Filed under: Small Business Benefits | Tags: accident, disability, employee benefits, insurance, life, voluntary benefits
The employee benefit commonly referred to as Voluntary Benefits has unfortunately been miscontrued over the last decade due to over-simplified advertising and marketing, poor face to face communication and and emphasis on sales rather than solution providing.
In the early days, this benefit was often labeled “supplemental insurance”. While some of the benefits under the umbrella are supplemental by definition, many are not. I do not know of an employee who considers disability insurance to be supplemental. There is absolutely nothing supplemental about life insurance.
There are also those who make the leap from “voluntary” to “supplemental” to “optional” – and in their mind, optional means “unnecessary”. Usually, this leap is made by an employer who is disconnected financially from an employee group that operates under a distinctively different income level. Thankfully, my job is to explain, as gently as possible, where the fallacy exists.
If Voluntary Benefits are not “supplemental”, then what are they? Voluntary Benefits are a suit of products designed to allow an employee on an individual basis to reduce their risk based on their own needs.
Voluntary Benefits address four key areas of an employee’s risk:
1. Paycheck
2. Out of pocket medical expeneses (deductible, co-insurance, etc.)
3. Catastrophic occurance and critical illness
4. Life
First, the paycheck is an employee’s biggest asset. However, it is also their biggest area of risk if left unprotected. The average American cannot go a month or more without a paycheck. Voluntary Benefits include an option for short term disability insurance to replace lost income due to accidents and illness.
Second, out of pocket medical expenses and an employee’s risk associated with such expenses have increased steadily in the last decade as deductibles increase in favor of lower premiums. Also, a significant percentage of out of pocket expenses come from things that simply are not covered by health insurance. Travel expenses, lost time at work, and the fact that the bills are still due all contribute to this category of risk. Supplemental Health, Accident or Cancer insurance can go along way toward protecting an employee who is one incident away from financial strain.
Third, the catastrophic event. On the plus side, more people survive the first heart attack or stroke. On the down side, the financial burden that comes with such an illness is often enough to ruin even the best retirement planning. A solid Critical Illness plan can function as a living form of life insurance and provide cash at a time when it is needed most.
Finally, Life. In reality is should read “Death”, but for obvious reasons we’re all more comfortable with the term “Life”. Every working American with a family, a mortgage, a plan should ask the question: What happens if I’m not here tomorrow? Surveys show that employees prefer to purchase life insurance through the workplace than on their own. Some of this is due to an inherent distaste for the process of learning and searching on an individual basis. It can be intimidating and you rarely know that you’re making the right decision. A less spoken reason is that an employee is more confortable having the premium taken directly out of their paycheck and knowing they have the protection. Worksite life insurance is protection. Individual life insurance results in another bill in the mail every month. It is literally that simple.
The Value Proposition of Voluntary Benefits:
Chances are any company with more than one employee has employees with different income levels, personal backgrounds and varying life stages. Voluntary Benefits provide employees the opportunity to address their individual needs while substantially enhancing the employer’s goals of providing value in their employee benefits plan. The value realized is in the eye of the employee, but the opportunity offered is beyond valuation.
Filed under: Small Business Benefits | Tags: dental insurance, disability, employee benefits, health insurance, middle class America, retirement planning
There have been endless surveys and studies done by far more scientific processes than those available to me, so I will generalize.
Ask the average working American what they want in their employee benefits package and they will say:
1. Health Insurance
2. Retirement Plan
3. Dental
4. Disability
Any business owner can tell you that health insurance is a necessary evil and testify to the fact that costs have increased nearly 87% since 2000. It is a disturbing trend that is stresses the financial tolerances of all parties, employer and employee alike. As a benefits specialist, I am concerned to see fewer employees opt to insure their families because it is simply too expensive. Beyond the obvious, this trend leaves the employee one incident away from financial ruin.
Retirement planning is a benefit best handled elsewhere, although I am encouraged by how much of a priority it appears to be with employers and employees alike.
Dental insurance and its rank in the list perplexes me. Employees want comprehensive coverage, of which, there is essentially no such thing. The typical plan charges $50 a month for a maximum benefit of $1500, most of which is never realized. I invite employees to put $50 a month in a folder in their dresser and then use that money for their dental care and see if they don’t come out ahead.
Disability insurance is fourth and for most of middle class American should be higher on the list. The single most important asset an employee has is their paycheck. The paycheck is also their single largest risk without protection. Employers often opt for long term disability because they can pay for the entire group and it is very inexpensive. Unfortunately, the overwhelming majority of disability need is short term (less than one year). Ask the average middle class American if they can go three months without a paycheck and they look at you as if you asked a stupid question.
