Catching up with Reality: The Full Value of Voluntary Benefits

By Jeremy Parr, Director, Voluntary Benefits, Lincoln Financial Group

Editor’s Note: It’s time that companies structure, prioritize, and present benefits to reflect today’s financial and societal realities. Employees often must turn to voluntary benefits to help them shoulder higher out-of-pocket costs. And that means employers need to offer a well-rounded benefits package to help their employees protect their income and be financially prepared for future illnesses or injuries.

Once upon a time, employers fully paid for their employees’ healthcare coverage. Employers also provided time-off programs that delivered up to 100% of income replacement while employees took time off to manage a medical issue. Employers and employees alike considered health insurance and employer-funded time-off plans necessary insurance benefits, and employee premiums and deductibles were low or nonexistent.

Clearly, times have changed. Today’s reality is that healthcare costs have risen dramatically, and employers can no longer handle all those expenses on their own. Over the past four years, premiums for family coverage have increased by 14% for high deductible health plan customers and 9% for preferred provider organization customers.[1] Employers need to calculate what they can afford to fund.

Employer-funded time-off programs shifted over time to fully insured disability policies where the challenge of learning about the coverage and deciding to participate now belong to the employees. And while employees may pay all of the premium, they’re also living and working longer — and a longer work life often means more disabilities and accommodations to navigate.

The ripple effect

There’s a ripple effect in how a disability affects both employees and their employers. One thing affects another, and some impacts aren’t immediately obvious. The employee burden from a disabling injury or illness is clear. They not only have medical bills to cope with, they also need to replace income they’re losing while they’re out of work.

But it goes much further than these immediate effects. Medium- and long-term effects impact employers and coworkers, too, as well as the employee with a disability.

- - - When an employee is out on disability leave, what is the effect on your remaining workers? Do they struggle to cover the extra work? Does lowered morale affect productivity and retention?
    - When your employee’s family member has a significant illness or injury, will your employee be affected by the loss of household income? Will they need to seek a second income or a different primary job with higher pay or a different schedule? Could they even end up resigning to stay home and care for their spouse or child?
    - How difficult and costly is it to replace a long-term, valued employee who becomes disabled and either can no longer handle their full job duties or must leave the workplace entirely?
    - What happens if an employee can’t afford the loss of income and tries to come back to work before they’re fully ready? Will they incur more healthcare costs as a result? What about workplace safety issues that may result?

Overlooked, undervalued — and essential

In the past, disability coverage and other voluntary benefits such as critical illness, accident, and hospital indemnity insurance have often been overlooked and undervalued. But now, employers must make a real commitment to what are still often called ancillary benefits — a name that can imply they aren’t as important.

Of course, nothing could be further from the truth. So, how can you change a company’s mindset about this essential coverage?

- - - First, it’s important to realize that lost productivity isn’t just an intangible concept. It’s a real cost you can quantify in days and dollars — and it’s important that you measure these costs and that they become part of a company’s staffing plan and HR strategy.
    - Next, even if you currently offer disability insurance, revisit your plan provisions, maximums, and durations. Are they still adequate? Have you had to lower your percentage of income paid during disability because of higher premiums, and are your employees aware of buy-up opportunities you’ve provided?

Make a true commitment to these benefits by putting in the time and effort it takes to fully educate employees about their value and set up the payroll deduction process. In 2021, ownership of disability insurance fell to 14% after falling from 20% in 2019.[2] Employees need to understand the ways that disability, as well as critical illness, accident, and hospital indemnity insurance can help them meet their financial responsibilities and protect their income.

The benefits of auto-enrollment

Consider auto-enrollment for disability insurance if your company offers it as a voluntary coverage. And even if disability is employer-paid, consider auto-enrollment in the buy-up percentage. Although auto-enrollment is a relatively new concept for disability benefits after being introduced in the 2018 Department of Labor guidelines, it’s a strategy that’s proven valuable and effective for retirement plans, which followed a similar evolution from employer-paid to employee-paid with the rise of 401(k) plans. Two-thirds of employers are very or extremely interested in auto-enrolling employees in non-medical benefits. And employers that auto-enroll employees in disability insurance may see as high as a 75% participation rate compared to a 25% participation rate for employers that leave the decision entirely up to the employee.[3]

Both are important aspects of protecting an employee’s financial future, and both deserve to be prioritized as essential parts of an overall benefits package that emphasizes providing and replacing income and educating employees about their voluntary options.

It’s time that companies structure, prioritize, and present benefits to reflect today’s financial and societal realities. Employees often must turn to voluntary benefits to help them shoulder higher out-of-pocket costs. And that means employers need to offer a well-rounded benefits package to help their employees protect their income and be financially prepared for future illnesses or injuries.