad coverage.” For this reason, it’s extremely important for employers to take an active, versus passive, approach to healthcare benefits, proactively engaging employees on their options and providing customized recommendations based on their circumstances (e.g., whether they have or are planning for a child, whether they anticipate surgery in the upcoming year, etc.).
To successfully take an active approach, employers should require benefits plan participants to annually examine their benefit elections. To guide this examination process, and ultimately steer employees toward options that are most suitable for their needs, organizations should educate their teams on basic concepts, such as how benefits work. They also should encourage one-on-one meetings (either on-site or remote) with benefits educators so employees have the opportunity to ask questions, learn about the impact of their choice and select the plan that best meets the needs of themselves and their families.
Employers also should create and distribute customized enrollment guides, newsletters, training materials and companion compliance materials, including summary plan descriptions, summaries of benefits and coverage and other legal notices.
Active engagement doesn’t just benefit employees, but employers as well. By taking an active approach, employers not only mitigate the chances of employees casting blame on them, but are also more likely to save on healthcare. When employees are educated about their options, they tend not to overspend on packages that don't align with their needs. Rather, they choose plans that ensure the right care at prices they can afford. That's a math lesson employers and employees alike can get behind.
This open enrollment season is a chance for employers to start fresh. Consider an active approach to employee engagement and help teams become smarter about their healthcare options. Yielding reduced healthcare spend and happier employees, this approach truly is a grade above outdated enrollment processes.
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