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Health Costs Back Burner Some Employers' Voluntary Benefits

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In LIMRA’s recent survey of top employer benefits concerns, providing employees with adequate yet affordable medical insurance options remains a top priority among employers. The survey found 9 in 10 firms ranked controlling health insurance costs ahead of 8 other employer challenges, a view that has prevailed since 2003.

This need to control health insurance costs appears to be sapping the voluntary worksite benefits market. With this albatross and numerous other human-resources issues simultaneously draining valuable company resources, how has the availability of voluntary (100% employee-paid) insurance products been affected? Are employers too preoccupied with other priorities to give proper attention to voluntary benefits? Will they consider introducing new worksite options when facing consistently rising health insurance costs?

On the surface, it appears the once-explosive growth of voluntary benefits has halted. But a closer look shows that while penetration has indeed declined in some markets, growth in others is quite robust.

Preliminary findings from an upcoming LIMRA survey of U.S. companies with at least 10 employees suggest a strong 4-year decline in the percentage of firms offering at least one voluntary product. While nearly two-thirds of companies sponsored one or more voluntary options in 2002, this measure plummeted to just over 50% in 2006. Though the overall decline in voluntary customers is not isolated to specific U.S. regions or major industry segments, it is heavily driven by small firms (companies with 10 to 99 employees).

While companies are not abandoning voluntary benefits, the pace among smaller employers adding these benefits has slowed considerably. The industry has long struggled with reaching this segment and now must overcome distractions from other issues when trying to persuade employers to consider voluntary benefits (see Table 1.)

While the lower incidence of companies sponsoring voluntary benefits is at the very least a concern for worksite marketers, we also found some encouraging trends for the industry. The first is the continued strong prevalence of voluntary products at large firms (1,000 or more employees). More than 90% of these employers continue to offer their workforce least one voluntary benefit.

Secondly, companies that sponsor several worksite options are increasing the size of their portfolios. Sixteen percent of employers offer at least 6 voluntary offerings, which is up from 11% in 2002. Western firms and companies involved in wholesale-retail trade are leading the way, with both segments substantially growing in this measure compared to the previous study. The growth has not been confined to large employers. In fact, small- and medium-sized (100-999 employees) companies are slightly more likely than larger firms to offer 6 or more voluntary options to employees.

The good news continues when examining market penetration of specific products. Several offerings have seen a dramatic upswing in popularity over the past four years. Cancer insurance is the most commonly available worksite coverage, with nearly 30% of all U.S. firms with 10 or more workers sponsoring these plans on an employee-pay-all basis (compared to 22% in the previous survey). Growth of cancer insurance availability is strongest in the West and Midwest, at small companies and within service firms. (See Table 2.)

Other voluntary offerings also show strong 4-year growth, which strengthens the optimistic view of the 2006 findings. Availability of accident products rose by 6% overall, with notable gains made at both small and mid-sized companies, within the South and West regions, and at firms operating in wholesale-retail trade and services industries. Critical illness products are now found more readily at firms of all sizes and displayed the strongest growth in the same regions and industries noted for accident plans. Accidental death and dismemberment products are also most popular at wholesale-retail trade and service organizations and are growing fastest in the West and at firms with fewer than 1,000 employees.

Again led by Western establishments, both short-term disability and long-term disability plans grew modestly in popularity over the past four years. LTD availability increased most in the Midwest and at mid-sized firms, while STD is gaining the greatest traction at service organizations.

Meanwhile, the overall penetration of other voluntary products has remained relatively unchanged over the past 4 years. There have been some notable changes within employer segments for these worksite offerings, however:

oSupplemental medical plans are now offered more frequently at service providers and less commonly at manufacturing firms.

oDental availability has declined in the Northeast.

oVision plans increased at medium-sized employers and at wholesale-retail trade organizations.

oPrescription drug plans are losing momentum in both the South and West.

Limited-benefit medical plans are included for the first time in the 2006 survey and are currently the least-offered voluntary option. No more than 8% of firms in any demographic segment sponsor these “mini-med” plans, though evidence shows they are starting to appear on employers’ radar screens (particularly among larger firms).

Voluntary life products clearly took the biggest hit when examining a 4-year trend in availability. While some segments show incremental growth for this product, most show lower penetration than in the earlier survey. Those most affected include small and large employers, firms in the Midwest, and construction and service providers.

Should the worksite industry be encouraged by the gains made by many voluntary offerings? Or should it be discouraged by the declines in overall penetration and specifically in the availability of voluntary life insurance products?

The correct answer is both. Worksite marketers can sleep soundly knowing that many firms have a deep appetite for voluntary benefits and continue to enhance their programs. It is apparent, however, that this trend cannot last indefinitely. Long-term worksite marketing success is contingent on better reaching and retaining smaller firms, which offer the least comprehensive benefit packages to their workforce. It is these employers who have repeatedly expressed a desire for further benefits assistance and present an opportunity for future sales as their size and payrolls expand.


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