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Voluntary Benefits and Services Survey - Toiwers Watson

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Towers Watson’s 2013 Voluntary Benefits and Services Survey results shed light on how employers develop voluntary benefit strategies and design the product portfolio. The responses of more than 320 …

Towers Watson’s 2013 Voluntary Benefits and Services Survey results shed light on how employers develop voluntary benefit strategies and design the product portfolio. The responses of more than 320 U.S. companies ranging from midsize to large organizations reveal a growing interest in and focus on voluntary benefits.

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  • 1. towerswatson.com Voluntary Benefits and Services Survey A Fresh Look at Enriching Core Benefit Plans Executive Summary Amid a fragile economy, tight benefit and salary budgets, and new, major health care reform legislation, employee benefits and HR professionals face signifi- cant pressure to control costs while delivering rewards that are competitive and aligned with employee needs. To manage this balancing act, employers are rethinking their financial commitment to employee benefits and redefining their total rewards strategies. Against this backdrop, companies are thinking more creatively and strategically about how to design reward programs that are both within cost constraints and attractive to employees. Many are turning to voluntary benefits and services (VBS) to help achieve this goal. In some form, VBS have supplemented core benefit packages since the 1960s. Today, these benefits are evolving and deserve a fresh look, given the new landscape and their role in the overall employee value proposition (EVP). For many employers looking to optimize the value of the benefit portfolio while meeting cost objectives, VBS are increasingly attractive. They serve to enhance Four Categories of VBS VBS meet employee needs by addressing concerns across four critical life needs: health, wealth accumulation, security, and unique personal interests or requirements. Health benefits foster employee and dependent well- being while mitigating risk at a reasonable cost. Wealth products protect income and assets; the security products protect survivors, the vulnera- ble or one’s identity. The final category covering personal products provides convenient access to desired insurance coverages and other services that the employee perceives as personally important. gaps in employees’ security, health, wealth and personal needs. Also, employees are responsible for some or all associated costs. For employees, the VBS model offers choice, conve- nience and affordability. They can select from an array of options to personalize their benefit package to fit their lifestyles. They can select voluntary products at open enrollment and fund them through payroll deductions. And in many cases, employees pay less when purchasing products in a group-offered model. In promoting the value of VBS plans to employees, however, employers need to recognize that employees have limited compensation dollars to spend. They would do well to communicate to employees that — before turning to VBS options — they should appropriately fund their 401(k) plans, and understand the financial advantages of health savings accounts (HSAs) and how they can be used to close gaps in medical coverage. Ultimately, employers benefit from their employees being able to complement health care with some VBS options. Towers Watson’s 2013 Voluntary Benefits and Services Survey results shed light on how employers develop voluntary benefit strategy and design the VBS product portfolio. The responses of more than 320 U.S. companies ranging from 540 to 345,000 employees confirm a growing interest in and focus on voluntary benefits. The findings also reveal the role of VBS in a post-reform world, emerging products and relevance for workforce segments. Key Findings The following themes emerge from this survey: • VBS are gaining importance for companies’ EVPs. Employers plan to reexamine VBS as a viable part of their reward package, with 21% planning to do so this year and 48% expecting to do so in 2018. • Employers are turning to VBS to personalize their benefit offerings and support their total rewards strategy. More than 80% of companies have adopted VBS to enrich their current programs at a time when they are reconsidering their financial commitment to traditional benefits. July 2013 “Traditionally, voluntary benefits have helped companies build a more appealing and personalized benefit platform to support attraction and retention efforts in a cost-effective manner.”
