Spring
2006 / No. 67
Voluntary participation rates — are they too low?
by
Bonnie Brazzell
A recent study by a generalist consulting firm on voluntary
benefits came to the conclusion that participation rates for
voluntary benefits are not up to snuff. 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.
Does too much choice kill an enrollment?
by Gil Lowerre
This article continues our series on enrollment strategy.
The two previous issues examined the importance of offering
meaningful advice and ways to bundle advice into enrollment
platforms.
Now that we have a handle on advice and its growing importance
in voluntary product enrollments, we can look at the enrollment
process in its totality. Assuming our premise is correct—that
enrollment choices are becoming more complex and advice is
the key to the complexity—let’s examine the impact
of enrollment on our customers.
Enrollment serves two functions: to present and guide employees
through the choices available and to complete the necessary
operational steps to apply for the chosen alternatives. And
we understand that our goals have to focus on eliminating the
operational complexity while supporting the customer’s
choice-making decisions (through advice). The missing link
then is to understand the role and impact of employee choice.
Choice is a good thing. Isn’t it? The right answer is “sometimes.”
We are learning a lot about the impact of choice on satisfaction
and decision-making, and here are some headlines to ponder.
- Having choices is perceived as more satisfying than not
having a choice. (Taylor, 1989)
- As the number of choices increase, people focus on fewer
of the available options and take advantage of less of the
available information. (Hauser & Wernerfelt, 1990).
- Offering a greater array of choices is at first appealing
to customers, but purchase behavior drops dramatically after
the number of choices exceeds the optimum (Iyengar
& Lepper, 2000).
- People offered an excessive number of choices tend to
be less satisfied with their decisions, experience higher
levels of regret and report being more frustrated with the
process (Iyengar & Lepper, 2000).
- People actually seem to prefer to exercise their opportunity
to choose in contexts where their choices were limited.*
So what is the optimum number of choices? There is no definitive
answer, but dozens of studies have found optimal decision-making
characteristics (high purchase behavior, high satisfaction,
low “regret”) at roughly six options, deteriorating
steadily until presented with fifteen or more options. This
suggests that having to make a decision between six or so alternatives
is probably the ideal. Three products, each with two options
constitute six choices. So does one more complex product requiring
six decisions. Come to think of it, most enrollments involve
at least six different choices. And we know that if we get
too much beyond that, a downward spiral ensues.
So the final question about enrollment is obvious. How do
we bundle advice in support of the right number of options,
on the most cost and time efficient platform? In other words,
how do we make decisions about the enrollment process given
the issues raised in these last three articles? That will be
the subject of our next issue.
For more information on maximizing enrollment results
or analyzing your company’s enrollment strategy, call
us at (860) 676-9633 or email us at info@eastbridge.com.
*Research review and quote from "When Choice is Demotivating"
by Iyengar and Lepper, Journal of Personality and Social
Psychology, Vol. 79.
Voluntary dental products
While sales of voluntary dental plans over the last 3 or 4
years have not increased as dramatically as was predicted in
2001, most carriers remain optimistic. This was one of the
findings in a new study, Voluntary Dental Products,
recently released by Eastbridge Consulting.
In fact, voluntary dental plans have made a name for themselves
in the voluntary/worksite market. In 2004, new business annualized
premium (sales) of voluntary dental plans was estimated at
around $425 million (based on Eastbridge data), and employees
consistently rate dental coverage as one of the most wanted
and most important employee benefits. Carriers say the product
will continue to be an important part of a voluntary offering
and that growth in the line is very likely. Employers as well
as carriers predict that with the pressure of increasing costs
for health insurance, more employers will reduce or eliminate
employer funding of dental plans. Other findings of the report
include:
- There are more players offering voluntary dental plans
today than in our prior study in 2001.
- Many of the companies offering voluntary dental plans
also offer a range of other voluntary products.
- Discount card programs have not pushed out traditional
insured plans, but insurance carriers are offering slimmed
down plans to appeal to the low-cost market need.
- There is an increasing trend towards “employee choice” in
selecting dental plans.
In addition to exploring these findings the report, Voluntary
Dental Products, covers general data on each of 17 profiled
carrier (distribution, voluntary dental sales, penetration,
claims, target markets, etc.) as well as competitors, product
structure, underwriting, costs, commissions, sales/enrollment,
and future trends in the voluntary dental market.
With this data, carriers can continue to fine-tune their strategies
around their voluntary dental products and use the competitive
intelligence to compare their plans against the competition.
[Note: In order to protect the confidentiality of the carriers
profiled, all data is reported anonymously by assigning each
carrier a random number.]
The report is now available for purchase for just $2,500. Click
here to view more information about the report, including
the table of contents. To purchase the report, e-mail
us at info@eastbridge.com or phone (860) 676-9633.
Leverage and finesse
Developing a voluntary strategy cannot take place in a vacuum.
An understanding of one’s strengths and weaknesses is
not a formality, but an absolute requirement to successful
strategy development.
When you look at companies that have developed winning voluntary
strategies, you realize that they didn’t come up with
that one great idea that no one else was using. They probably
did not reinvent the wheel, become leading edge, develop a
new type of product, or discover an untapped distribution channel.
As a matter of fact, they probably aren’t doing much
that’s unusual at all. But it’s a safe bet they
are doing three things that create success.
- They are leveraging their strengths. They know what they
are good at, what unusual resources they have, and what assets
are available. And they build strategies that take advantage
of those characteristics.
- They finesse their weaknesses. They know what they are
not good at and what their liabilities are. And they build
strategies to finesse those characteristics.
- And then they execute well.
So understanding strengths and weaknesses and assets and liabilities
is not simply good form, it is the only essential ingredient
in building a winning strategy.
