VOLUNTARY BENEFITS: MORE THAN AN EXTRA, THEY ARE NECESSARY

Today, more employers than ever before are offering at least one type of voluntary employee benefit. The growing interest in voluntary benefits reflects tight human resources budgets, the changing face of employer-sponsored Health insurance, and the varied and multi-faceted needs of a workforce that is ever-growing in diversity. A study from Eastbridge Associates found that, overall, 66% of employers offered at least one voluntary benefit in 2009, compared with 54% that did so in 2006. The growth in voluntary benefits offerings has been especially noticeable among the smallest employers (10 - 100 employees), with 65% offering at least one type of voluntary benefit in 2009, compared with only half that did so in 2006.

A separate survey from the International Foundation of Employee Benefit Plans characterizes voluntary benefits as a “fundamental part of employers’ benefits packages, a significant part of plan sponsors’ strategic benefits approach.” In that study, 84% of the surveyed employer group offered voluntary benefits.

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What’s making voluntary benefits more popular and more important? Here are some of the reasons:

Tight benefit budgets have constricted the growth of employer-paid-for benefits. Voluntary benefits enable workers to have access to coverages that are popular with employees -- such as vision and dental -- when the employer can’t afford to include these in the basic benefits package, either on a contributory or noncontributory basis.

The shift from employer paternalism to employee responsibility that began with the introduction of 401(k) plans has continued in full force, with employees now firmly in control of providing for their families’ financial security. Thus, popular voluntary benefits include Supplemental Life insurance, Disability insurance and Long-Term Care insurance -- coverages that come into play when potentially cash-draining life events occur.

In workplaces where consumer-directed health plans are offered, employees who are enrolled in these plans might turn to voluntary Supplemental Medical coverages to fill in the gaps left by these plans. Vendors have developed products that do just this, helping employees who buy the coverage to offset the higher deductibles or coinsurances of the underlying plan.

Other types of supplemental medical plans have long been offered on a voluntary basis and they continue to play a role. These include plans that cover the indirect costs of an injury or illness, such as Critical Illness insurance that pays a cash benefit upon the diagnosis of a life-threatening disease or condition, and which can be used by the insured, or the insured’s survivors, for any purpose they see fit; disease-specific insurance, such as Cancer insurance, that might provide coverage beyond the primary medical plan for treatments associated with the disease; and Hospital Indemnity insurance, which supplements the primary plan in the event of an illness that requires a hospital stay.

A primary driver of the voluntary benefits market has been the growing demographic diversity of the workplace, and the recognition that today’s workers have a wide range of needs. Voluntary coverages that address this include Long-Term Care insurance, financial planning, Pet insurance, a sampling of Life insurance products, and childcare and eldercare assistance.

Another marker of today’s workforce is how time-pressed employees are, and certain types of voluntary products directly address this reality. For example, by bringing products that most individuals need - such as Auto insurance and Homeowners/Renters insurance -- into the workplace, employees save the time of researching these necessary coverages on their own, and also enjoy the convenience of paying for the insurance through payroll deduction and the cost savings of a group rating.

Though the voluntary insurance marketplace has been around for some time, it is growing in importance for the reasons noted above. Today, voluntary benefits are more than an accessory to an employer’s core benefits; they are a seamless, strategic, and essential component of a total compensation package.

AMERICANS ARE LACKING ADEQUATE LIFE INSURANCE COVERAGE

Many Americans believe that Life insurance is the best way to protect their families against the risk of income loss resulting from the death of a breadwinner. That being the case, it is surprising that only a small number of employers, around 15%, report that more than half of their employees participate in their voluntary Supplemental Life insurance programs, according to a survey by MetLife. Furthermore, more than half of all households in the United States have no insurance or are underinsured, according to a fact sheet created by LIMRA International. What are the reasons for this disparity and what are the steps employers can take in order to encourage more of their employees to sign up for the coverage they need?

The basic Term Life insurance coverage offered by employers is usually a free benefit. The Bureau of Labor Statistics reported in 2005 that 64% of full-time employees had access to Life insurance benefits through their workplaces, and that 89% of employees that did have coverage received it for free. On the surface, this is a very good thing, but there is a problem with this. This is not enough coverage for the employee’s family.

This is the reason why employers offer Supplemental Life insurance through their regular insurance programs. Unfortunately, there is still the problem of the disparity noted above. This disparity is the result of several factors, such as Health insurance and 401(k) plans. In addition, young and single employees might feel they don’t need supplemental coverage now, but when they marry and start a family, they do not upgrade to more comprehensive insurance policies.

According to MetLife, the best way for employers to increase the rate of Supplemental Life insurance coverage participation is to focus on communicating the benefits to their employees. The important aspect to focus on is the immediate benefits from signing up for supplemental coverage. MetLife found that, when employers did so, the rate of participation jumped from 10% to 15%. Employers are encouraged to use multiple channels of communication and to use them at different times of the year. In this way, they might reach a greater number of employees who are not focused on other benefits.

Employers must also make every effort to ask their insurance providers about which features of their plans to promote. For example, many Life insurance providers offer a benefit known as accelerated death benefits, which means that in the event of a terminal illness, the policyholder’s family will start receiving payouts before death. Supplemental Life insurance can be easy to sell to employees, if the right tactics are used.

HSA CONTRIBUTION LIMITS TO REMAIN THE SAME FOR 2011

The IRS has announced that the 2011 limits for health savings accounts (HSAs) and for high-deductible health plans (HDHPs) will remain unchanged from 2010. For 2011, the contribution limit for an individual with self-only coverage under a qualifying high deductible health plan will remain at $3,050. For an individual with family coverage, the limit remains $6,150.

A qualifying high deductible health plan, for 2011, is defined as a health plan with an annual deductible greater than or equal to $1,200 for self-only coverage or $2,400 for family coverage. The limit on annual out-of-pocket expenses is $5,950 for self-only coverage or $11,900 for family coverage.

The IRS release can be viewed here.