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Market Update
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Voluntary Benefits - U.S.
Printable Version
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Employer investments in employee benefit plans have never been higher.
Medical and drug cost trends, in particular, have caused human resources
and finance professionals to face inflation three to five times the Consumer
Price Index (CPI) for more than a decade. To mitigate this financial burden,
employers have focused the majority of their cost reduction efforts on modifying
medical plan design and employee contribution structure.
The intent is two-fold:
- To gain a hard-dollar subsidy to directly offset cost, and
- To expose employees to the actual cost of care in an effort to make them
better consumers.
The financial effectiveness of this approach, especially for large, self-funded
plans, is not in question as claims predictability and the effect of claims on employee behavior
have well established metrics. However, the success of any employee benefit
strategy cannot be reduced to simple arithmetic. The real impact of modifying
employee benefit programs is measured by the change in perceived value from
an employee’s perspective.
One simple method of calculating perceived value is reflected in the following
equation:
Perceived Value = Perceived Employee Benefit Quality/Perceived Financial Risk
If your firm’s goal is to increase the perceived value of an employee benefit program, then you must create separation between
the numerator and the denominator. We have
consistently found that investments in clear, concise and personal benefit communication campaigns have been both highly
effective and largely underutilized.
Perceived Employee Benefit Quality
Most employers have a great story to tell, relative to the quality of their benefit programs. Although most plans have
increased the front-end financial exposure for employees, generally employers have borne a majority share of cost increases.
If employees really understood this fact, would employee perceived value decrease with each plan modification/premium
increase? The graph below illustrates the issue clearly.
The knowledge gap between human resources professionals and the employees they serve is largely responsible for suboptimal
perception of employee benefit quality. The only way to change this perception is, to the extent possible, make sure
employees know what we know about employee benefit programs. They must understand the financial burden benefits have
placed on an organization, how they impact the competitiveness of any product, and how they may even be compressing
direct employee compensation. An employer commitment to personally delivering this message in a compulsory manner is
the only way to ensure the message is heard. Given the level of investment, many employers are committing to group and/or
individual meetings annually to educate employees on the quality of their programs. Early results indicate that this investment
in time is very much appreciated by employees and is improving overall perceptions regarding benefits.
Perceived Financial Risk
Employers need to be very specific with employees about the risks that they intend to mitigate with employee benefit
programs. The initial stages of managed care conditioned employees to expect first dollar benefits from their health plans.
In many ways, this turned health plans from safety nets into hammocks. Most employee benefit programs are excellent at
managing personal catastrophic risk for employees. Employer funded health plans generally provide a million dollars or more
of lifetime coverage. Group disability and life insurance coverage often provide significant benefits for income loss in the
event of disability or death.
What these benefits do not provide is total indemnification for loss. However, this was never their intent.
Group insurance, by its nature, is somewhat imperfect as it is designed to cover a wide variety of individuals at different
stages of life for similar risks. Group insurance limitations, combined with pervasive budget constraints, have created the
demand for new generation voluntary benefits. Further, voluntary benefits generally have embedded commissions that create
a communication budget to educate employees on personal risk. Some employers are using this communication budget to give
employees an accurate description of their group insurance coverage so the proper context can be set for a voluntary benefit
decision. The result of this strategy is an employee base that more accurately understands their risks and has been given
access to an employee benefit package that addresses general, catastrophic, and specific personal loss.
Viewed in a marketing context, the average employee benefit program is high quality and mitigates meaningful financial risks
for employees. Failure to dedicate capital and human resources to internally market this very expensive, highly-effective
product to employees is a common mistake. Consider the time, effort, and personnel that go into marketing the product your
organization manufactures or service it provides. Is similar effort being placed on one of the most expensive products you
offer your internal customers?
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Please contact your Lockton Representative for further information regarding any information contained in this
market update.
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Rich Reda, CEBS
Producer,
Benefits
Kansas City, MO
Tel: 816.960.9676
E-mail: rreda@lockton.com |
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