Voluntary benefits: the new flex?

Sponsors seem to be satisfied even though implementation of a flexible benefits program is a lot of work. A flex plan is generally more complicated to administer than a traditional benefits plan and the communication challenges can be significant. Plan members not only need to understand where they are coming from (in terms of a new flex plan implementation) but also the financial and coverage implications associated with myriad of plan options. And it is not a one-time event. Ongoing communication is needed to support future plan enrolments or the value associated with more choices for employees quickly disappears.

So what is an employer to do if they want to add flexibility to their plan without the headaches of complex plan administration and a commitment to increased plan communication? Many plan sponsors are turning to health spending accounts to add more plan flexibility. Another possible solution is voluntary benefits.

Voluntary benefits provide employees access to a broad range of existing individual insurance products that are entirely employee funded or funded in whole or in part by the employer. The plan may compliment existing benefit plan coverage or replace some level of coverage previously provided through the benefits plan, such as a ‘core plus options’ plan. The benefits are generally purchased online and may feature call centre support and an on-site enrolment team. As a concept, voluntary benefits have been alive and well in the U.S., Europe and Asia for many years and are now gaining traction in the Canadian marketplace.

There are a number of considerations in determining whether a voluntary benefits program makes sense for an organization, including:

• The individual insurance market place is considerably more robust than in prior years. A number of major insurers are rounding out their product offering with individual products with web-based enrolment tools as a complement to a group insurance contract. There are also a growing number of firms that I refer to as “value added resellers”—negotiating preferred pricing arrangements with a broad range of insurers and offering these products through their own technology platform. There are more program options.

• In some respects, a voluntary benefits program is more flexible than say a traditional flex plan. The range of products can be broader including coverage for items such as home and auto insurance, medical access coverage, pet insurance, etc. These individual products are portable in that the employee can continue coverage even if they leave their employer.

• From a plan sponsor perspective, voluntary benefits are compelling for the simple reason that the communication and administration of these plans is effectively outsourced to the vendor. All the plan sponsor needs to do is to provide the vendor (insurer) with access to their employee population. From an employee perspective, the picture is perhaps not as compelling. Despite technology solutions to make the process easy for employees, there may be additional effort required to obtain similar coverage than under a group insurance contract. For example, some coverage may be subject to the provision of evidence of insurability whereas under a group contract the coverage may be provided without evidence. The employee may be required to do more to get less or even be excluded completely.

• A significant disadvantage of voluntary benefits compared to group benefits is cost. Individual products tend to be priced higher while insuring the group provides the volume buying leverage to reduce the cost per member. A value added reseller can help to lower the price of individual products, however on a comparative basis it is still more cost effective to add program flexibility through plan options priced on a group basis.

• A final word of caution. Whereas it may be appealing to give employees a bunch of money and have them access the individual products market to meet their benefit needs, the danger is the employee also becomes less connected to the employer. A benefits program can be an important component to employment brand or value proposition—this can be diluted if the coverage is more aligned with an external vendor and the coverage is also portable.

Voluntary benefits can make a lot of sense, particularly for those organizations looking to add flexibility at a low (employer) cost. Whether the concept has the potential to replace traditional approaches to plan flexibility is open to debate. A voluntary benefits program can certainly enhance the overall perceived value of a benefits program if positioned appropriately.

Lessons from across the globe would suggest that individually purchased products can be an effective way to meet benefit needs. From a Canadian context, a lot will depend on how the market continues to evolve. Will voluntary benefits be the new flex? Time will tell.