HR Policies & Procedures

Voluntary Benefits: ‘Garbage’ Policies or Bargain Benefits?

While voluntary benefits are scoffed at by some as “garbage benefits that never pay,” such benefits may be very attractive to some employees and may help companies currently reviewing their benefits packages in light of the Affordable Care Act, says consultant Mike Miles.

Miles is vice president and senior employee benefits consultant at Gregory and Appel Insurance. During his presentation at a recent boot camp sponsored by BLR®, he was joined by colleague Janet McClure, vice president and worksite marketing team leader.

What Are Voluntary Benefits?

“Voluntary benefits” are generally insurance products sold to employees at work through payroll deductions (or, in some cases, direct-billed). For example, a supplemental health policy that helps offset out‐of‐pocket medical expenses, potentially reducing the impact of increases to deductibles, coinsurance and copayments.

What Employers Like:

  • Employers like the fact that they can offer a benefit with little cost to them other than administrative costs.
  • In addition, offering voluntary benefits may dovetail with changes related to the Affordable Care Act, particularly if the employer is increasing cost-sharing or reducing benefits.
  • Companies can offer a wider array of benefits, giving employees more control and more options.
  • The company may also benefit by offering employees something they want, often something they have been exposed to through advertising.
  • Benefits may improve employee morale and bring peace of mind to employees concerned about potential medical expenses.

What Employees Like:

Employees have a number of reasons they like voluntary benefits, says Miles.

  • Clear value. Voluntary benefits generally provide clear value. These benefits are available to employees at less than “street price” because of group buying power.
  • Underwriting advantages. There may be underwriting advantages like guaranteed issuance or the guarantee of the availability of future “buy-up” options.
  • Choice. Employees like choice. Voluntary benefits allow flexibility for employees to decide how to spend their discretionary income on additional products and services that may fill gaps in other aspects of their financial portfolio and safety net.
  • Lower or more practical coverage options.  Voluntary benefits programs are often to offer lower coverage levels than are available for individual purchasers.
  • Simple and convenient. Payroll deduction simplifies the process.
  • Spread payments. Small payments from each paycheck may be easier to handle than an annual or quarterly payment that is often required from outside vendors.
  • Instant full coverage. Employees have coverage from day one.
  • Accessibility and convenience. Employees don’t have to shop around on their own.
  • Ownership. Ownership of the benefit is important to employees.
  • Pretax. Some benefits may be paid for pretax. (Miles recommends this for life insurance, for example, but not for disability insurance.)
  • Safety net. Especially for employees who live “paycheck to paycheck,” a benefit can help them avoid a financially disastrous large expense. Even relatively short interruptions in pay due to disability or sickness can be devastating for paycheck-to-paycheck earners.

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Insurance Agents

Employees often prefer to receive benefits through their employers; seeking out agents is less common than it once was, Miles says. In fact, agents are less common than they were.  As the U.S. population has grown, the number of life agents has not kept pace.

Furthermore, says Miles, many agents focus on high net‐worth individuals. They prefer to sell to people who want sizable policies because lower amounts of coverage don’t generate enough in fees and royalties to make the transaction worthwhile.

A payroll-deduct plan can often offer lower amounts of coverage and maybe offer the opportunity to buy more coverage down the road.

What Changes Might You Consider?

Paid to voluntary. Some employers are changing life and/or disability or other employer-paid programs to voluntary.

Core plus. Some are offering core life or disability with minimum coverage employer paid and then offering a voluntary “buy‐up” option for employees who want more coverage.

Supplemental medical. Some employers offer supplemental medical options that complement a primary plan with low benefit values.

Defined contribution plan approach. Offer employees a cash “bank” instead of coverage.

Typical Product Lines

Typical product lines offered on a voluntary basis include:

  • Life, term and whole life, group universal life.
  • Accident, double indemnity. (For younger people, statistically, an accident is more likely.) A lot of interesting features may be offered (accidental dismemberment, special education benefits, spouse retraining).
  • Cancer.
  • Disability income replacement.
  • Dental. (Dental health has an important impact on overall wellness.)
  • Critical illness (offset large deductibles or nonmedical expenses like eating out, babysitters).
  • Hospital confinement.
  • Medical gap and minimeds, lots of variations.
  • Independent living, long-term care.

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Employer Commitment

Employer commitment requires:

  • Premium deductions and remittance to carriers
  • Support of and cooperation with the program
  • Allowing professional communication and relevant individual meetings on company time
  • Considering the impact of ongoing administration such as payroll deduction and HR information system flexibility, accommodation for possible member coverage changes, and possible COBRA or ERISA requirements.

In tomorrow’s Advisor, more on voluntary benefits, plus we announce a December 10 webcast on conducting legal—and effective—background checks.