So, what is the answer? Read the next post about the value proposition of voluntary benefits.
Filed under: Thoughts of a Benefits Guy | Tags: employee benefits, employer health insurance, employers, group health, insurance, texas
“Mistakes” is a tough word, but allow us to also use the words false assumptions or oversights.
First, allow me to state my affiliation…
I am an employee benefits specialist who works almost exclusively with small businesses in Texas. Services include group health insurance, voluntary benefits, Cafeteria plans, etc. I have visited with literally thousands of business owners in the past few years and have experienced a plethora of scenarios.
First, let us deal with employers who value employee benefits and try their best to offer plans that work for both the employer and the employee:
The number one oversight I see is that employers do not take advantage of tax savings for their group health insurance. Sometimes it is lack of information and sometimes it is distrust of the system. Regardless, employers can save money for themselves and their employees. Say, for instance, an employee is paying $700 for family health insurance each month via deductions from their paycheck. With a Section 125 or comparable plan in place, the employee can save on average 15% (or $105) a month on those premiums. The employer further can save on average nearly 10% (or $70) a month in payroll taxes because the premium is removed from the payroll base. I’m no tax adviser, but the math is fairly simple.
Second, I see many employers who feel they cannot afford the roller coaster ride of implementing a group health plan and instead figure they can make up the benefit by paying each employee an extra, say, $200 a month and tell the employee it is for their insurance. This has a three-pronged disadvantage. First, the employer is paying on average $20 additional a month in payroll taxes for the “raise” (in addition to the $200). Second, the employee is paying income taxes on the $200, so they net maybe $165. So, to give an employee $200 for health insurance through income, over $55 is lost between employee and employer. The final straw comes when inevitably the employee (through no fault of their own) starts to take the benefit for granted. After a year or so, the connection to health insurance is lost in their minds. And, in fact, most of the time when I see this scenario, the employees still don’t have health insurance. And this whole scenario assumes each employee is young and healthy and insurance costs only $200. Go figure.
Now let us consider the employer who is disconnected from their employees in terms of projecting need. I have had employers tell me that their employees cannot afford voluntary benefits such as short term disability or supplemental health. In fact, one employer told me we would never get an employee interested because none of them was interested in the group life insurance that cost only $.75 a paycheck for $10,000 in coverage. Luckily, we got the go-ahead to see the employees anyway. Well, turns out that $.75 a paycheck was not worth the little amount of life insurance for this group, but 18 of the 22 employees found value in other options we provided. The average employee spent nearly $60 a month in voluntary benefits – because they fit their individual needs. The employer typically speaks on behalf of the employee without truly understanding where the need is. Of course, the employer typically is in a different tax bracket than the employees. My job as a benefits specialist is to address the need, but sometimes who have to fight through the false assumptions just to get the opportunity to speak to the individual.
I love when an employer tells me that they want to survey their employees and see if they are interested in voluntary benefits. If they are, then the employer will get back to me. Behind the scenes a conversation goes like this:
Employer: Hey folks, do you want to talk to an insurance guy that stopped by about getting some more insurance. He says its cheap.
Employees: No, not really.
In reality, there is a reason insurance agents need a license. The license requires a minimum amount of expertise and ethics so that we can communicate to individuals not only what the options are, but how they work and why an individual might need them. Nearly 70% of American workers either do not have life insurance or are under-insured. A 10 minute conversation with a professional would go a long way toward reducing sleepless nights.
Furthermore, the most important asset a working American has is his or her paycheck. Without sufficient insurance, the paycheck is also their biggest risk. Lose the paycheck due to accident or illness and watch the dominoes fall.
Survey the average American worker, and most would say their employee benefits are insufficient. Certainly the increase in health care has a large part in this, but another aspect is an employer working on false assumptions without allowing a specialist to address the needs of the individual.
Filed under: Other Business Insurance Insights | Tags: employee benefits, employer health insurance, group health, limited benefits, mini-med
It is unfortunate, but true. A limited benefit plan sometimes is the only option an employer faces as costs continue to increase. I have encountered businesses where the annual cost of their health insurance is equal to two employees’ salaries or more. Do you trade people for health insurance?
This article articulates it better than I: http://www.businessinsurancestore.com/business-health-insurance/mini-med-health-isurance-mini-answer-big-problem/
I find that the limited benefit or mini-med plans are best suited to groups where the employees simply will not purchase major medical under any circumstances. It is an awesome plan b. However, when a mini-med is put in place solely due to employer cost concerns, the plan seldom works. Employees remain dissatified and employers would rather pull the plug than deal with the issues.
