Saturday, June 20, 2015

How Voluntary Benefits Can Make Your Offering Look 'Second' Class and Backfire with Employees

This is an excerpt from a well-written, longer piece from Marsh Consulting Group
Whether it’s critical injury insurance, cancer insurance, or pet insurance...the hype surrounding voluntary benefits seems to increase every fall. Led by the calls of an animated duck, many employees hear the sales pitch for these products and become convinced that the extra premiums they pay will protect them financially from the risk of catastrophic accidents and illnesses. Employers, pinched between ever-rising health care costs and employee protests against higher deductibles, open the door for a voluntary sales pitch as an escape route. But employers who offer robust benefits packages aren’t doing their employees a favor by adding these kinds of voluntary benefits. These products, which typically pay out less than 50% of the premiums toward actual claims, may in the end hurt employers’ credibility once their employees realize that voluntary benefits aren’t much of a benefit after all. 
Employees pay 100% of the premiums for voluntary benefits in return for a cash payout for an approved claim. Employers like voluntary benefits because they do not pay any of the cost, unlike with their other health and welfare benefits. Employees like voluntary benefits because they feel threatened by the high deductibles and out-of-pocket limits set by their health plan to control costs. Some voluntary benefits, such as disability or term life insurance, may make financial sense for employees if the potential loss is more than they can cover with their savings. The problem with many other voluntary products is that employees trade a reduction in their monthly take-home pay to protect against a very small risk of incurring a large claim. In many cases, employees are already protected against a large financial loss by their health plan, group disability plan, and other employer-provided benefits. ... 
Why Brokers Push Voluntary Benefits 
...Voluntary benefits often provide the broker with a first-year commission exceeding 60%, compared to a 3-7% commission for health plans.  No wonder brokers are raving about voluntary products! ... 
The Difference Between Group and Individual Voluntary Benefits Products 
Not all voluntary benefits are a bad deal. For example, life and disability benefits can be valuable because the financial consequences of a death or disability can be catastrophic. Voluntary dental and vision coverage can also make sense. 
While dental and vision claims are never catastrophic, this coverage is often a good value because insurers are able to negotiate network discounts with providers. But do critical illness, accident, and cancer voluntary benefits make sense? These voluntary benefits are intended to cover a portion of one’s deductible and coinsurance under certain circumstances. Ideally, employees are able to self-fund their out-of-pocket costs for such events through tax-advantaged HSAs or FSAs.... 
In sum, most mid-size employers offer “first class” benefits packages that already provide strong financial protection against serious illnesses and accidents. Be careful not to push “second class” voluntary benefits on your employees that may be in the best interests of your broker instead of your employees.