The world of voluntary benefits has choices ranging from coverage for human organ transplants to physical exams for pet canaries. And it appears to have more than a few contradictions, too. When it’s time to decide on the benefits, employers and employees seem to experience a disconnect--not with each other but with their own intent and action.
Human resources professionals herald the array of such benefits--ones workers pay for entirely or partially--as a way to boost the trifecta of recruitment, retention and productivity. But the percentage of companies offering benefits overall remained flat from 2003 to 2004, according to the 2004 Benefits Survey Report from the Society of Human Resource Management. And three significant categories of voluntary benefits--disability, long-term care and supplemental health accident insurance--declined in employer participation during that time. The share of employers offering long-term disability insurance dropped from 88 percent to 84 percent--down from 91 percent in 2002. Long-term care slid from 47 percent to 38 percent, while supplemental accident dropped from 49 percent to 42 percent, the survey found.
Employees seem to act as ambivalently as employers. More than 70 percent cited loss of income as their No. 1 financial concern in the MetLife Study of Employee Benefits Trends, which polled employees and employers in the third quarter of last year.
Simply put, employees worry that they might not be able to pay their bills if they lose their jobs, but many do nothing to protect their income--40 percent said they had no disability insurance. They value vacations more, reflecting perhaps the need to balance the demands of work and life, rather than indicating irresponsibility, a MetLife marketer says. Sixty-four percent of workers ranked paid vacations ahead of disability--at 26 percent--in importance.
What’s wrong with this picture? The uncertain economy is one culprit. "Given the current economic environment, employers are focusing more on the core benefits to keep them competitive and control cost increases for them and their employees," says Edward M. Pudlowski, a senior manager in the Dallas office of Ernst & Young. "Voluntary benefits are not getting as much play. In terms of the overall interest there was in the mid- to late ‘90s, there’s less focus on that area now."
The survey results are also understandable when viewed in a broader context, says Wayne Brockbank, clinical professor of business at the University of Michigan’s Ross School of Business. "In an era where every company is under both domestic and global pressures to be more productive, they have to continually ask themselves, ‘What investment dollars in any resource are getting the greatest return?’ "
Another reason for the stabilization of voluntary benefits is today’s labor market, says Brockbank, co-director of Human Resource Education at the business school and director of its Center for Strategic Human Resource Leadership. "Benefits across the board play an important role in obtaining employees, but right now we’re in a relatively soft labor market," he says. "Someday in the near or distant future, there will again be a tight labor market, and then the benefits will become relatively more important."
Insufficient employee education also comes into play. Only 40 percent of employees--and 29 percent of those ages 21 to 30--understand which benefits best meet their needs, according to the MetLife study. Some underestimate employers’ contributions. One example, though not for a voluntary benefit: 28 percent of workers believed employers pay less than $1,000 a year toward their health insurance.
"It was a big ’Wow--unbelievable!’ " says Beth Hirschhorn, chief marketing officer for MetLife in New York. She recalls that when company president and chief operating officer C. Robert Henrikson announced the finding at a symposium with corporate clients, a hush swept the room, followed by a buzz of conversations.
The average cost to employers for health insurance is actually more than $7,000 annually for family coverage and more than $3,000 for an individual, Hirschhorn says.
The survey underscores the need for employers and the benefits industry to better communicate the value of what they’re delivering, she says. "We may offer a diverse and robust set of benefits, but when we do, the value is not being received."
In the MetLife survey, employers ranked the objectives of benefits in this order: controlling health and welfare costs, retaining workers, increasing job satisfaction, increasing productivity, attracting workers and reducing HR administrative costs. Offerings today range from short- and long-term disability to accidental death; life insurance; specified health events, such as heart attack, stroke and coma; auto and homeowner insurance; legal services; and pet health insurance. Among those selections, life insurance premiums have seen the biggest increases because they rise with inflation and the cost of living.
Despite many pretax advantages for employers and workers, some say the impact of voluntary benefits on the bottom line can be difficult to measure. "We’ve tried to capture it, but it’s just not out there," says Lance Osborne, vice president of field force development at Aflac in Columbus, Georgia.
