How Voluntary Benefits Can Help Manufacturers Control Costs

HR benefits managers at manufacturing firms across the U.S. are struggling to attract and retain good people, to control double-digit cost increases in core benefit plans, and to effectively communicate solutions to their employees. Manufacturers are finding that voluntary benefits allow them to offer simple, affordable solutions to their employees who want better short-term disability coverage, and do so for little or no cost to the firm.

This article explains why voluntary benefits (VBs) are an effective yet inexpensive tool for boosting employee commitment, and offers examples of how manufacturers are using VB programs to deliver immediate, tangible benefits to their employees.

The majority of manufacturers tend to offer core benefits like basic medical insurance and if they provide any short-term or long-term disability coverage at all, it's on a voluntary basis. These voluntary benefit programs have proven quite valuable as a supplement that allows employees to purchase simple, affordable solutions and increase their coverage for the better rates the company can obtain.

An "alternative" benefits approach could help control costs. MetLife's sixth annual Employee Benefits Trends Study found that 55% of the 1,652 companies surveyed offered voluntary benefits, viewing them as a way to retain employees and keep employer costs low. The same study also showed that decision-makers are spending more time examining voluntary benefits to possibly shift some company-paid benefits to voluntary status. In this environment, it's important for decision-makers to understand what VB programs can really provide.

Sobering Statistics

The reality for the average working family in America is this: If a primary breadwinner gets sick or hurt, chances are high that the financial burden could be devastating.

• Having enough money to cover bills during sudden illness is the number one concern of 63% of full-time employees and 75% of young families with children (Fifth Annual MetLife Study of Employee Benefit Trends).
• 48% of all home foreclosures are due to a disability, with up to 50% of those due to a shortfall of $300 per month. Most of these foreclosed homeowners had health insurance at the time of disability (U.S. Department of Labor.)
• A significant number of Americans are living paycheck to paycheck-a statistic that cuts across all income levels. According to a recent Harris poll, the average American family cannot make it more than 7 weeks without income.

If employers expect their employees to shoulder more healthcare and insurance costs, then employees need education and access to affordable solutions that can help them weather the financial storm that family illness or accidents can bring.

Voluntary Benefits: The Basics

Voluntary -- or supplemental -- benefits include life, accident, critical illness and short-term disability (STD) insurance. Premiums are surprisingly affordable, often as little as $4 to $5 per week. When a covered event -- usually an accident or a debilitating illness like heart attack, stroke or cancer -- triggers a claim, the VB policy pays a predetermined lump sum that can be used to cover expenses at the policyholder's discretion.

While these products may be available to individuals outside the workplace, many employees lack the time, knowledge or means to explore these options. Employers can often negotiate better terms -- like lower premiums and simplified underwriting -- with carriers. While group coverage does exist, most workplace VBs are still written as individual contracts between the employee and the carrier, hence the term "voluntary." The majority of VB policies today are paid through after-tax payroll deductions, and the coverage is portable.

Choice and Flexibility

A voluntary benefits program offers choice and coverage customization that the core group benefits -- which are based on a formula -- don't. In a VB program, each employee can buy what they need, giving them more flexibility in terms of benefit amount and duration. Offering choice lets employees make discretionary decisions based on their budget and their obligations.

A program we're putting together now covers 3,000 employees at a company with multiple locations in several states. Average salaries run $30K to $50K per year, and the company offers a short-term disability benefit that pays 60% of salary to a maximum of $170 per week, for up to 26 weeks. This formula matches up with the state-mandated STD benefit in New York, where a large portion of their employees are located.

Through the expanded voluntary benefits plan, the company can offer additional STD and other products, giving employees the ability to buy more coverage per week or month, or extend the duration of the benefit. No group plan can provide that kind of flexibility. Although the program is new, participation is already in the high 40% range.

