Tough economic times mean tough decisions for businesses. Between rising health insurance costs and the economic tailspin, employers are struggling to maintain competitive employee benefits packages. If you’re like millions of business owners, you have likely increased your employee contributions and reduced benefits in order to cut costs.
The need to reduce core benefits has triggered demand for voluntary benefits. According to a 2008 study by the Employee Benefit Research Institute, employer-paid benefits are declining while worker-pay-all or voluntary benefits are increasing. This trend is likely to continue.
Voluntary benefits are an excellent way for a company to add value to an existing benefits plan or offer employees the ability to “fill in the gaps” when core benefits are reduced.
“Employers can no longer afford to pay full premiums for life and disability coverage, dental and vision benefits, travel and accident protection, and so on,” says Michael Galardini, sales executive for JRG Advisors, the management company for ChamberChoice. “Instead, they are realizing the value in offering a menu of benefits, a la carte style, and allowing employees to choose the benefits they want and can afford.”
Smart Business spoke with Galardini about voluntary benefits, how to implement them and why they can be so beneficial.
What are voluntary benefits?
Voluntary benefit plans are typically sponsored by an employer and paid by the employees via payroll deduction. Some common types of voluntary benefits include term life insurance, long-term disability insurance, dental insurance, vision insurance, accident plans, cancer plans and ‘gap’ insurance.
Why voluntary benefits?
Due to the rising cost of medical insurance and challenging economic times, employers have been forced to reduce the level of benefits they provide. It has become increasingly difficult to pay for core benefits. Employers who offer first dollar medical coverage are becoming nonexistent as companies increase deductibles in order to reduce costs. Voluntary benefits can help employees bridge any ‘gaps’ in coverage. Instead of paying for disability, life, dental and vision insurance as core employee benefits, business owners have begun to realize the advantages to providing these types of products on a voluntary basis.
The advantages of voluntary benefits are numerous. Providing products on a voluntary basis, a la carte style, allows employees to choose what they need and what they can afford. Voluntary benefits cost employers virtually nothing and they provide access to several types of insurance coverage with less stringent underwriting requirements at group rates lower than if employees purchased the products in the individual market. Often, these benefits are not subject to medical underwriting and can be purchased on a pretax basis. Voluntary benefits enable employees to secure benefits they could not necessarily obtain on their own.
What voluntary products are most popular?
The challenge for employers is deciding which benefits to offer. Employers should remember two important factors when choosing voluntary products. One, employees are most interested in benefits they see themselves using. Two, an employer doesn’t want to offer benefits that will cost the employee a lot of money.
Disability and life insurance products provide the best benefit for the dollars spent. Because they provide protection against lost wages, long- and short-term disability insurance are popular voluntary benefits. Buying disability insurance coupled with life insurance is more cost effective than purchasing coverage separately. Recently, there has been a renewed interest in permanent life insurance such as universal life. During these uncertain economic times, the security of life insurance makes it a highly sought benefit.
Another voluntary benefit that has been becoming increasingly popular is ‘gap’ insurance. As health insurance continues to increase, many employers are moving toward high deductible plans in an effort to lower costs. This often requires employees to pay the difference between what their health insurance covers and what the services cost. Gap insurance offers a solution to help fill coverage gaps and protect employees against increasing out-of-pocket expenses. Gap insurance pays lump-sum benefits for medical expenses resulting from inpatient hospitalization, outpatient services, diagnostic testing and rehabilitation services. For example, an employee who needs outpatient surgery may be responsible for a $1,000 deductible before the health insurance pays for any services. With gap insurance, the employee would receive a lump-sum payment for outpatient services and could use it to help satisfy the deductible. Gap insurance can be tailored to fit the needs of the employee’s out-of-pocket expenses.
Why have voluntary benefits become so popular in today’s business world?
Voluntary benefits are becoming increasingly popular as business owners struggle with rising health care costs, but want to maintain a competitive employee benefits package. Employers should find a benefits consultant who is knowledgeable about voluntary benefits and knows how to properly research the market. There are several insurance companies offering voluntary products; the benefits consultant must be able to ensure that the employer is offering benefits that employees want and can afford.
Michael Galardini is a sales executive for JRG Advisors, the management company for ChamberChoice. Reach him at (412) 456-7235 or Michael.Galardini@jrgadvisors.net.