Are Voluntary Benefits Becoming Necessary Benefits?

Employers have long recognized the value of a solid benefits package in attracting and retaining employees. It's no surprise that a strong benefits program positively correlates with job satisfaction and company loyalty.

But how do you comply with health care reform, control costs, and still maintain a competitive benefits package that employees will appreciate? In a recently hosted webinar, "Health Care Reform Update: Are Voluntary Benefits Changing to Necessary Benefits," HUB experts discussed why voluntary benefits are becoming so important to both employers and employees alike.

Supporting Consumerism
We are accustomed to having a choice in products and services. Younger employees demand it and older workers expect it. Most employees view limited plan choices unfavorably, particularly if they had more benefit options in the past. Voluntary benefits restore choice and provide value to employees who personalize benefits to satisfy their wants and needs. Being able to choose and customize benefits often translates into greater company loyalty.

For decades, employees led a charmed life in the benefits arena. Shielded from cost, employees failed to realize low out-of-pocket costs meant they had great benefits. Escalating rates and health care reform have forced a reality check on the true cost employers are shepherding.

Voluntary benefits can be a buffer, perhaps replacing the old paradigm that shielded employees from costs. Voluntary programs can help take the sting out of unexpected medical emergencies, higher deductibles, and other out-of-pocket expenses. On another positive note, voluntary benefits can support wellness and population health management. As employees become better health care consumers, voluntary benefits will promote customization, which provides employees choice -- and employees, like all consumers, value choice.

Voluntary Benefits include:

  • Short-term disability
  • Long-term disability
  • Whole life insurance
  • Term life insurance
  • Accidental dismemberment and disability (AD&D)
  • Cancer
  • Critical illness policies
  • Limited medical benefits
  • Long-term care insurance
  • Dental
  • Vision

Plans offering voluntary benefits engage employees in their benefits and encourage them to consider costs and financial protection. With ongoing education and communication, your employees better understand plan coverage and out-of-pocket costs and how voluntary benefits help fill the gaps.

Why It's Necessary for Employers
Employers are coping with the complexities of the Affordable Care Act, and many feel the ACA makes it even more difficult to control the cost of health benefits. Voluntary benefits can help employers take back control and combat some of the unintended consequences of the health care reform law. ACA seems to have put us back on the train to managed care. Integrating voluntary benefits with your core benefits gives back some of that lost control by providing more flexibility in design.

Further complicating life for the employers is the upcoming Cadillac tax -- an example of an ACA provision causing unintended consequences. Although not effective until 2018, the significant 40 percent excise tax on "too-rich" benefits plans requires thoughtful planning. Because employer and employee core medical plan contributions count toward the threshold that triggers the tax, employers may cut back on those programs. The other reaction will be to cap or eliminate health flexible spending accounts (125 plan accounts), health savings accounts (HSAs), or health reimbursement accounts (HRAs) to avoid paying the tax.

Voluntary benefits may help counteract this potential move by helping employees cover health expenses. Voluntary medical-type benefits do not count toward the Cadillac tax if your employees pay for them on an after-tax basis.

Sibyl Bogardus, Chief Compliance Officer for Hub International, is an internationally requested keynote speaker, has testified for the Small Business Committee of the House of Representatives in D.C., and serves on the IRS Advisory Council for the Gulf Coast. She authors numerous guidance reports on health care reform and is part of Hub's Employee Benefits Practice.

Posted by Sibyl Bogardus on Nov 10, 2014