Voluntary benefits an emerging option for employers

While employers strive to provide the right balance in their total rewards strategies, there’s sometimes a disconnect between what they offer their employees and what staff say they need and want. Employees are asking for more choice and the ability to customize their benefits from both a health and financial perspective. Adding a selection of voluntary benefits to benefit plans can help organizations demonstrate they’re listening to employees and taking action.

In response to Sanofi Canada’s 2015 health-care survey, a full 91% of responding plan members agree they’d like the option to choose specific benefits that are best suited for their current personal situation. But when asked which type of benefits plan they currently have, 77% of plan members selected “a traditional plan that defines what is covered and the levels of coverage.”

Read: Employers underestimate the prevalence of chronic disease

Similarly, a recent Mercer report concluded that many employees are calling for greater flexibility in their benefits choices, with 61% of them in agreement that they’d reduce the value of some benefits they receive and increase others if they had the choice. That number increases to 65% for younger employees. In the same report, employees identified a real concern about the affordability of health care in the coming years.

Given the concerns, voluntary benefits are an option for employers to increase flexibility in their plans at no added cost.

What are voluntary benefits?

Although they’re not a requirement,companies often offer employees core benefits covered either wholly or in part by the employer in order to remain competitive and foster a healthy workforce. They may include coverage for short-and long-term disability, health and dental care, life insurance and accidental death and dismemberment.

Read: Understanding the costs of dental benefits

Canadian employers are now also offering voluntary benefits at reduced group discounted rates, typically through payroll deduction.

Some of the most popular voluntary benefits products include:

  • Critical illness
  • Permanent life
  • Accident (lump sum payable in the event of on- and-off-the-job accidents; this isn’t the same as the traditional accidental death and dismemberment products currently on the market)

Emerging voluntary benefits also include:

  • Identify theft
  • Travel
  • Long-term or elder care
  • Home and auto insurance
  • Pet insurance

The array of products and services available is growing as governments continue to delist health benefits and plan members seek the affordability, convenience and choice of voluntary benefits to fill gaps in coverage and supplement their plans.

Read: Employers tweaking corporate health plans to appeal to millennial workers

Communication and education around voluntary benefits is essential as there’s a level of confusion with some plans. For example, there are key differences between optional life insurance as an addition to an existing group life insurance policy as a core benefit and the voluntary permanent life benefit.

The voluntary permanent life benefit is available at reduced group insurance rates with level premiums that don’t increase over time (unlike the optional life policies that have escalating premiums). It’s also fully portable and guaranteed or simple issue at a certain level, usually $25,000 to $30,000 (which means there are few or no medical questions), and employees can pay through payroll deduction.

Another attractive feature is that the employee will have the policy for life, which isn’t the case with the core and optional life insurance that either terminates or gets converted upon leaving an employer.

Significant demographic shift

While many factors play into benefit plan designs, rising costs are a constant driver. At the same time, four distinct generations now coexist in the workplace, all with varying benefit needs.

Generation Y — also referred to as millennials — currently make up about 25% of the workforce, according to Statistics Canada. U.S. forecasts predict Generation Y will represent more than 40% of the labour force by 2020. That’s more than baby boomers and Generation X combined.

The needs of Generation Y employees will therefore become the single most important demographic for benefits planning. So what are those needs?

Read: Benefits and the demographics challenge

Recent Public Policy Forum consultations with a cross-section of Canadians about workplace issues revealed a desire among younger professionals for “flexibility and customization in everything from professional development to benefit packages.”

Generation Y employees don’t necessarily like traditional plans that cover things that aren’t relevant to them while not offering enough coverage for those that are, according to a recent Sun Life report. The report goes on to conclude that flexible plans may not offer the degree of control those employees demand, and offering voluntary benefits is an option for employers to consider.

So while voluntary benefits have existed for some time, employers looking to attract and retain top talent in a multigenerational and increasingly fluid workforce have an opportunity to undertake a disruptive change by redefining the design of their benefit plans and moving to a more personalized and holistic approach focused on the health and financial welfare of employees.

Voluntary benefits a rising trend

While they’re part of a fairly underdeveloped market in Canada, voluntary benefits have been available to employees in the United States and other countries for 15 years or more and are growing in popularity.