  • 2. Voluntary Benefits and Services Survey 2towerswatson.com • VBS offerings today tend to be geared toward baby boomers, currently the largest segment of the workforce. However, as baby boomers begin to retire in larger numbers across the next decade, expect to see VBS redesigned for younger generations, who by nature are attracted to customized benefit packages. • Private health benefit exchanges could encourage employers to invest in VBS because many of the emerging models are planning to make voluntary products available as an adjunct to their core health offerings. This trend could increasingly factor into future employer decisions about VBS as well as their larger decisions about health exchanges. Over one-third (34%) of employers report that the availability of VBS offerings will influence their exchange decisions. • Employers are not adequately communicating the value of VBS to employees. Unlike traditional benefits offered only during open enrollment, many VBS offerings can be accessed throughout the year, yet fewer than a quarter of employers surveyed have a year-round communication strategy. • Critical-illness and identify-theft insurance, along with financial counseling, are the emerging VBS offerings employers are considering for 2015. Reasons for Offering VBS Traditionally, voluntary benefits have helped companies build a more appealing and personalized benefit platform to support attraction and retention efforts in a cost-effective manner. More than 80% of our respondents say they adopted VBS to support employees’ personal needs (Figure 1). But as companies rethink EVPs and total rewards in today’s health care reform world, VBS will likely play an even greater role in companies of all sizes and industries. Approximately 21% view voluntary benefits as important for 2013, but their enthusiasm more than doubles to 48% for 2018 (Figure 2). As employers consider how to manage increasing health care costs and rethink their overall financial commitments to their traditional core benefit pro- grams, most plan to take advantage of VBS to enrich existing core benefit plans (83%) and augment the total rewards package (74%) (Figure 1). 0% 20% 40% 60% 80% 100% Other Build/Strengthen reputation of company Offset other benefit changes to retirement or health care plan(s) Enhance high-deductible health plan options (e.g., improve communication, ease transition) Incent people to stay with the company Offer employees low-risk opportunities to reduce out-of-pocket expenses Attract employees to the company Safeguard financial risks for employees Add to the total rewards package offered to employees Enrich existing core benefit plans by offering more personalized benefits to employees that fit their needs and lifestyle while leveraging group purchasing power 7474 8383 2929 2727 2323 1717 Figure 1. Enriching core benefit plans and total rewards package cited as most important reasons for offering VBS 1111 99 88 22 More important/ Very important Important 2013 2018 Figure 2. VBS becoming increasingly important to companies’ EVP and total rewards strategy 0% 20% 40% 60% 80% 100% Not at all important/ Somewhat important 48 30 22 21 38 41 +27
  • 3. Voluntary Benefits and Services Survey 3towerswatson.com In fact, VBS can temper employees’ reactions to sometimes unpopular benefit plan design changes made to manage health care costs under the excise tax threshold. For instance, employees are likely to view high-deductible health plans (HDHPs) more favorably when they have access to affordable and supplemental voluntary health products. VBS can minimize the out-of-pocket impact of HDHPs by giving employees access to an affordable supplemental medical benefit (e.g., accident, hospital indemnity or critical-illness insurance) in lieu of, or in combination with, HSA “seed” money. Employees that buy one of the supplemental VBS medical plans can receive a cash payment that may be used to offset the deductible and other expenses if they are injured in an accident, admitted to a hospital or diagnosed with a specified medical condition. Many employees will view the opportunity to offset their deductible through the purchase of one of these VBS medical supplements as appealing. Again, as a result, it is incumbent on the employer to educate and communicate to employees the role that supplemental medical benefits play and the value of contributing to an HSA if one is available to them. 34% Yes, it will be a material consideration 50% Neutral, it would be nice but not critical 16% No, it will not be a factor 34% 50% 16% Figure 3. VBS offerings will factor into some employers’ exchange decisions Responding to Health Care Reform For employers concerned about the excise tax in 2018, offering popular VBS supplemental medical options can offer an unambiguous advantage: When appropriately implemented, the premium cost of these plans will not be included in the calculation of their excise tax burden, whereas HSA contributions will be included. In addition, VBS can be attractive in other ways to employers seeking to balance plan affordability for employees with the looming excise tax challenges. Voluntary benefits offset the reduction in benefit value by closing coverage gaps. Organizations are not yet capitalizing on this opportunity, although we expect this to change as 2018 approaches. In particular, industries that traditionally offer robust medical plans and have higher health care expenses, such as the Energy and Utilities sector, will need to be more aggressive than others in reining in costs before the excise tax effective date. VBS can be introduced as a lower-cost alternative in a high-cost plan. In addition to taking steps to avoid the excise tax, employers will also explore public and private exchanges as a new health care delivery model. Over one-third (34%) of survey respondents agree that VBS will be a factor when selecting a private exchange provider (Figure 3). Under this arrangement, voluntary products serve to complement the medical benefit. “In this critical year before the launch of key provisions of the health care reform law, voluntary benefits are growing as a key component of the total rewards portfolio.”
