Americans face a lot of financial exposure with high insurance deductibles and debilitating healthcare costs. These risks can effectively be tempered with supplemental benefits coverage.
- Supplemental benefits help people make up for high deductibles and associated costs when faced with an accident or critical diagnosis
- Approximately 20% to 30% of employees enroll in supplemental benefits, leaving 70% to 80% of them with more financial risk if they have a critical illness or accident
- Household budget roulette is whether or not those employees with unexpected accidents or illnesses had voluntarily enrolled in supplemental coverage
- Employers can raise the likelihood of protection by having a strong benefits communication strategy
One of the biggest pain points for many Americans continues to be the cost of healthcare. Paying for medical expenses is still a big challenge, even when people have insurance coverage. High annual premiums and high deductibles make it especially hard for people to get the care they need. If an accident happens or someone receives a critical illness diagnosis, it can lead to financial catastrophe.
Voluntary benefits are effective solutions to this problem. This article will cover the purpose of these benefits and how to get employees off of the household budget roulette wheel by rounding out benefits packages and effectively educating them.
What’s the purpose of voluntary benefits?
Voluntary benefits, specifically accident, critical illness, and hospital indemnity policies, were originally created for people who didn’t have health insurance. Now, after decades of healthcare inflation and today’s extremely high costs, these benefits are used to offset out-of-pocket expenditures associated with expensive health incidents, even for people who have insurance. This is impactful because — no matter the industry you’re in, how educated you are, or whether or not you have insurance — major healthcare events are financially painful.
Because of healthcare inflation, companies have had to shift more risk over to the employees in the form of higher deductibles, coinsurance, and out-of-pocket maximums. According to the Kaiser Family Foundation, the average single deductible is $1,669. Juxtapose this number with the statistic that the majority of Americans, according to a Federal Reserve study, would not be able to cover an unexpected expense of $400.
When the average American has a major healthcare incident, even if they’re insured, their household budget and emergency savings are quickly depleted. There is a significant mismatch of the amount of financial risk from healthcare versus most consumers’ resources. They’re basically in financial trouble without some sort of safety net. It’s easy to see why one of the most common reasons for hardship withdrawals from retirement plans is to cover medical expenses.
Voluntary benefits help people gain that safety net and fill in the gap. If someone has an accident, gets hospitalized, or suffers a critical illness diagnosis, supplemental benefits can step in. Cancer diagnoses can mean tens of thousands of dollars in costs outside of the already extremely high healthcare costs since people have to alter their lives to deal with treatment. They may need to take time away from work, pay for extra daycare, cover additional transportation costs, and the like. Voluntary benefits provide funds in exactly these situations.
Critical illness, accident, and hospital indemnity cover a wide spectrum of incidents and provide very low-cost options for employees to offset a lot of their medical risk. These benefits give people the opportunity to be reimbursed for healthcare expenses that create financial hardship in addition to the health insurance they already have.
Beating household budget roulette
The fact is voluntary benefits participation rates for employers can be fairly low because of poor education and communication around their advantages and the risks they offset. Poor enrollment would typically be 5% to 10%, and strong enrollment would be 30% to 40%. Employees may be put off by having another withdrawal coming out of their paychecks after health insurance, dental, vision, life insurance, etc., but they need to understand just how much financial protection it can provide when something happens. Many employers are placing these coverages directly after medical in the enrollment batting order for just this reason.
Say that 20% of employees at a given employer participate. That means one in five employees enroll in voluntary benefits coverage. However, 100% of employees have exposure to a high-claim situation. But as stated previously, the average employee doesn’t have enough money to cover it. So, they spin the wheel — if only one in five people have protection, will an employee be one of the four in five that didn’t take the benefit and now has a cancer diagnosis or an accident or a hospital stay? That’s what we mean by household budget roulette.
Employers should pursue a really solid communication strategy to ensure high awareness and participation in voluntary benefits programs. All employees need to be educated on what is covered and how it will help them lower financial risk in exchange for a relatively inexpensive payroll deduction.
Let’s talk a little bit more about how voluntary benefit plans are the solution to the risk of financial exposure.
Accident coverage: This covers hundreds of different incidents, like dislocations and fractures, loss of sight or hearing, and other claims that happen in an accident. There is a robust schedule that outlines coverage. The employee supplies documentation to the insurance carrier, and they send a check directly to their home. They can use this money any way they want. They can use it to pay their deductibles or cover any associated costs.
Critical illness coverage: This is for higher severity incidents like a heart attack, stroke, or cancer diagnosis. These are more catastrophic events, so they don’t happen as often. Employees can typically elect up to $30,000 worth of coverage on a guaranteed issue basis for large groups. So, say someone opted for the $10,000 plan and went for an annual checkup, and the doctor diagnoses cancer. The carrier would send them a check for $10,000, directly to their home. When someone is newly diagnosed with a critical illness, they get a lump sum amount.
Hospital Indemnity: Hospital indemnity pays a daily benefit if the employee has a covered stay in a hospital, critical care unit, or rehabilitation facility, regardless of cause, including a positive event like the birth of a child. The benefit amount is determined based upon the type of facility and the number of days stayed. Like the other coverages, this can provide significant financial protection from high deductibles or out-of-pocket maximums.
Healthcare costs are expensive for individuals, but they can also be debilitating for employers from a budgetary standpoint. Voluntary benefits help employees deal with some of the burden, so they can afford the costs associated with an illness or injury. A strong communication strategy during open enrollment will pay dividends for all.
The BeneRe difference
BeneRe is a group captive insurance company that offers voluntary benefits coverage, including accident, critical illness, and hospital indemnity. We’re committed to transparency of expenses, claims, and commissions, while employee benefits programs receive underwriting profits on a pro-rata basis in the form of captive distributions. Underwriting profits are reinvested in employee benefit programs.
To get started with BeneRe, reach out for a complimentary analysis of in-force programs today.