In a 2014 LIMRA report, 71% of employers said they believe voluntary benefits improve worker morale and satisfaction, a significant increase from 2010. Similarly, British employers will increasingly personalize their reward and benefit packages in 2016, a major survey has revealed, with voluntary benefits being part of the equation.

Read: What stops small businesses from offering benefits?

In the mature U.S. market, Allstate Benefits is one of the leading providers of voluntary benefits, having offered them to employers for more than 15 years. “Educating the end consumer is key to having them understand the voluntary benefits offered,” says Walter Jones, executive vice-president for sales and distribution at Allstate Benefits.

“Once properly presented, employees often participate,” he adds.

Helping the sandwich generation

Caring for elderly family members is a reality for 15% of plan members, according to the 2015 Sanofi Canada health-care survey, a number that climbs to 20% among those employees between the ages of 55 and 64.

When asked to choose from seven possible new benefit offerings, employees with elder-care responsibilities put “assistance with day-to-day care of elderly parents” at the top of the list, with coverage for the costs of assisted-living and mobility equipment among their wishes. The same report noted 4% of plan sponsors provide coverage for assisted living and 6% cover mobility equipment.

While employers may not be in a position to offer coverage for elder care, a voluntary benefit may fill the gap.

“Employees want choice and to take control of their own health, including their financial health. Technology has played a significant role in the voluntary benefits landscape and has greatly improved our ability to engage with our clients. We’re integrating data and using algorithm-backed technology tools to help better educate the consumer.”

While Allstate enrols a significant percentage of plan members, 50% of groups join through enrolment firms that are a mainstay in the U.S. market. These firms are beginning to emerge in Canada, with organizations offering enrolment services as part of their voluntary benefit products.

Allstate Benefits has recently entered the Canadian market with a voluntary product that’s its top seller in the United States: critical illness. “The time is right,” says Barry Noble, managing director for business development at Allstate Benefits in Canada.

Read: Allstate Benefits expands into Canada

He predicts voluntary benefits will be a significant part of the benefits landscape within three to five years.

“No matter who controls the delivery of health-care services, some areas of coverage need to be expanded to offset the benefits that are delisted. Plan members are identifying gaps in coverage that are creating a financial risk and looking for ways to solve for that,” he says.

“Understanding decision-making behaviours and the use of tools designed to help the employee through this process have evolved our enrolment processes, resulting in highly successful implementations,” he adds.

With a retirement benefits background, Noble draws a parallel between decision-making behaviours related to defined contribution pension plans and voluntary benefits.

Read: DC plans need better design and raised contribution rates: report

“In both instances, it’s the support of the employer in allowing access to appropriately engage with the employee and the high level of understanding on the part of the employee that’s key,” he says.

Anecdotal reports suggest that employee take-up of optional health coverage is less than 10%, while participation rates for voluntary benefits using a model of active enrolment and high engagement is in the range of 30% or more.

The numbers are evidence of the model’s success and support the notion that if employees truly understand the product, they often see the value to them and their families and will make the decision to purchase it.

The approach works. A large Canadian employer group recently enrolled by Allstate Benefits Canada saw a 39% participation rate. The employer strongly supported the employee engagement strategies used by Allstate that included in-person employee group meetings, a voluntary benefits microsite, online tools and call-centre support.

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As Allstate Benefits expands its footprint in Canada, other insurers are entering the market. Assumption Mutual Life Insurance a company based in Atlantic Canada, is preparing to launch a permanent life voluntary product in collaboration with Symbiotic Benefits Communications (full disclosure: the author is a special advisor for voluntary benefits at Symbiotic Benefits Communications), and other insurers are following suit.

No-cost option

In a talent-centred business environment, employers would benefit from taking their strategies to the next level by offering the choice employees have clearly stated they want and, in some cases, expect.

Companies can offer voluntary benefits at no cost to them with easily manageable administrative responsibilities. With the demographic shift underway, they offer an opportunity for employers to adapt to changing expectations.

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Julie Holden is senior vice-president, central and Atlantic Canada, with SEB Benefits & HR Consulting. She also works as a special advisor for Symbiotic Benefits Communications.