Where do we go from here? Voluntary benefits can help bridge the gap

For small- and mid-size business owners struggling to stay afloat in the face of a weak economy that’s been slow to recover, cutting costs has become a necessity – and employee benefits a target for savings. But savvy business owners know that attracting and retaining quality employees is still the name of the game, and they are reluctant to roll back coverage without having something giving valued employees something substantial in return.

“Like other nonprofits and small businesses, we were overwhelmed by the rising cost of providing benefits,” says Marc-Andrew Aguilera, CFO of the San Francisco Chamber of Commerce. “Offering supplementary voluntary benefits program gives our staff the opportunity to bridge the widening coverage gaps.”

It’s a scenario that’s being played out in hundreds of smaller companies – business owners who are saving money by increasing deductibles on their healthcare plans are easing the burden by offering voluntary benefits plans. San Francisco restaurants, for example, have a program available through the Golden Gate Restaurant Association.

And it’s not just small companies that see an advantage in offering voluntary benefits. Outdoor gear retailer R.E.I., consistently ranked among the “best companies to work for,” has long offered its fulltime employees voluntary benefits. Employees of the Hilton Hotels, one of the world’s leading hotel chains; Sprint; retail giants like Wal-Mart and Macy’s; and big nonprofits like Goodwill Industries all are able to participate in voluntary benefits programs.

It’s a trend that is having an enormous impact. Following on the heels of the healthcare reform legislation, key elements of which went into effect on Sept. 23, 2010 voluntary benefits are expected to grow in demand because they help pay expenses not covered by major medical insurance and make up the difference in rising healthcare costs.

Healthcare costs are going up

A study released in March by the Center for Studying Health System Change found that even well-paid workers who have health insurance are not immune from increasing healthcare costs. The study reports that in 2006 “almost one in five Americans  (19.1 %) lived in families spending more than 10 percent of before-tax income on healthcare, up from one in seven Americans (14.4 %) in 2001.”

Perhaps more surprising is that middle-and higher-income individuals with private insurance experienced the largest increases in financial burden. We can assume that with the onset of the recession, these pressures have only increased.

Double bind for employers

The combination of the recession and the implementation of healthcare reform puts employers in a double bind. Even as health insurance becomes more widely available, the cost of health care, and premium costs are going up. Options for employers to reduce costs include increasing deductibles and co-pays, but no one wants to put employees at financial risk as they are being asked to take on more of the responsibility for insuring their care.

Voluntary benefits can bridge the gap

Voluntary benefits are increasingly attractive as a way to help employees cover the disparities in their benefits programs and gain financial surety. In addition, voluntary benefits offer a flexibility that employees find appealing. Employees can choose whether to pay for a gap plan or disability insurance, which enables the employer to tailor their benefits to each employee’s individual needs. A healthy 22-year old with no dependents may make a different choice than a married mother of two.

According to WellPoint, Inc. research, 83% of American employees think more highly of employers that offer voluntary insurance benefits than those that do not. Nearly 90% of job seekers consider it important that companies offer a full range of health benefits, including voluntary, when accepting a new position. A full 56% consider it "very important."

Typical voluntary benefits include short-term disability, life, accident, hospital stays, cancer and critical illness insurance. Employees select the options they want, and premiums are paid through payroll deduction. Employees can use these benefits to pay out-of-pocket expenses such as deductibles, co-payments, travel to treatment centers, home modifications or even everyday living expenses while they are recovering from an accident or illness.

Most voluntary coverage is not affected by healthcare reform. For example, life, disability and accident insurance are excluded from the legislation’s provisions. Voluntary benefits will not be available through insurance exchanges. Voluntary coverage is exempt from changes to guaranteed issue and pre-existing condition requirements, and from the excise tax on “high cost” health plans when paid for on an after-tax basis. (Accident and disability plans aren't subject to the excise tax even if paid for before taxes.)

Of course, the shift of more decision making to employees requires employers to step up to meet the demand for clear information to help employees make the best choices for themselves and their families.

Smart employers will “sell” value of benefits

One of the challenges of healthcare reform and the new options available is the sheer complexity of it all. Smart employers will make a renewed investment in employee communications to help their employees understand the value of their benefits package, which in turn helps employees appreciate their employer’s investment in them.

There is a definite advantage in being able to say to employees, “Because you work here, you are able to get this coverage, guaranteed-issue and at a lower premium.”

A national survey of more than 1,000 adults employed fulltime conducted by Unum revealed that “employees who are offered voluntary benefits in the workplace are more satisfied with their benefits than those who are not offered voluntary coverage.”

Voluntary benefits to increase ten fold

Most analysts agree that healthcare reform is going to drive up sales of voluntary benefits; some estimates go as high as a ten-fold increase by 2015.

The increase will be driven by multiple factors. Some employers will cut employee hours to avoid providing health insurance, which opens the market to limited medical benefit plans. Those employers unable to afford high premium increases may opt to pay the fine and let employees purchase their own health insurance through exchanges, or offer a voluntary limited medical plan paid for by the employee.

For brokers, the demand for voluntary benefits is an opportunity to expand the scope of their business. Now is the time to review your business strategy and expand your services to make voluntary benefits available to your existing clients and use the voluntary strategy to open doors to new clients.

No need to go it alone

When an employer is ready to put together a voluntary benefits plan, the best advice is to find a benefits broker who understands your business and has the expertise to design a plan with the best benefits for your employees at the most affordable price.

The rules are changing by the minute and it can be invaluable to have an expert on your side that can help you navigate through the turbulence.

About the Author

John Ryan is president of Baybenefits Insurance Services, which designs, implements and manages benefit strategies for clients with 50-500 employees. Actively involved in the insurance and benefits arena since 1993, John has an extensive background in client service, sales and management, both as an employee and entrepreneur. He understands the demands of running a business, which makes him the perfect strategic partner for businesses of every size. He has consistently been recognized as one of the Top 50 Producers by Kaiser Permanente, Anthem, Blue Shield and Delta Dental, and is a board member and legislative chair for the Golden Gate Association of Health Underwriters. For more information, visit Baybenefits at www.baybenefits.com, or contact John Ryan at 415-273-2211.