That is where my new approach comes in and in most cases it helps provide value to the employees without breaking the bank (or the employer).
Filed under: Small Business Benefits | Tags: $500 deductible, employee benefits, group health insurance, health insurance, low deductible, texas
The traditional process of requesting quotes and going with the lowest bidder simply does not work for most small businesses. The time required to research and implement benefit plans is simply not available to the small business owner at the expense of managing their company.
Until now, the only alternatives were: offer no benefits or struggle with an ill-fitting benefit plan that stretches the financial tolerances of employer and employee alike.
I‘d like to introduce you to a different approach. We’re all looking for the magic bean in group health and employee benefit solutions. This approach may not involve magic, but it certainly provides a solution to a question that seemingly had no good answer. The solution is two-fold.
I. What if you could offer your employees a medical plan with:
-
$500 deductible
-
ID Card with access to Texas True Choice, the premier PPO network in Texas
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70/30 coinsurance with $3000 max out of pocket
-
$30 doctor visit co-pay
-
prescription plan
-
chiropractic coverage
-
dental coverage
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$15000 Life Insurance per employee
And have it cost less* than $250 per employee and as low as $425 per family?
Comparable major medical plans would cost in excess of $700 per employee and $1800 per family for a $500 deductible.
How does this plan differ from the others than I have known and/or used?
The only key difference is how the total coverage is calculated. This plan offers $100,000 of coverage per year (per covered individual) after which coverage ceases. A traditional group health plan can offer $1 million in lifetime coverage.
Is that enough?
Statistically, this plan will cover all needs 98.2% of the time. However, we have a solution for those who wish to buy up and have $1 million of lifetime coverage** in conjunction with this plan. The cost of the buy-up depends upon the age of the individual, but is typically between $30 ~ $50 per person who opts for it. The nice aspect of the buy-up solution is that it is voluntary to the employee and legally does not require the employer to pay for even a portion of it.
Basically, these solutions provide each employee a $500 deductible with up to $1 million in coverage for typically less than $300 a month.
* Rates are subject to medical underwriting and may be higher or lower depending upon the age, gender and medical history of applicants. ** While the group medical solution is guaranteed issue, the buy-up requires that the applicant qualifies medically. It is possible in some cases that an individual would not qualify for the buy-up coverage.
Filed under: Thoughts of a Benefits Guy | Tags: employee benefits, group health, insurance, small business
Small business owners face an increasingly challenging task
in offering employee benefits. Employees want, if not
expect, various benefits, including group health insurance,
dental, disability, etc. The cost of providing these types
of plans can often be prohibitive to a small business
simply trying to make a profit. The cookie-cutter options
do not work.
But there is hope, but it requires creativity and knowledge.
First, the employer must gauge both the company’s and the
employee’s budgetary tolerance for benefits. Depending
upon the budget available, there are three viable options:
group major medical, partially self-funded medical, or
limited benefits health insurance. Each solution offers
varying requirements of the employer and can be selected
on such a basis.
Once the top priority of health insurance is addressed,
there are other specific strategies that can be integrated
so as to reduce costs and exposure for all involved. A high
deductible ($2500 or higher) can be combined with a Health
Reimbursement Account, or HRA, (controlled and funded by
the employer).
If the HRA is not feasible, the high deductible plan can
be offered alongside a voluntary supplemental medical
plan. The offering of various voluntary benefit options
have a dual value to employers: some types of options can
reduce payroll taxes and the various plans are voluntary
to the employee so they can choose to participate in the
options that suit their individual needs.
Unfortunately, many employers try to predict what their
employees want or need without truly knowing.
Statistically, over 50% of employees will participate in
well-communicated and enrolled voluntary benefit plan
regardless of income or industry. By offering a full
suite of voluntary benefits, an employer can go a long
way toward satisfying their employee’s desire for benefits
without any cost to the company.
Finally, a small business must utilize every advantage
available for offering qualified benefits through a
Premium Only Plan (POP) or cafeteria plan. Many
employers simple assume that they do not qualify or
that the administration is too difficult to guarantee
compliance. Contrary to this perception, the process
is perhaps the simplest program involving the IRS.
A small business owner should seek a benefits consultant,
insurance broker or independent agent who takes the time
to understand the challenges. An employer should do
just enough research to know which questions to ask.
Despite the challenges, it is still possible to offer
a valuable benefit plan without sacrificing the bottom
line – or the future of the business.
