Safety Net

Voluntary Benefits Are Becoming More Popular with Employees

By definition, an employee benefit is a perk largely paid for by the employer.

Right?

Actually, that’s not always the case these days, as a concept called ‘voluntary benefits’ is becoming increasingly prominent in workplaces across America. These are benefits made accessible to employees but are paid for mostly or fully out of their own pockets.

And workers, for the most part, are responding positively.

“The voluntary benefit is really an increasing trend, no question,” said Patti D’Amaddio, human resource generalist at the Employers Assoc. of the NorthEast, “because it allows the employer to add value to their benefit plan without adding a lot of cost. Instead of not offering things they feel they can’t afford, they’re offering voluntary benefits and letting people tailor them to match their personal needs, whether it’s long-term care or a number of other things.”

A survey conducted by EANE registered growing use of voluntary benefits, or VBs. Of the member companies that responded, 62% of them offer VBs of some kind. Of this group, 93% offer supplemental life insurance, 70% offer dependent life insurance, 20% offer auto insurance, 18% include long-term-care insurance, and 10% provide legal services. Four percent even offer pet insurance.

“That’s valued especially by Baby Boomers, whose kids have grown up; they’re spending a lot of money on their pets,” D’Amaddio said. “Again, anything can be tailored to the employees’ needs. Even if it costs the employee, it’s seen as a benefit being offered by the employer to the employee.”

Jim Mooradian and Bryan Lambert, founder and broker, respectively, with Jim Mooradian and Associates, a Boston-based insurance-brokerage firm, recently wrote on the topic of voluntary benefits for the Northeast Human Resources Assoc.

They note that, in today’s changing financial landscape, companies are looking for creative ways to expand their benefits packages while tightening their belts in other ways. In many cases, businesses are looking to control costs in their medical plans and other employer-funded benefits, from gym memberships to eye care.

Scott Llewellyn, western regional sales vice president at the Ameritas Group, recently told California Broker magazine that the idea of spending a few dollars per paycheck for that peace of mind is appealing to many employees — especially at a time when employers are paring back the health and dental benefits they traditionally pay for.

“Offsetting some of the lack in demand created by the down economy is a host of very new and creative voluntary benefits,” he notes. “Brokers are using these benefits to help increase their income, given the new realities of lower commissions from medical carriers.”

As Mooradian and Lambert point out, “companies increasingly see voluntary benefits as an effective tool for boosting employee commitment at little to no cost. Since voluntary benefits are employee-paid, corporate expenses are minimal, yet VBs deliver an immediate, tangible benefit to employees. Once the benefit is set up, there are virtually no ongoing demands on HR staff resources, since claims are administered directly by the carrier.”

It’s a win-win, but only if employees feel voluntary benefits are worth the expense. Increasingly, they do.

 

Youth Appeal

D’Amaddio cited a MetLife study that suggested that younger workers — both Gen X and Gen Y — are driving the new interest in voluntary benefits.

According to the survey, one half of such workers in smaller businesses (those with fewer than 500 employees) said current economic conditions make them look more toward employee benefits to achieve financial security — even if they have to fund 100% of the cost themselves.

Businesses, in turn, are seeing voluntary benefits as a recruiting and retention tool. Four out of five employers of smaller businesses surveyed in MetLife’s 10th annual Study of Employment Benefit Trends ‘strongly agree’ that retaining quality workers is an extremely important objective of employee benefits. Meanwhile, the survey found that 72% younger workers who are very satisfied with their benefits feel a strong sense of loyalty to their employers, compared with 46% of younger workers overall.

“It’s hard to overestimate the importance of responding to the needs of younger workers on whose shoulders the future of a small business can depend,” said Anthony Nugent, executive vice president of Group, Voluntary, and Worksite Sales at MetLife. “Our study underscores that the generational differences about benefit needs and preferences are not just reflections of age. Younger workers, particularly those in many smaller organizations that were hit very hard by the recession, and who are unsure about the future of Social Security, have a different benefits perspective than older generations.”

The survey was reported by World at Work, a national employer-resources firm, which also noted that Gen X and Gen Y members, who collectively comprise 56% of the workforce, recognize that a broad range of benefits carries a cost, and they are more willing than their predecessors to bear some of those costs, despite the financial stresses many of them are feeling in the current economy.

