The employee benefits conundrum—New voluntary product complements traditional health and disability coverage 09/06


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The employee benefits conundrum

New voluntary product complements traditional health and disability coverage

By Phil Zinkewicz

Employee benefits packages have long been considered a top tool for attracting and retaining talent in the workforce. There was a time when employers were willing to foot the entire bill for health insurance coverages, while at the same time offering attractive pension programs and experimenting with exotic enticements such as on-site day care centers and flexible working hours.

But the employee benefits arena has changed dramatically in just the last few years. True, large corporations have managed to maintain significant corporate contributions to employee benefits. But too often the smaller and medium-sized firms have found themselves economically strapped, necessitating some employee benefit restrictions. Smaller corporate pension programs are being tweaked to encourage more employee participation in accumulating retirement savings, and workers are being asked to shoulder more of their health insurance costs, through either greater employee contributions or higher deductibles or sometimes both.

How have these attempts to economize affected the morale of the rank and file? Not all that favorably, especially in smaller companies, according to a recent study conducted by MetLife, one of the country’s leading providers of employee benefits.

For small companies, with between two and 49 employees, “retaining employees” is the number one employee benefits objective (57%), according to the study. Yet retention rates are at risk, as only 29% of employees who work for a small company are satisfied with the benefits offered by their employer, despite the fact that MetLife research indicates a correlation between job satisfaction, employee loyalty and benefits satisfaction, the study says. Additionally, the study finds that only 16% say their company’s benefits communication effectively educates them about their benefits. Their peers at the largest companies (25,000 or more employees) are much more satisfied with their benefits (48%), and 39% believe that their company’s benefits communication is effective, the study shows.

These findings from come MetLife’s annual Employee Benefits Bench-marking Report and companion Web-based Benefits Benchmarking Tool, which provide benefits professionals, brokers and consultants a way to compare the features of one company’s benefits program against those of its peers, says Randy Stram, MetLife’s vice president for institutional benefits.

“To some extent, employers need to shoulder responsibility for this disconnect in employees’ appreciation of benefits programs, since less than one-third of employees believe their benefits communications effectively educate their workforce,” he says. “Many companies are falling short in their benefits program goals to increase participation and satisfaction. All too often, benefits communication is pushed to the back burner, yet it is often the backbone of a successful program.”

Stram continues: “Benchmarking information can help employers identify the right communications channels and the best strategies for improving benefits satisfaction and the perceived value of their benefits offerings. The competition for talent is expected to intensify and, with benefits high on employees’ priority lists, employers should re-examine areas for improvement and consider using new strategies such as targeting benefits information to employees at different life stages. Helping employees understand the value and cost of their benefits will go a long way in meeting cost and retention objectives.”

Stram says that many employers are offering “voluntary” benefits to supplement traditional benefit offerings. “On a voluntary basis, companies are offering such products as auto and homeowners insurance, banking products, long-term care insurance and prepaid legal expenses. One of the newest products to come onto the market is critical illness insurance, which is becoming prevalent as a group voluntary benefit.”

Recently MetLife announced the launch of its new critical illness insurance products designed to meet the changing financial protection needs that arise from medical breakthroughs and earlier diagnoses, says Stram. “For example, according to the American Cancer Society, five-year cancer survival rates have risen to 64% from 50% in the 1970s. However, research has also shown that a majority of individuals are living paycheck to paycheck, and the increase in expenses created by a serious illness can cause financial hardship.”

Stram says that MetLife’s new critical illness insurance products cover six prevalent critical illnesses: cancer, heart attack, stroke, kidney failure, coronary artery bypass graft and major organ transplant. “When an individual experiences one of these covered conditions, MetLife critical illness insurance pays a lump-sum benefit of up to $100,000, offering individuals and their families a way to help maintain and protect their financial quality of life, while better enabling them to focus on their treatment and recovery. The amount of insurance purchased and the type of critical illness determine the amount of the benefit paid,” Stram explains.

Complementing traditional health insurance and disability coverage, Stram says critical illness insurance can help consumers meet their regular expenses as well as help pay for the additional costs associated with their illness, such as medical and prescription drug deductibles and copayments, child care or domestic help, travel to treatment centers and other needs. “The lump-sum payout offers financial flexibility,” Stram points out. “For example, it can be used to help fund the cost of seeing specialists in other geographic locations, pursuing alternative therapies or allowing a relative to take time off from work to assist during treatment and recovery.”

Continues Stram: “Facing a critical illness is difficult enough without having to worry about the added financial stress. This product is designed to help individuals bridge the financial gap between traditional insurance coverages and the added costs associated with a critical illness. The product helps put financial control back into the hands of the individual, allowing one to focus on recovery. It also helps reduce the fear of having to tap into the equity in one’s home or into retirement, education or other savings accounts.”

Stram says that by offering the coverage through the workplace, employers have the opportunity to provide an innovative, value-added benefit to employees with little or no additional cost to their organization.

There has also been an increase in employer interest in supplemental disability plans, according to Stram. Moreover, some employers are choosing mini-med plans, which are not comprehensive medical plans but which cover smaller amounts of medical needs. “Also—as a voluntary benefit— prepaid legal plans, where employees pay a fixed monthly premium, provide the employee with unlimited access to a nationwide network of attorneys for home closings, wills, trusts, even speeding tickets,” says Stram. “If an employee is sued for something not covered by homeowners or umbrella coverages, prepaid legal insurance would come into play. Typically, these voluntary benefits are offered to employees with discounted premiums with the convenience of payroll deduction plans and more streamlined underwriting. These voluntary benefits are a way to help employers meet the diverse needs of their employees. Employees can choose the voluntary benefits that fit their needs.”

However, critical illness insurance (CII) appears to be the voluntary benefit that is on the verge of a boom. Don Hansen of The Ark Group in Omaha, Nebraska, a broker and managing general agency specializing in life, health and benefit products, says that critical illness insurance is in the “incubation” period—on the market for only about eight years. “CII is poised for explosive growth,” he says. “It will soon be the fastest growing product in the worksite marketplace.”

Hansen says that The Ark Group is a national insurance marketing organization focusing on asset accumulation in the final stages of life. The firm does business in 48 states and, in addition to marketing insurance products, The Ark Group works with agents and brokers around the country to provide support services. The company is also responsible for establishing a Critical Illness Insurance University in Omaha.

“The future of insurance is in the voluntary benefits arena,” says Hansen. “Individual sales are becoming tougher. The agency system is changing, with seasoned agents retiring and not nearly enough new agents coming in to fill the gap. Worksite sales, where the agent can encounter multiple prospects at one time, are the answer. You begin with the employees at their place of business and then continue with them outside their place of business.”

Hansen says that health insurance is a very important product today, but that people don’t understand its limitations. “Most people don’t know what their out-of-pocket expenses are with health insurance. Last year, Harvard University did a study on individual bankruptcy and found that 50% of all bankruptcies are related to critical health conditions. Seventy-five percent of those people had health insurance. So health insurance is very important, but it doesn’t do all that it’s supposed to do. Critical illness insurance is the only product that can protect the asset portfolio during the preservation stage of life. Unless you’re Bill Gates, you’re one heart attack away from bankruptcy.”

The Ark Group executive says that he owns critical illness insurance coverage. “I tell agents, if you don’t own a product yourself, you shouldn’t sell it. Critical illness insurance provides buyers with a lump-sum, tax-free payment when a covered illness is manifested. It relieves stress during a time when a person is ill and helps the patient get better quicker.” *