My son recently took a new position with an early-stage technology firm. Our conversation about the details of his new adventure went something like this: “Salary?” Check. “Options?” Check. “Health insurance?” “Why?” he responded. “I don’t care about that – I want the gym membership.”
This provides such an easy segue to my latest topic: voluntary and ancillary benefits. Voluntary benefits are typically sponsored by the employer and paid by the employee (often at discounted prices); ancillary benefits – as defined by financial expert Rhonda Marcucci – are defined as either being 100% employer-funded or cost-shared with the employee.
As more employers implement defined contribution solutions leveraging private exchanges, we see voluntary and ancillary benefits figure more prominently in the overall benefits strategy. In a recent study, 58% of employers surveyed said voluntary benefits are a significant part of their benefits strategy. And 51% of employees said employer-paid life, disability and dental benefits were important to them. Interesting statistics, which also imply that nearly 50% of employees may not value these benefits.
Like my Gen Y son, there is a growing portion of the workforce that wants only the benefits that matter most to them. For them – young, invincible, no dependents or spouse and not particularly focused on retirement – the best package of benefits could be a high deductible health plan or some skinny major medical plan, maybe a disability package (only because if they start now, it is less expensive) and then, yes, a gym membership would be a great option. Low deductible medical insurance for this crowd? Get real.
Private exchanges are an ideal vehicle for delivering personalized benefits to employees while managing costs for employers. Rather than being limited in offering a “one-size-fits-all” package of benefits, an employer can provide a pre-determined amount of money for the employee to shop a range of benefit options. As an example, shortly after one of our clients recently implemented their exchange for medical insurance, they are extending the “shelves” to include voluntary and ancillary benefits, in large part because they want a cohesive experience for their employees and they see the exchange as a way of reducing their administrative costs. Plus, their overall array of benefits is expanding as well.
From another side of the business, voluntary and ancillary benefits can also be a vehicle of closing the gap on lost revenues for brokers and carriers. But as we’ve learned from the retail world, consumers want to buy products; they don’t want to be sold products. Consistent with their tendency toward mobility, it is highly unlikely that most Gen Y folks will stay with their employers long term, but I can guarantee that employers that value their human capital will make sure that people like my son get the benefits they value.