The employee benefits arena has undergone a seismic change in just a few short years. Crippled by rising costs, employers are no longer willing or able to pay for comprehensive health insurance coverage while still offering core benefit programs such as life and disability coverage, along with attractive pension programs. Between 1999 and 2004, benefits costs increased by a staggering 80 percent, forcing employers to scramble to control costs. For some employers, this meant increasing employees´ contributions to their health insurance program, reducing the benefits offered within existing medical plans and increasing employees´ out-of-pocket expenses.
As the U.S. health coverage environment evolves, however, employees still want to know: What are employers doing to help offset the rising costs of providing for our families? The answer comes in the form of voluntary benefits. Employers striving to offset insurance costs while still attracting and retaining top work force talent increasingly are offering variable voluntary benefits programs—and working Americans eagerly are accepting the shift as a way to supplement core coverage.
The growing popularity of voluntary benefits is evident in the numbers. According to the 2006 U.S. worksite study, Eastbridge Consulting´s "The Future of Worksite Marketing," total industry sales of voluntary benefits amounted to approximately $5.4 billion in 2006-a growth of 170 percent from 1997. Of those sales, 56 percent were in individual voluntary benefits plans, while 44 percent were in group voluntary benefits plans. Over the next few years, the voluntary benefits market is expected to grow 10 percent annually to reach $7 billion by 2008-and $10 billion annually by 2010.
Why Voluntary Benefits?
The surge in voluntary benefits can be defined in one word: finances. As health care costs rise, both employers and their workers are feeling the pinch where it hurts the most.
Voluntary benefits programs have emerged as a way to control costs while allowing both parties to prosper. For employees, voluntary benefits provide a cost-effective, choice-driven way to bridge the gaps left by diminished employer-covered benefits plans. The majority of voluntary benefits recipients fall into the following categories:
• Employees who currently are underinsured due to cost constraints
• Employees who are deemed uninsurable by the standards of comprehensive benefits programs
• Individuals who do not have access to quality insurance programs outside of their places of employment.
The rewards of voluntary benefits for employers are just as financially tangible. According to LIMRA´s "The Changing Group Insurance and Health Care Marketplace," JHA Disability Fact Book, employers who embrace voluntary benefits can expect the following:
• Controlled health care costs. Voluntary benefits provide employers with an opportunity to help employees offset outof- pocket medical expenses, potentially reducing the impact of increases to deductibles, co-insurance and co-payments.
• Enhanced employee recruitment and retention. Voluntary benefits help enrich an employer´s benefit offering, providing opportunities for more comprehensive coverage. Successful voluntary benefits providers also educate employees on the scope and value of employer-provided programs.
• Reduced administrative costs. Voluntary benefits help employers subsidize their core benefits communication, enrollment and possible human resources outsourcing expenses.
The key for employers, of course, is to offer affordable, easy-to-understand voluntary benefits programs that matter most to their employees. Customer choice is considered a virtue. As a result, employers are offering a mix of medical and non-medical voluntary programs. Here´s a quick look at the top contenders.
Medical: Critical Illness and Accident Insurance
Critical Illness Insurance
Modern medicine has increased dramatically our chances of surviving a critical illness. According to a 2007 report by the American Heart Association:
• An estimated 1.2 million Americans will have a new or recurrent coronary attack.
• 700,000 Americans suffer a stroke each year.
• 88 percent of heart attack patients under 65 are able to return to work. More than 4.6 million stroke victims are alive today.
Critical illness insurance is designed to pay a lump-sum benefit directly to the insured (not to hospitals or doctors) upon diagnosis of a covered critical illness. The benefits paid through this policy help fill gaps in major medical insurance. They also can pay for caregivers, special medical equipment and transportation. Some policies provide an annual health screening benefit to help in early detection and treatment of illnesses.
Accident Insurance
Accident insurance is more necessary than most people think. According to the 2007 edition of the National Safety Council´s Injury Facts:
• 28.1 million Americans are treated in hospital emergency rooms each year for injuries.
• 4.5 million children under age 14 are treated in the ER for injuries occurring in the home.
• Each year, there are 113,000 unintentionalinjury deaths and about 24 million disabling injuries.
• In 2005, the cost of unintentional injuries totaled $625.5 billion, the equivalent of $6,103 per household.
Accident insurance programs pay a lumpsum benefit directly to the insured for an accidental injury. This program can help defray the cost of out-of-pocket medical expenses such as doctor fees, co-payments, deductibles, X-rays, crutches, wheelchairs, blood plasma, stitches and other emergency services.
Non-Medical: Permanent Life and Short-Term Disability
Permanent Life Insurance
Participation in permanent life insurance programs is extremely high, almost 2-to-1 vs. other voluntary benefit offerings. The offering gets its name from the fact that the death benefit remains the same throughout a person´s life. These programs consist of insurance protection and cash value, with the combined value of these two elements being equal to the face value, which is payable as a death benefit. Because permanent life policies include both insurance and savings, they provide a level of safety because the face value, cash value and the rate of interest earned on cash value are all guaranteed by the insurance company.
Short-Term Disability Insurance
Most workers don´t have enough savings or additional income to fall back on should they become disabled. This is troubling, especially in light of the following:
• Every 10 minutes, 396 people suffer a disabling injury. Employees who miss work because of injury or illness are out of work an average of 17 weeks.
• Individuals 60 years old and younger have a greater chance of becoming disabled than dying.
Short-term disability programs pay a percentage of the employee´s salary if he or she becomes temporarily disabled. A typical policy provides employees with a weekly portion of employees´ salaries-usually 50 percent, 60 percent or 66 2/3 percent-for 13 to 26 weeks and even as long as five years. Most policies have a "cap," meaning that employees receive a maximum benefit amount.
Conclusion
Voluntary benefits provide valuable supplemental benefits to employees at little or no cost to employers. In today´s hostile health care market, it may be the only win-win situation left.
A 20-year veteran of the industry, Rob Shestack is on the faculty at Lorman Education and is a Risk Management Capstone Course student adviser at Temple University in Philadelphia. He can be reached at rshestack[at]trion.com. For more information on Trion, the nation´s third largest privately held employee benefits firm, visit www.trion.com.
