Voluntary Benefits Special Report

Voluntary benefits--The way to go?

By Len Strazewski

Health care reform looms over employer group benefits plans, and the recession still weighs heavily on employee wallets. Is this really the time to promote voluntary employee benefits programs?

Conventional wisdom may say "no" but the latest research on health care costs and employee attitudes say otherwise. Fears about disruption caused by the Patient Protection and Affordable Care Act ("the Affordable Care Act") and the steady pattern of rising health care costs may be driving employees to think more carefully about their potential financial exposures and to seek protection from catastrophic expenses ignored by group health plans.

And as their anxiety about their future health risks increases, workers report being more willing to take money from their paycheck to improve their security. As a result, voluntary benefits such as disability insurance, critical illness insurance, medical "gap" insurance products and hospital indemnity plans are getting more attention than ever from employers who want to improve their benefits without costs and employees who seek greater financial security.

According to a new survey by employee benefits consultant Towers Watson in New York, employees find themselves struggling with a "health care affordability gap" that is eroding their satisfaction with the group health benefits. This growing dissatisfaction comes at a time when employees have become increasingly risk averse about their careers and family income, the study says.

The consulting firm polled more than 9,000 full-time employees in the United States in May and June of 2010 with detailed responses from more than 3,000 participants. Of that group, slightly less than two-thirds (64%) said they were satisfied with their employer-paid benefits, down from 69% in 2007. Less than half (45%) said they were satisfied with their health care costs, down from 53% in 2007, and about 26% said concerns about health spending increased their stress levels.

"The growing health care affordability gap is a very serious problem that employers must consider as they rethink their total rewards program and approach to health care subsidies," says Ron Fontanetta, senior health care consultant with Towers Watson. "The key to future success is a well-designed plan with creative and meaningful consumer and wellness incentives to slow cost inflation and improve employee health and productivity."

However, employer plan incentives may not be sufficient. Employees are not taking better care of themselves, despite pressure from employers to participate in consumer-directed health care, wellness and health screenings. According to the survey, fewer employees report trying to take better care of themselves, and more respondents said they delayed going to a physician.

Employees enrolled in consumer-directed health plans with health savings accounts (HSAs), however, were slightly happier with the benefits and more likely to take more action on their own to improve their health.

The survey also revealed that employees are focusing more strongly on the financial risks than the underlying health risks. Since 2008, the number of employees who are willing to pay more out of their paychecks in return for more predictable costs has increased 23%. And the concern is not just limited to lower-paid employees.

The concern over future costs cuts across all age groups and income levels, the study says. However, older employees and employees in generally poorer health have higher levels of concern and more willingness to forgo more take-home pay for greater security.

Although the survey did not focus on voluntary benefits as a way of coping with the changes in employee attitudes, the fit is logical. Voluntary benefits that provide income protection appeal to the risk-averse sensibility, and the various critical illness and hospital indemnity insurance plans fit into the gaps created by high-deductible health plans.

Another recent health care cost research study points to a couple of additional opportunities for optional benefits that could reduce expenses left uncovered by group plans. The Segal Health Plan Cost Trend Study, by The Segal Company was conducted in June 2010. More than 60 health plans, pharmacy benefit managers and third-party administrators participated.

The survey identified both general and specific health care cost trends that all point upward. Edward A. Kaplan, senior vice president and national health practice leader, noted, "After several years of declining trends, it appears that 2008 was the bottom of a downward trend, with cost trend rates returning to an upward direction in 2009."

As expected, the cost trend for both preferred provider organizations (PPOs) and high deductible health plans both topped 11%; but some unexpected factors contributed more than previously, including the cost of compliance with the Affordable Care Act, a spike in inpatient hospital stays and a disproportionate increase in some prescription drug categories.

"More than three quarters (78%) of those surveyed said the Act's impact would result in an increase in overall health plan trend of 1.1%," Kaplan says, while inpatient hospital stays are increasing about 12% and specialty/biotech drugs more than 17%.

Facing these increases, employees may be more interested than ever in hospital indemnity plans that pay cash benefits not regulated by the health reform legislation and prescription drug discount plans that can help them manage the mounting prescription and non-prescription medical supplies.

The health care environment also creates opportunity for non-medical benefits as workers come to realize the value of their life insurance, disability and other non-medical benefits in light of the shrinking value of health benefits.

The MetLife Health Care Reform Poll, conducted late last year by New York-based MetLife, polled about 1,500 employee benefits decision makers at large and small companies and about 1,400 employees. In this study, non-medical benefits rose to a new level of prominence in light of the uncertainty of health care reform and the economy. The majority of both small and large employers say they currently have no plans to reduce their spending on non-medical benefits in the wake of health care reform.

The poll found that only one in 10 employers with fewer than 500 employees and two in 10 with 500 or more workers anticipate reducing spending on benefits like disability, life and dental insurance as a result of the legislation. About 43% of employers feel strongly that offering non-medical benefits will become a more important strategy for their companies over the next five years.

"This is good news for workers since the poll also found that health care reform has increased the importance of non-medical benefits to them. The poll found that 71% of employees who say they have a good understanding of health care reform also say that their non-medical benefits are very important in driving their feelings of employer loyalty, compared to only 57% of employees who admit they don't have a good understanding of the legislation," says Dr. Ronald Leopold, vice president and national medical director, U.S. Business, MetLife.

The author

Len Strazewski has been covering employee benefits issues for more than 30 years and is employee benefits columnist at Human Resource Executive magazine. He has an M.S. in Industrial Relations from Loyola University in Chicago.