Spring 2006 / No. 67
The study
further stated that one cause was that employees are confused
by too many choices and, thus, are simply not buying. These
conclusions concerned us so much that we’ve decided to
examine them in more detail over the next two issues of Outside Input.
This issue will address the first conclusion—lack-luster
(low) participation.
In our opinion, “low” is
a relative term. By that we mean there is no concrete definition
by which participation can be measured. For example, participation
is low compared to what? And what is reasonable participation
for a product?
Granted,
voluntary participation rates are lower compared to employer-funded
participation rates. But is it really fair to compare these?
We don’t think so. Traditional employer-paid plans have
100 percent participation. Employer contributory plans have
varying levels of participation, depending on the amount of
the employer contribution and the product itself. Other factors
include whether the product is a new benefit or one the employer
has migrated from employer-paid. Generally, employer-funded
plans have participation rates in the 60-80 percent range.
Voluntary products sometimes achieve similar penetration rates
(60 percent), at least for certain products. Certainly, not
all voluntary products achieve this level of participation—which
brings us to our second question. What is a reasonable level
of participation for a voluntary plan?
Most voluntary
products are priced for minimum participation levels of 25
percent or so. But should 25 percent be considered
“good” participation? The answer is “it depends.” The
variables include:
- The
type of product offered
- What
other solutions exist to satisfy the need
Product
type is very important. Some voluntary products are “core
need” products while others are not. Core need products
are more or less universally accepted as necessary for most
individuals or families. Examples include medical insurance,
life insurance, and income protection. In today’s market,
most employees also think of dental insurance as a core need.
But not all voluntary products meet core needs; some are “ancillary
benefits” (ones that have less universal acceptance or
that cover needs not everyone has). Examples of ancillary voluntary
benefits include cancer, critical illness, and long-term care
insurance—although there are many others.
Core need
products tend to have higher participation levels than ancillary
benefits. But even core need products may experience varying
levels of participation, depending on whether there are other
solutions to meet the need. We can look at two common examples:
- A voluntary
STD plan is offered but the employer also has a fairly rich
sick leave policy that results in longer-term employees having
a significant number of accumulated sick days.
- A voluntary
life plan is offered in addition to an employer-provided
group term life plan.
In the first
example, participation may be less for longer-term employees
than it would be without the sick leave or for short-term employees.
But, does the lower level of participation mean the plan is
not valuable?
Similarly
in the second example, some employees (for example, younger
employees without children) may feel the employer-provided
plan is sufficient for their needs so enrollment in the voluntary
life plan is lower than it would be if no group term life benefit
was provided. But again, does this mean that the resulting
participation is “bad” or “poor?”
One of the
key tenets of voluntary benefits is that they enable employers
to provide employees with an array of benefits that can be
customized to meet their own unique needs and situation. If
that is the goal, then can we really measure the success of
voluntary benefits solely based on the results of one product
in one enrollment?
We think
not. While risk management requires that we achieve certain
minimum levels of participation (especially to offer guaranteed
issue), we don’t believe that the true measure of success
is achieving high levels of penetration on a single product.
In our consulting practice, we’re encouraging carriers
to think outside the box and consider other alternatives. One
promising option is for multiple product offerings that offer
a combined participation requirement. Under this concept, instead
of measuring participation per product, we look at overall
participation (i.e., the percent of eligible employees that
bought at least one product). With this approach, we believe
much higher levels of participation would be achieved although
it, again, still depends on the product issues discussed in
this article as well as the topic we will discuss in the next
issue—the enrollment process. Look for this discussion
in our summer issue.
For
more information on achieving “good” participation
levels, call us at (860) 676-9633. |
