Extras! Extras!

Voluntary benefits bring goodwill with a small price tag, but watch out for liabilities.

Two years ago, Clark Engineers Inc., a 120-employee firm based in Peoria, Illinois, scrapped its dental plan because the company could no longer afford its $60,000-per-year contribution.

In an effort to cut the expense without depriving employees of the plan, Raylana Anderson, head of human resources, spearheaded a financial study. She contacted local dentists and got prices for fillings, root canals, and cleanings. The numbers validated her suspicion: Clark’s coverage cost more than the average employee used. For example, through the plan, if an individual employee received two X-rays and two cleanings annually, the cost would be $380 in claims and premiums. But if the employee paid cash for the same services outside the plan, the cost would be $206.

Armed with that argument, Anderson knew she could convince Clark employees that cutting the dental plan would be better for them as well as the company. At the annual benefits meeting, she announced that dental plan participation would be voluntary and that corporate contributions would be discontinued.

Only 24 percent of Clark employees stayed with the plan. All members of that group, says Anderson, have families or dependents, which makes the $380 in premiums cost effective. The other 76 percent pay for dental procedures through their flexible-spending accounts or out of their own pockets. (Editor’s note: in January, Clark Engineers was acquired by STS Consultants Ltd.)

Like Clark, other companies large and small are offering so-called voluntary benefits to offset insurance costs and foster goodwill between workers and management. “We are continuing to see a trend toward voluntary benefits,” says Garry Sullivan, senior vice president at Aon Consulting and national leader of the firm’s elective-benefit practice. Included in this category are such items as life insurance, long-term care insurance, disability insurance, prepaid legal services, pet health insurance, and identity-theft protection.

Employees like the convenience of buying these products at work: they can pay through payroll deductions, and buying at the workplace spares them the effort of researching products on their own. Most times employees receive discounts on insurance products by buying them at work. “Individual health-care costs are increasing, so employers are looking for ways to help employees save money,” Sullivan explains. “If an employee purchases automobile or homeowners’ insurance through payroll deductions, rather than installments, the costs are automatically budgeted. Through some plans, employees can save $400 to $500 a year.”

Sales of voluntary, employee-paid insurance products sold through employers jumped 7 percent in 2003, according to Avon, Connecticut-based Eastbridge Consulting Group Inc., which tracks the penetration of insurance products. While this is slower growth than in the past several years, the 7 percent figure is “unusually fast” compared with the other segments of the insurance industry and “a clear indication of growth,” notes Gil Lowerre, president of Eastbridge. Lowerre expects 2004 will see another increase of between 7 and 10 percent.

What’s fueling the growth? “Health-care costs are eating away at profits, and not only are employees being asked to pay more, but often their pay is frozen or increases are minimal,” observes Leonard Sanicola, senior practice leader at WorldatWork, a nonprofit association based in Scottsdale, Arizona, that focuses on compensation and benefits. “Voluntary benefits allow companies to offer something in return at a time when economic and business conditions are challenging.” Undoubtedly, insurers have picked up on the trend; AFLAC, for example, has built its whole business on selling insurance through employers.

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