St. Peter, don’t you call me, ’cause I can’t go,
I own my soul to the company store.
In October 1955, Tennessee Ernie Ford’s recording of Merle Travis’s folk lament, “Sixteen Tons,” was released. The song, which was issued by Capitol Records, painted a bleak picture of Appalachian miners forever indebted to their employers for food, supplies, medical care, and other essentials. With its dramatic vocal and chain-gang-pounding rhythm, “Sixteen Tons” rose to the top of the Billboard charts in four short weeks, propelling Ford to stardom.
Since the sixties, however, the concept of the company store has fallen into disfavor, even disrepute. While scores of companies offer their employees discounts at hotel chains, museums, and even movie theaters, employers typically don’t get reimbursed for their munificence. And making money off health insurance and pension plans is absolutely taboo. In fact, the framers of the Employee Retirement Income Security Act of 1974 (ERISA) required benefit-plan sponsors to put the needs of the beneficiaries above all others.
But old attitudes about selling to employees may be changing. Indeed, soaring group health insurance premiums and shrinking profits have some employers questioning whether they should be the sole financers of their workers’ benefits. And while the primary focus is on cutting benefit costs — rather than lightening employee wallets — a growing number of corporates are putting the old company-store idea to fresh uses.
Admittedly, most are doing their selling at the front end of the store. With little cash to embellish benefits they currently offer, some employers are providing a venue where workers can buy a wide array of “voluntary benefits” hawked by outside vendors. Largely supplied by insurance companies, the voluntary-benefit offerings range from long-term-disability (LTD) coverage to legal services to — most importantly — pet insurance.
The roaring growth of AFLAC, which markets such non-traditional policies as hospital-indemnity (which pays employees cash for hospital stays) and cancer insurance, is a testament to the potential of the voluntary-benefits business. Pitching policies mostly to workers at companies with under 500 employees, the company with the famous duck has seen its U.S sales more than double, to over $1 billion since 1998.
The success of AFLAC — and other voluntary- benefit vendors such as MetLife — has convinced some corporates that employees are keen to purchase a wide range of insurance products in-house. But until now, employers have been prohibited from making money off their benefit plans, voluntary or otherwise. Under a fast-track exemption now being considered by the Department of Labor, however, companies that meet certain requirements can gain quick permission to reinsure benefits via their captive insurance subsidiaries.
While reinsurance doesn’t provide a direct source of revenue, captive arrangements can provide parent companies with tax breaks, enabling them to provide cheaper benefits to employees. And in a good underwriting year, experts say, an employer can turn a profit off benefits reinsurance.
The lure of the business rests on a fact insurers have long known: When it comes to employee benefits, the company store is a cash cow. That’s particularly true for large employers collecting benefit premiums via payroll deductions. Says Richard Goff, president of Towson, Md.-based insurance broker Mims International: “There can be a tremendous amount of cash flow each month.”