Employer views on the role of voluntary benefits may be in for a change.
Traditionally, the primary reason employers offer employee benefits has been to attract and retain talent. Therefore, the decision to offer benefits–and to subsidize them–is, at least in part, a business decision. But employers also offer benefits because they think it is the right thing to do for their employees.
Nearly 75% of employers surveyed by LIMRA believe that employers should provide employees with a comprehensive benefits package for which the employer pays some, or all, of the premium. Just one quarter think all benefits should be selected and paid for by the employee, based on individual needs.
But what happens when employers’ philosophical beliefs run into some practical financial roadblocks?
Research, buttressed by rising benefits costs, suggests employers understand they will have to shift more of the responsibility to employees. In fact, 60% of the surveyed employers agree with the idea that “employees need to take more responsibility when it comes to employee benefits.”
Employers have already shifted much of the responsibility for benefits to employees in the form of costs. The majority of employers surveyed say the bulk of benefits are “contributory” or partially employer paid, with employees responsible for paying part of the cost. Depending on the benefit, only 20% to 45% of employers indicate they pay full freight for many of the traditional, “core” benefits (see Figure 1). Just a fraction say they are not contributing a penny to the annual premium of any offered benefits.
Most cost-shifting is occurring between contributory and voluntary benefits, according to research LIMRA published last year. By comparison, in years past, most cost-shifting was between non-contributory (100% employer-paid) and contributory benefits.
Thus, in practice, employers are moving more benefits towards voluntary, employee-pay-all benefits.
However, many employers do not necessarily recognize that shift–yet.
Differing definitions may impact this. For instance, at LIMRA, a “voluntary” benefit means a benefit that is 100% employee-paid. But at what point do employers consider a benefit to be voluntary?
Semantics aside, offering voluntary benefits does not seem to be a strategic priority for employers right now. When asked which benefits were essential for recruiting or retaining talent, only 10% of employers select employee-pay-all benefits. Additionally, when asked about critical challenges they are facing, offering employees voluntary and supplemental benefits is at the bottom of the list (see Figure 2).
In tough economic times, employers cannot afford to spend resources on programs that are not perceived as effective.
Two in five employers aren’t sure whether their existing benefits program is meeting the needs of both their employees and their organization. This uncertainty is not surprising given the increased cost of offering benefits and the increased diversity of employee populations.
At the same time, 62% recognize that their employees place a greater emphasis on insurance benefits today than they did three years ago. Employees feel less financially secure in the wake of the recession and after decades of wage stagnation; employees increasingly depend on the insurance products employers offer.
Benefit costs will ultimately push employers to adopt voluntary benefits intentionally. Four in five employers identify benefit costs as the most important issue they are currently facing, and 75% agree that benefit costs are more of a concern to their company today than three years ago.
Looking to the future, one-third expects that controlling health insurance costs will be the greatest issue they face in the next three to five years. In the face of unrelenting increases, one action the employers are prepared to take is to switch one or more benefits to a voluntary benefit.
At that point, what has so far been adoption of voluntary benefits almost by default will become strategy by deliberate design.
Jennifer Parmelee Witt, FLMI, ACS, is assistant research director-employee benefits product research at LIMRA, Windsor, Conn. Her e-mail address is JParmelee_Witt@limra.com.