  • 4. Voluntary Benefits and Services Survey 4towerswatson.com 0% 20% 40% 60% 80% 100% Let my broker/consultant determine appropriate voluntary benefits to offer Have year-round communication strategy that emphasizes the value of VBS Integrate/Coordinate VBS with your consumerism philosophy/program Review emerging products, vendor partners, enrollment approach Examine all VBS to ensure they support core benefits and wellness strategy Review benefits annually in a total rewards strategy/framework Consider employee population demographics when selecting appropriate products to offer Figure 4. Most companies consider employee demographics and how products fit within their total rewards and wellness strategies when evaluating VBS 54 30 1654 30 16 50 32 1850 32 18 44 38 1944 38 19 42 38 2042 38 20 32 32 3632 32 36 23 32 4523 32 45 10 22 6810 22 68 To a great extent To a moderate extent Not at all 0% 20% 40% 60% 80% 100% Generation Y — Born between 1981 and 1999 Generation X — Born between 1965 and 1980 Baby boomers — Born between 1946 and 1964 Traditionalists — Born before 1945 Figure 5. VBS are more geared toward baby boomers today, but personalized benefit designs appeal to younger generations How well do current VBS offerings meet the needs of employee demographic segments? 40 45 1540 45 15 44 48 844 48 8 34 51 1534 51 15 29 46 2629 46 26 To a great extent To a moderate extent Not at all VBS Product Suite and Employee Demographic Segments In this critical year before the launch of major provi- sions of the health care reform law, voluntary benefits are growing as a key component of a competitive total rewards portfolio. Some of these products are commonly provided as extensions of the core employee reward package: vision, life, dental and disability. Emerging VBS, such as critical illness, hospital indemnity, financial counseling and identity- theft protection are just starting to capture employers’ attention as additional options for employee choice in benefit coverage. Employers need to evaluate voluntary benefits in a holistic context to ensure that a strategic approach to support business goals, meet employee needs and deliver return on investment is taken. When evaluating VBS offerings, companies focus on employee demographics (54%), and how products fit within their total rewards (50%) and wellness strate- gies (44%) (Figure 4). Employers report that their current VBS offerings are geared slightly more toward older employees (Figure 5). Today, baby boomers represent a large population in the workforce, so meeting their needs is important to employee benefit professionals. However, we expect employers to reevaluate their VBS programs to ensure they are equally appealing to the Generation X and Y popula- tions as well. We know from experience that Generation Yers prefer choice and the ability to customize their benefits package, so we expect a VBS model tailored to their needs to be popular with them. In addition, 55% of employers offer a perk portal (Figure 6), which typically includes a website with employee discounts for movie tickets, computer hardware/software and travel, among others. This channel’s similarity to mobile apps and common reward/point programs is especially appealing to younger generations. 55% Yes 7% No, but considering for 2014 or before 2% No, but considering if we transition active employees to a private exchange 29% No, and not considering at this time 7% Never heard of this concept *A perk portal typically includes a website available to all employees, with discounts on purchases like movie tickets, computer hardware/software, travel, etc. 55% 7% 7% 29% Figure 6. Perk portals* are common among companies with VBS 2%
  • 5. Voluntary Benefits and Services Survey 5towerswatson.com Survey responses show that the most prevalent VBS offerings include vision, dental, accident, disability, life insurance and discounts/perks (Figure 7). Figure 7. Summary of VBS offerings, 2013 Health Financial counseling Legal Disability 8080 5555 4444 Wealth Security Personal Identity theft Personal travel accident Long-term care insurance Life insurance 9494 2525 3636 3030 Umbrella insurance Concierge services such as dry cleaning pickup, grocery services, etc. Car purchase assistance Pet insurance Homeowners insurance Automobile insurance Discount merchandise, ticket purchasing or other perks 4949 5050 1515 3030 2323 2020 6565 0% 20% 40% 60% 80% 100% Hospital indemnity Critical illness Accident Dental Vision 8484 8080 6868 2222 3535 Currently offer “VBS offerings today tend to be geared toward baby boomers, currently the largest segment of the workforce. However, as baby boomers begin to retire in larger numbers across the next decade, expect to see VBS redesigned for younger generations, who by nature are attracted to customized benefit packages.”
