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.
Interestingly, our survey showed that once the average consumer has uncovered a new need, he did not prioritize needs in any meaningful way. Instead, the consumer behaved as if all needs were equally important. These findings have significance for benefits sales professionals.
First, in many cases, increases in health insurance costs do not diminish the interest in voluntary purchases, assuming the spending ceiling hasnt been reached. Also, the distinction between medical insurance and other benefits may blur in coming years, reducing the separation of buckets. Using health savings account funds to pay for long term care insurance premiums may be the beginning of the blurring of those lines.
Second, voluntary benefits marketers should reconsider the attractiveness of bundles or packages that cover multiple needs. This research seems to suggest that the day of the multiple-peril policy may be dawning on the voluntary business. Consumers are comfortable with the concept in their auto and homeowners insurance; why not in their employee benefit packages?
Third, the industry should rethink enrollment. We see that employees need help in prioritizing needs, and it is possible that solutions may evolve toward ready-made packages, lifecycle bundles or custom-made (at the point of purchase) packages. That obviously has an impact on enrollment technology and resources.
The good news is that health cost increases do not seem to be crowding out other coverages, at least not yet. The better news is there may be exciting opportunities to develop more comprehensive marketing strategies to meet the employee benefit needs of our clients.
The Eastbridge study examined the impact of medical costs on employees and their purchasing decisions. Telephone interviews were conducted with 400 employees nationwide. Interviews were scheduled and conducted during September and October of 2003. For more information about the report, visit our Web site at www.eastbridge.com.
Gil Lowerre is president and Bonnie Brazzell is vice president of Eastbridge Consulting Group Inc., a consulting firm in Avon, Conn., serving the financial services industry. Both Gil and Bonnie can be reached at firstname.lastname@example.org.
Reproduced from National Underwriter Edition, April 9, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.