VBs are Supplemental

One of the biggest issues facing America's working families during a health crisis isn't the cost of care itself -- it's the loss of cash flow that results from being out of work, coupled with uncovered expenses associated with aftercare and treatment. If a family is living paycheck to paycheck, having the primary breadwinner miss a week of work has a significant impact on their financial stability.

VBs offer simple, affordable solutions to very real problems. Here's a common scenario: A 49-year-old light manufacturing worker has a heart attack. He's out of work for three weeks, and then goes part-time for a month, with six specialist follow-up visits. Total medical costs are $41,000. Between co-pays, deductibles and lost wages, his out-of-pocket expenditure is about $5,000. For approximately $4 per week (via an after-tax, payroll deduction), he can purchase a $10,000 critical illness policy. He simply fills out a one-page claim form that pays upon diagnosis. With the $10,000 check, he pays his out-of-pocket medical expenses, covers the mortgage and car payments, and uses the rest to make up for his wife's lost wages on the days she brings him in for treatment. For rank and file employees like this, getting cash in hand during a difficult time is crucial to their financial well-being.

Retention and Employee Satisfaction

Employees who feel good about their company's benefit package are much more likely to enjoy their jobs and to feel loyal to their employers. Manufacturing companies increasingly see voluntary benefits as an effective tool for boosting employee commitment at little to no cost. Since voluntary benefits are employee-paid, corporate expenses are minimal, yet VBs deliver an immediate, tangible benefit to employees. Once the benefit is set up, there are virtually no ongoing demands on HR staff resources, since claims are administered directly by the carrier. Such benefits are not invisible. In small to mid-sized companies, a $10,000 critical illness payout within weeks of a diagnosis becomes good news that travels fast.

Voluntary benefits have broad appeal across the earning spectrum, because income protection-related coverage is always a valuable VB offering. While accident and critical illness insurance are especially important to minimum-wage earners, the most popular benefits in the C-suite are individual disability and supplemental life plans. Take the example of the 57-year-old executive who had a cardiac issue and had a stent put in. His company's benefit plan offers a minimal amount of STD coverage, but because his salary is close to $100K he wanted more protection. Through a voluntary benefit plan, he can buy up to an additional $3K in monthly benefits with guaranteed underwriting, allowing him to protect his family with a policy he couldn't buy on his own.

It's All About the Message

The quality of communication determines how your employees feel about their benefits package. Data show that if you are effective at communicating the message -- even if your plan is not as comprehensive as that of a comparable employer -- employee satisfaction goes up. Conversely, the best benefit package in the world can be an enrollment dud if it's not communicated well.

Voluntary benefits are blissfully simple -- and simple to communicate. A specific accident or sickness will trigger a defined benefit payout. And that's it. When employees understand that these products are designed to solve real-life problems like putting food on the table during a difficult time, enrollment rates soar.

A case in point is a pipe manufacturing company that offered no underlying group STD benefit at all. The majority of the firm's 100 employees earn non-union salaries averaging $30K to $40K. Once we educated them about their choices and why "paycheck insurance" is important, we saw a 63% participation rate in the voluntary benefit plan.

A Win-Win Solution

Manufacturers can use voluntary benefit programs to provide tangible benefits to their employees, allowing them to get a nice employee relations boost with little or no expense. The bottom line is that offering voluntary benefits makes good sense all around. They are a low-cost way for a manufacturing firm to have a big impact on the lives, finances and well-being of employees if they get sick or hurt. In this economy, voluntary benefit programs can be a very effective way to control costs while still offering income protection solutions for employees. Properly communicated, and with minimal set-up and ongoing claims administration, a voluntary benefit program can be a win-win for everyone involved.

Jim Mooradian and Associates, Inc. is a Boston, Mass.-based full service insurance brokerage firm that specializes in supplemental insurance programs, including voluntary benefits and supplemental disability programs. Founder Jim Mooradian has been a New England Financial broker for the last 25 years. Bryan Lambert has been a broker with the firm for two years, and specializes in voluntary benefits and supplemental disability programs. www.jmooradian.com.