Large Companies Broaden Voluntary Benefit Choices, but See Lackluster Participation

November 11, 2005
Many of the nation’s biggest companies, facing an uncertain economic outlook and health care cost increases approaching double digits, have expanded their voluntary benefits packages. In an analysis of its database of 88 of the top 100 Fortune 500 companies, MetLife found that long-term care insurance, offered by 33 percent of them, emerged as the fastest-growing benefit. The number of companies offering it increased 61 percent in the past four years. Disability insurance, offered by 39 percent of the companies, was second, climbing 28 percent.

    Nontraditional benefits also experienced growth. The number of companies offering prepaid legal plans increased 10 percent, while those offering group auto and home insurance grew 18 percent.

    Employee response to voluntary benefits--those they pay for partially or totally--seems mixed, however. Fifty percent of the largest companies--those with 25,000 or more employees--say participation in long-term care insurance exceeded the targets they set.

    That compares with 29 percent of employees overall, according to MetLife’s 2004 Employee Benefits Trend Study, says Maria Morris, senior vice president for institutional business at MetLife. Em­ployee participation in disability insurance exceeded targets in 41 percent of the big companies, compared with 34 percent of companies overall.

    Viewed another way, half of the big companies missed their goal for signups for long-term care insurance, and more than half missed it for disability. "Participation is lower than anyone will want it to be over time," Morris says. It’s all the more puzzling because more than a third of employees say they want access to a wider array of benefits, according to the MetLife survey of trends at both large and small companies.

    The easy financial explanation would be to blame the usual suspects--the economy and employees’ own concerns about health care costs. Their contributions have nearly doubled in the past three years. What’s more, premiums and out-of-pocket expenses will increase 12 percent next year, rising to $3,136 from $2,810, according to a survey released in October by Hewitt Associates.

Communication breakdown
    Insurance industry executives often suggest a psychological explanation for employees being slow to participate in disability and long-term care insurance. They say consumers are disinclined to discuss them because the plans evoke unsettling images of aging, illness and death.

    But MetLife’s Morris and Marcie LePine, director of the University of Florida’s Human Resource Research Center in Gainesville, advocate a more practical reason. "Part of the problem companies are having is communicating what these benefits are," LePine says. "Just signing up can be a major hassle. Even if it’s automated, you need a password, and it can be hours before you talk to a person or be able to sign up. Companies need better systems in place."

    Only 31 percent of employees say communication about benefits is effective, the MetLife survey found. Only 40 percent understand the benefits that best meet their needs. Even more astonishing, 57 percent of them spend a scant 30 minutes or less deciding on benefits during open enrollment. As a measure of their frustration, 43 percent say they want employers to provide financial planners to help them determine 401(k) investments.

    "The focus needs to be on education, making sure messages get across," Morris says. "How do we ensure that the person who needs it most gets the benefit? It really gets into a life-stage discussion--where the person is in life. If they’re 22 and just out of school, long-term care may not be an issue."

    Valero Energy Corp., a Fortune 500 refining company based in San Antonio, uses five methods to educate employees about benefits: an intranet, presentations, meetings, brochures and an HR newsletter, says communications manager Bill Day.

    The company, with annual revenue of $70 billion and a workforce that numbered 20,000 at the beginning of the year, didn’t make recent additions to its already extensive package of benefits. "However, we have added enhancements to the Valero medical, dental, FSAs and legal plan," Day says.

    Of the 7,740 employees eligible for voluntary benefits (retail employees are covered in another plan), 100 percent were enrolled in medical plans, 93 percent in a dental plan, 87 percent in cancer insurance, 83 percent in life insurance for dependents and 81 percent in voluntary accidental death and dismemberment plans.

    A surprising 21 percent also enrolled in the legal plan, a recent newcomer to many companies’ offerings. Valero upgraded the plan to include immigration services and identity-theft case solutions, an area experts identify as one of the top trends affecting benefits for both employees and human resources professionals.

    Day provided no data on participation in long-term disability insurance--for a reason. It’s company-paid for all eligible employees, along with basic term life, short-term leave, occupational accidental death and dismemberment and business travel accident insurance.

    Only 8 percent of eligible employees signed up for long-term care insurance. "Our long-term care insurance vendor tells us that 8 to10 percent participation is in line with what they see in other companies," Day says.

    The company will enhance more benefits in 2006. It will add a child care subsidy and increase the deductible on one medical plan, among other changes.

Purchasing power
Clearly, big companies have the advantage in buying power. "They’re able to leverage packages that small companies wouldn’t be able to afford," LePine says. "And while they’re looking for the best way to spend their money, perhaps they see themselves unable to offer more in terms of pay increases or perhaps even in initial salaries. Increases in what they’re able to give employees have been relatively stable."

    With a few exceptions, organizations with more employees are more likely than smaller ones to offer any given benefit, according to the Society for Human Resource Management’s 2005 Benefits Survey Report. Its findings on large and small companies’ offerings of voluntary benefits contrast with MetLife’s research. SHRM found companies of both sizes had as many increases as decreases in all benefits.

    "We found that most benefits remained stable from 2004 to 2005," says survey program manager Jessica Collison. The survey also found that companies continue to spend an average of 21 percent of an employee’s salary on such voluntary benefits as health care and retirement benefits--about the same percentage as in the previous fiscal year. (The cost of such mandatory benefits as FICA and unemployment was 19 percent of an employee’s salary, on average.)

    To emphasize companies’ cost of benefits, some run annual compensation reports for employees. "They say, ‘This is really what you’re getting’--the total dollar value of these benefits," LePine says.

    In the compensation classes she teaches MBA candidates, she’s seeing a generational shift in attitudes. Young students are thinking more long term. "They want to rely less on pay increases and say they want their retirement packages and their families taken care of," LePine says.

    The MetLife survey bears out her observation. Twenty-five percent of young workers, those ages 21 to 30, are more likely to buy insurance, retirement savings and financial and legal products at work, compared with 18 percent of other workers.

    As employees take on a more responsibility for funding their choice of benefits, better access to education and advice becomes all the more critical, according to the MetLife survey.

    "The burden has shifted to employees," Morris says, calling that shift a sea change in how benefits will be handled in the future. "And human resources wants to help them make good decisions. The important thing is to ensure all of us work together to have a support structure."

Workforce Management, November 7, 2005, pp. 53-55 -- Subscribe Now!