For help with your strategy, call us at (860) 676-9633 or
email us at info@eastbridge.com.
Distribution strategies of worksite companies
Every carrier has to set up a system for attracting producers.
That system (called a distribution strategy or structure) is
the subject of a recent Eastbridge spotlight report. Distribution
Strategies of Worksite Companies explores the strategies
of 17 carriers. The report looks at:
- The types of street-level producers with whom the company
does business
- The percent of business the company gets from the street-level
producers
- The number and type of management levels above the street
level
- Titles, scope of authority, and compensation strategy
for each level of management
The report also provides insights into which distribution
strategies tend to work best with different types of producers.
The report is available for purchase for $950. Click
here for more information about the report, including
a table of contents or call the company at (860)
676-9633.
Dynamic analysis vs. irrational behavior
The government has great difficulty predicting tax revenue
changes. Repeatedly, the government’s forecasts of tax
revenue changes resulting from tax law amendments have been
wrong. Usually they have been dramatically wrong. Yet, the
government patiently explains that decreasing the capital gains
tax rate will decrease tax revenues, calculated carefully to
the penny. And regardless of your economic or political view,
it remains a stunning failure how poorly those estimates turn
out.
Lately, we have begun hearing the call to move from static
to dynamic forecasting. The traditional static approach assumes
that no one behaves differently when the tax law changes. But
of course they do. People evaluate the change, evaluate their
circumstances, and then make a rational determination of their
best course of action. To continue behaving the same way, regardless
of tax law changes, would be irrational. And so, what the government
is forecasting is how the revenue would look if everyone acted
irrationally. It may be interesting, but it certainly is not
useful.
Nor is it instructive, we think. We have sat and listened
to a home office executive’s presentation on how his
company’s voluntary business would improve when they
fully changed over to web enrollment. And he was able to determine
the exact amount of improvement by assuming that sales stayed
exactly the same while he reduced enrollment costs based on
the cost differential.
Our point? The government has no corner on the market for
irrationality.
Information partners
Eastbridge Information Partners have already received
three spotlight reports this year (and it’s only April)
and there are three other reports currently under way. In addition, Information
Partner companies have ordered more than 18 existing reports
from our menu of over 40 reports.
Information Partners are companies that have signed
up to receive all Eastbridge reports during the course of the
year. This program also gives companies unlimited access to
the forty-plus Eastbridge studies currently available.
To learn more about becoming an Information Partner,
call us at (860) 676-9633.
Innovation in consumer-driven health plans
We, at Eastbridge, have watched with interest the movement
towards consumer-driven health plans. As regular readers of Outside
Input know, we have done two reports on Health Savings
Accounts with special emphasis on how voluntary carriers are
responding to this product. To date, we’ve found that
many carriers have developed or revamped their hospital indemnity
plans to make them “HSA-compliant.” One carrier
(that offers HSAs) has also recently introduced an innovative
product approach to a common concern about HSAs: what to do
in the early years when the account balances are low.
Many employees are reluctant to take advantage of high deductible
health plans (HDHP) with HSAs because they’re concerned
about not having the cash available to pay their deductibles
in the event of a catastrophic event in the early years. To
help remedy this, the one carrier developed a hospital indemnity
rider that is available with HSA plans at the initial application.
What makes this plan unique is the benefit structure and the
one-time premium payment. The benefit is based on the covered
employee’s deductible amount, and the amount paid decreases
over a period of up to two years. So, if the employee has a
serious illness or accident within months of implementing an
HSA plan with this rider, the rider pays a benefit that covers
a significant portion of the deductible on their HDHP.
We don’t know how the plan is fairing, but we like the
innovation and hope that other companies will be challenged
to come up with creative solutions for helping employers and
employees address health care concerns and costs.
For information on the latest HSA spotlight report, go
to our website or give us a call.
Group vs. individual—is there a need for distinctions?
We have written on many occasions about the blending of group
and individual plans in the worksite business. Every rule about
the characteristics of a “group” or “voluntary” product
or an “individual” or
“worksite” product has fallen to the wayside. For
example, group products are portable and can pay heaped commissions,
and group carriers take responsibility for employee-level record
keeping. On the individual or worksite side, guaranteed issue
underwriting is readily available, commissions can be level
or heaped, and enrollment methods include Internet, call center,
and group meetings. It often seems that the only part that
hasn’t changed is the legal or regulatory aspect of group
vs. individual.
Yet despite this, many carriers still want to make distinctions.
For example, while conducting our annual Worksite Sales
Survey, we had several calls from carriers wanting to
know how we were defining group and individual in our survey.
(We typically report the filing category in the report.) More
than one of those who called said they classify products based
on items other than the filing category. One uses the sales
approach while another said they consider
“hybrid” products (those filed on a group platform
but administered as though they are individual) as individual.
All of this makes us wonder, do we still need to make any
distinctions?
Distribution strategy—is yours ready for primetime?
“Of course we have a distribution strategy. We can describe
exactly the type of broker we want to attract.”
We hear that comment more frequently than not. And while it
is a great first step and forms the basis of a company’s
distribution selling strategy as it seeks to approach potential
brokers, it’s not enough. A distribution strategy also
has to answer such questions as:
- Why is that broker the best target?
- Who else will be competing for that broker’s attention?
- Why will the broker choose you?
- What will it take to cultivate that broker?
- What will it take to keep that broker?
Plans fail less often due to lack of an articulated goal than
due to lack of an articulated rationale. You need to carefully
evaluate and decide on the target and then build in all of
the supports to make that rationale work in the real world.
And you have to remember to tell the whole story to your distributors,
too.
For more information on building and implementing a distribution
strategy or evaluating your current strategy, contact us
at 860-676-9633.
|