Few studies have been done on benefits’ return on investment, Brockbank says, but employers have several straightforward ways of determining it. They can compare productivity before and after workers have benefits, and they can review sales, revenue and cash flow.
Aflac, a Fortune 500 company, writes voluntary insurance policies for more than 300,000 payroll accounts. Its 2004 revenues were $13.3 billion, a 16 percent increase from 2003, with "a slight increase of 5 percent in new sales in 2004 over 2003," Osborne says.
Mirroring the survey finding, sales of long-term coverage have dipped at the company, Osborne says. "It’s a great product and very much needed, but we haven’t really found a way to market it in the work site. It’s a much more complicated buying process with lots of education and choices."
Short-term disability sales, however, are increasing, while accident coverage has seen the most growth, he says. "We introduced it in 1988, and today it’s surpassed cancer, which is our No. 3" benefit, Osborne adds.
Transportation benefits are another fast-growing area, says Pudlowski at Ernst & Young. "It’s used to pay for public transportation or parking, basically on a pretax basis."
Pet health insurance barely registered on the SHRM radar. Only 3 percent of employers offer it, though its survey sample was small and self-selected; 459 employers responded to an e-mailed questionnaire.
But Veterinary Pet Insurance, based in Brea, Calif., has seen revenue climb from $15 million to $100 million over a five-year period ending in 2004, with voluntary benefits accounting for 15 percent of that, says Bill Gorman, group sales manager of national accounts. "We’ve had huge growth--huge--and we anticipate growing."
Employees in group plans receive a 5 percent discount on policies, which cost $15 to $30 a month, depending on the pet’s age. The typical customer is a woman 30 to 50 years old with a family income of $75,000, Gorman says. "People have a tighter bond today with their pets," he adds.
Many customers are hospital employees. "The reason is that I think they understand medicine," Gorman says. "They understand cost. They’re in stressful positions" and may have pets to relieve stress.
Valero Energy Corp., a Fortune 500 refining company based in San Antonio with expected revenues of $55 billion, offers a menu of voluntary benefits typical of large companies. Offerings include vision, legal services, cancer coverage, long-term care, and auto and home insurance. With a workforce of 20,000, the company’s employees are in a variety of life stages, says Mary Rose Brown, senior vice president of corporate communications. "Our plan allows young families, single parents, couples, empty nesters, etc., all the ability to choose a plan that is applicable for the phase of life they are currently in," she says.
The greatest participation is in traditional medical and dental coverage. "The benefits that seem to be the least popular are the supplemental plans like the legal plan and long-term care," Brown says. "Employees who have taken advantage of benefits appreciate them, but the plans aren’t as popular as some of its other offerings like vision care."
Like other employers, Valero has seen the biggest increase in the cost of medical and prescription coverage, but its size gives it an advantage in other areas. "As Valero becomes larger and our buying power is greater, we are able to see some cost decrease in group plans such as group term life," Brown says.
Looking ahead, Aflac’s Osborne predicts that growth for the benefits industry will come from diversified products. "You’ll see more and more different types, based on consumer needs," he says. Web enrollments will increase, and small companies will look to benefit carriers for employee education, Osborne adds.
One in five employers in the MetLife survey said their most important benefits strategy was to provide a wider assortment of voluntary benefits. Many employees–34 percent, with the greatest interest among young workers--also want more. Additional benefits boost morale, industry observers agree, but contrary to conventional wisdom, they don’t necessarily provide a competitive edge, Ernst & Young’s Pudlowski says. Pensions, however, play an important role.
As for helping retention, many other factors influence why an employee stays or leaves. "Benefits are usually third or fourth on the list," Pudlowski says. "As we do exit interviews with employees, one of the top things we find is that it has to do mostly with salaries. After that, it’s their work environment, the culture." There is also a very human, often unpredictable dynamic: "How well they get along with their managers." Too bad there’s no insurance for that.
Workforce Management, April 2005, p. 68-69 -- Subscribe Now!