  • 6. Voluntary Benefits and Services Survey 6towerswatson.com The top emerging VBS offerings under consideration include critical illness, financial counseling and identity-theft protection (Figure 8). Offering these emerging benefits may not be the right solution for every organization. Employers need to assess if they will add value to the total rewards portfolio. Employee Engagement and Communication Fewer than a quarter of respondents (23%) have a year-round communication strategy that promotes the value of VBS (Figure 4, page 4). In a post-reform and cost-sensitive environment, employers need to remind employees frequently of how VBS can enhance the core benefit plan and customize the benefit experience with products that fit lifestyle needs. Inadequate or ineffective communication may inadvertently limit participation and the power of voluntary benefits to attract, retain and engage key talent. Moreover, we know from experience that employees place more value on benefit plans that are well communicated and promoted. Figure 8. Emerging VBS offerings, 2014 – 2015 Health Wealth Security Personal Planning for 2014 Considering for 2015 Disability Legal Financial counseling 3333 101066 121277 Life insurance Personal travel accident Long-term care insurance Identity theft 11 66 1414 131344 7722 Car purchase assistance Discount merchandise, ticket purchasing or other perks Concierge services such as dry cleaning pickup, grocery services, etc. Automobile insurance Homeowners insurance Umbrella insurance Pet insurance 101055 1010 55 1111 55 111177 44 33 8844 55 33 0% 5% 10% 15% 20% 25% Dental Vision Accident Hospital indemnity Critical illness 3311 1111 5544 44 1212 131388
  • 7. Copyright © 2013 Towers Watson. All rights reserved. TW-NA-2013-29937 towerswatson.com About Towers Watson Towers Watson is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. With 14,000 associates around the world, we offer solutions in the areas of benefits, talent management, rewards, and risk and capital management. Conclusion VBS products can help employers achieve benefit objectives by supporting the total rewards strategy, compensating for benefit cutbacks, enriching existing core plans, influencing attraction and retention, and meeting the needs of a diverse workforce. When designing the VBS product portfolio, employers need to consider what adds value for the employee population. Some benefits are more meaningful than others. Taking the time to understand the differences is key to building the right reward package for your unique workforce. For employees, they address the need for personalized benefits that are affordable and portable. Also, VBS may serve to mitigate risk and expenses associated with a catastrophic medical event. Employees can access the voluntary options at discounted group rates, funding them via convenient payroll deduction and selecting products during the core benefit enroll- ment period. In addition, some companies provide access to voluntary offerings via a portal where certain benefits may be available throughout the year. What’s more, vendors are continually launching new VBS to match consumer preferences and close any potential gaps resulting from out-of-pocket increases in more traditional employee benefits. At a time when the employee benefit landscape is undergoing substantial change, companies need to evaluate the real and perceived value of these emerging products to ensure they align with their total rewards strategy and EVP, and make sense for their workforce. About the Survey 10% Energy and Utilities 14% Financial Services 9% General Services 15% Health Care 11% IT and Telecom 26% Manufacturing 6% Public Sector and Education 8% Wholesale and Retail 10% Industry groups 6% 11% 26% 14% 9% 8% 15% 38% 10,000+ 18% 5,000 to 9,999 26% 2,000 to 4,999 18% Less than 2,000 38% 18% 18% 26% Total number of employees Towers Watson’s 2013 Voluntary Benefits and Services Survey was conducted online from late March through early April to determine how U.S. employers use and deliver voluntary programs. More than 320 employee benefit professionals from midsize to large companies across a variety of industries participated in the survey.