Voluntary benefit trends for 2014
By Brian Summers
In the land of health care reform, it can be difficult to see the forest for the trees. Although employers have focused sharply on medical insurance in the past few years, they must look more broadly at their entire benefits package if they wish to remain competitive.
As the Affordable Care Act (ACA) enters its fourth year of implementation, employers brace for another round of regulatory changes by refining benefits strategies. Whether it’s a business with fewer than 50 employees considering whether to continue offering health insurance benefits, or a large employer rethinking rich benefits in anticipation of the excise tax of 2018, the ACA is challenging the traditional employer role as benefits provider.
The vast majority of health benefits are provided by employers. Large employers have traditionally considered health insurance and other benefits a key strategy to remain competitive by helping them recruit and retain valued employees. And most of them remain committed to offering employee health benefits. In a recent survey of employers, 99 percent said they aren’t considering moving core health benefits to private or public exchanges in 2014.
For the small percentage of businesses with more than 50 employees that do not already offer health insurance, the decision to postpone the enforcement of the mandate to offer employee health coverage by one year was a welcome reprieve. Meanwhile, the individual health insurance mandate took effect January 1. As confusion about the ACA abounds, more than half of Americans surveyed say they don’t have enough information about the law to understand how it will impact them and their families. Among the uninsured, 62 percent express confusion about whether the health care law is even in force.
Although the ACA is poised to radically change the employer-based benefits landscape, several truths are certain:
- Employees will need reliable, actionable information to make wise decisions about benefits. Voluntary offerings that are mostly untouched by the hand of health reform are more attractive tools than ever to enhance employment recruitment and retention.
- Voluntary benefits continue to offer valuable and affordable financial protection for working Americans.
- Benefits communication that is meaningful and personalized provides an effective means to combat the confusion of health reform and create an environment of choice, value and security.
As the ACA continues to change our landscape, brokers must continue to develop strategies that allow them to differentiate themselves. In the small employer market, that differentiation has never been more important.
Small employers need to be competitive in order to survive. And employee benefits can be just the differentiator they need. By embracing voluntary benefits, small businesses can provide a menu of choices that extend the traditional benefits package. Although core health benefits garner headlines, they represent only a fraction of the total employee benefits picture. A 2013 Towers Watson survey found that 83 percent of employers offer voluntary benefits as a way to enrich their core benefit plans while leveraging group purchasing power.
Small employers can offer voluntary benefits that represent real value and choice for employees. From disability and life insurance to accident and critical illness coverage, voluntary benefits can be a true differentiator. Because they’re typically employee-paid, voluntary benefits allow employers to offer an expanded benefits package without additional cost. And employees can purchase the coverage at work through convenient payroll deduction.
Dealing with change for large employers is another area of focus where brokers will continue to remain diligent. Large employers remain committed to offering core health benefits directly to employees. A 2013 survey by the Kaiser Family Foundation shows employers aren’t dropping health coverage. Ninety-nine percent of large firms with 200 or more employees offer health insurance to their workers today, up from 98 percent in 2012. And among employers with 50 or more workers, 91 percent offer medical coverage, a number statistically unchanged from the previous year.
A 2013 National Business Group on Health survey found only 1 percent of its membership was considering moving active employees to private exchanges in 2014, although 30 percent would consider it for 2015 and later.
But large employers are starting to implement changes to take advantage of the post-ACA landscape and to mitigate potential threats. Some will test the waters in private insurance exchanges with their retiree populations. IBM and Time-Warner announced in September 2013 they would send hundreds of thousands of retirees to exchanges to pick Medicare plans in an effort to reduce health care costs by moving to a defined contribution model. A Towers Watson survey found that 25 percent of employers are likely to discontinue coverage of retirees over the age of 65 altogether and send them to private insurance exchanges to purchase gap coverage in 2014. This likelihood increases to 44 percent in 2015.
While these shifts are limited to retirees, changes are coming for active employees as well. Large employers with traditionally rich core health benefits are planning now for the 2018 excise tax on employer-sponsored health plans with expenses that exceed $10,200 for individual coverage and $27,500 for family coverage. Enrollment in account-based health plans (where employers pair tax-advantaged accounts such as health spending accounts and flexible spending accounts with high-deductible health plans) has grown significantly in recent years. Sixty-six percent of companies have this type of plan in place now, and another 13 percent say they will add one in 2014. Growth is expected to jump as employers shift to higher-deductible plan designs to keep costs below the excise tax threshold.
For more than 50 years, voluntary benefits have served employers as a means to creatively attract and retain employees across a range of ages and needs. But surveys indicate voluntary benefits are now advancing as a strategy for total benefit design. A 2013 Towers Watson survey showed just over 1 in 5 employers viewed voluntary benefits as important for 2013. But their enthusiasm more than doubles to 48 percent for 2018, the final year of the ACA implementation, when the excise tax comes into play. As employers are pressed to rein in health care costs under the ACA, voluntary benefits become an attractive complement.
Voluntary benefits can help large employers temper disruptive change and reduce the cost impact of higher deductibles on employees. Accident coverage, hospital indemnity and critical illness insurance can be offered as voluntary choices. By introducing these supplemental benefits as a range of new benefits options, employers can turn a potentially unpopular change to their advantage.
“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” This quote by Charles Darwin kind of says it all for us.
Our world is changing. Our clients need us more than ever. The days of telling clients how good you are are over. Brokers and employers don’t want to hear about all of the great things we are going to do for them — we must begin to show them. If you don’t bring new ideas and adapt to change, then someone else is going to.
See also: Health care reform and voluntary benefits