“Two-thirds of Gen X and Gen Y would rather pay more than lose those benefits,” D’Amaddio said, again citing the MetLife survey. In fact, 54% of younger workers would be interested in having a wider array of benefits options even if means paying the full cost of certain voluntary benefits, such as life, dental, vision, disability, critical illness, or homeowner/auto insurance.

Such workers are essentially making a cost-benefit calculation between the cost of premiums for some coverages — which can be as little as $3 or $4 per week — and the the benefit, which is often a predetermined lump sum, with few strings attached, paid when a covered event occurs, such as an accident or a debilitating illness such as cancer, stroke, or heart attack, Mooradian and Lambert note.

Voluntary benefits, they write, “offer simple, affordable solutions to very real problems. An average accident policy, for example, costs an employee about $3.75 a week — about the same as a cup of coffee and a doughnut.”

And the terms, they note, are straightforward. “If an employee’s child falls off the swingset and breaks her wrist, the policy could pay $400 to be used for any purpose. If an employee slips and dislocates a shoulder, the policy could pay $500. Unlike core health and disability benefits, the money from this accident policy can be used to pay anything from uncovered medical costs to household expenses such as a utility bill. For rank-and-file employees, getting cash in hand during a difficult time is crucial to their financial well-being.”

Voluntary benefits can bring peace of mind during more serious medical situations as well, said Timm Marini, president of FieldEddy Insurance.

“We do a lot of voluntary benefits,” he said. “Historically, it’s been dental and disability, but all of a sudden, more and more, it’s critical illness and cancer coverage, things of that nature. That’s the hottest trend right now.”

That development may be in response to a couple of colliding trends — the fact that Americans are living longer than ever, often with chronic conditions, and the ever-soaring costs of health care, particularly for older and sicker patients.

“I think a lot of this is congruent with the life tables going up — more and more people are living longer, the medicines are better, and they’re living longer even with cancer and things of that nature,” Marini said. “Diseases are certainly as preventable as they’ve ever been, and the success rate is higher in treating cancer and putting it into remission.”

 

When Trouble Strikes

Studies increasingly show that families appreciate the way VBs allow them some spending flexibility during a rough patch. According to MetLife’s annual survey, having enough money to cover bills during sudden illness is the number-one concern of 63% of full-time employees and 75% of young families with children.

“One of the biggest issues facing America’s working families during a health crisis isn’t the cost of care itself,” Mooradian and Lambert point out. “It’s the loss of cash flow that results from being out of work, coupled with uncovered expenses associated with aftercare and treatment. If a family is living paycheck to paycheck, having the primary breadwinner miss a week of work has a significant impact on their financial stability.”

D’Amaddio also noted that voluntary benefits are convenient, in that they’re paid with a payroll deduction, and they are typically transferrable, so workers can take these benefits with them when they change jobs. “They’re not tied directly to the employer — and with the transient nature of employment right now, people aren’t staying 40 years with the same company, and they can take these benefits with them wherever they go.”

In addition, according to MetLife’s annual survey, 55% of employees feel that payroll deductions for voluntary benefits help them to be more disciplined about saving. This discipline — coupled with the financial safety net the benefits provide — can also translate into increased enrollment in company-sponsored 401(k) plans. At the very least, the report suggests, accident and critical-illness insurance might help curb a trend toward increasing credit-card debt incurred by participants in high-deductible health plans.

And companies are beginning to see quality VBs as retention tools. The MetLife survey suggests that employees who feel good about their company’s benefit package are much more likely to enjoy their jobs and to feel loyal to their employers.

“In small to mid-sized companies, when Joe or Jill has a heart attack, everyone knows about it,” Mooradian and Lambert write. “A $10,000 critical-illness payout within weeks of a diagnosis becomes good news that travels fast. Maybe that’s why critical-illness coverage is experiencing double-digit growth.”

But D’Amaddio cautioned employers about who they partner with to administer such benefits.

“We’ve heard some horror stories,” she told BusinessWest. “You want to make sure your partner is all about service for your employees, because an employee might say, ‘this is a great benefit, even if I have to pay for it’ — until they can’t get a claim processed, or they can’t get hold of a representative, or the service is inadequate. Then it becomes a detriment.”

In most cases, however, voluntary benefits are proving to be a key safety net for employees, one they’re more than happy to pay for.

 

Joseph Bednar can be reached at [email protected]