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April 08, 2004 at 08:00 PM
Rising Medical Costs Not Impacting Voluntary Benefits Purchases–Yet
BY GIL LOWERRE AND BONNIE BRAZZELL
Increases in the employee portion of health insurance costs do not automatically dampen interest in purchasing voluntary worksite products.
In “The Rising Cost of Employee Benefits,” a new research report from our company, Eastbridge Consulting Group, consumers revealed that they look at their insurance needs in distinct “buckets.” An increase in the cost of one bucket does not necessarily impact their interest in other buckets.
This phenomenon is similar to the reaction of a consumer to a rent increase. The rent increase does not automatically mean the consumer will curtail eating out, but it may cause the consumer to look for a less expensive apartment. Required changes tend to be limited to the affected category, apartment rent.
Likewise, the impact of benefit cost increases often is limited to the single bucket being affected. Employees may look for cheaper medical insurance alternatives but generally do not cancel second-to-die coverage, for example, to make up for the increase. And for many consumers, health cost increases will have no impact on decisions to purchase other voluntary products.
However, there is a cap on their tolerance for cost increases. Once all discretionary income is exhausted, consumers will make the hard choices. If the rent increase wipes out the food budget, lifestyle changes affecting all buckets will be required.
As shown in the graph on this page, employees identify a wide range of needs, or buckets, that insurance can help meet. When given a choice, consumers instinctively choose to use their resources to make a dent in the largest number of needs possible, because they want to put something in every bucket they identify.
Or said another way, consumers prefer to have some protection for all of their perceived needs rather than have complete protection for some and no protection for others.
This same theme has been demonstrated by psychologists, who have observed that most people are willing to spend more to reduce risk than they are to secure an equivalent reward.
