Duct Tape for Financial Wellness: New Benefit Designs
Rethinking the way something is designed can make a difference in people’s lives.
Larger innovations like smartphones and self-driving cars make headlines but smaller changes to existing products sometimes make the most immediate difference in our lives. Inventions such as sun glasses, ballpoint pens, microwave ovens, wrist watches and even duct tape were all redesigns on existing technology, improving how we live and work. (You may argue against duct tape but most do-it-yourselfers insist it’s irreplaceable.)
The employee benefits marketplace is undergoing a similar transformation in the way benefits are designed and how they are offered through the workplace with the overall goal of improving financial wellness. Doing so is becoming an imperative for employers as research shows many working Americans are struggling with their personal finances.
Two in five (40 percent) of workers say personal financial issues distract them at work, according to the 2015 MassMutual Employee Benefits Security Study1. Moreover, 38 percent say they know little or nothing about their employee benefits, the study found.
One acute problem is that high-deductible healthcare plans become more prevalent in the workplace, requiring employees to pay more out of pocket for treatment of injuries and illnesses before insurance kicks in. Often, those deductibles pose a financial hurdle to care or divert dollars from other important financial goals such as retirement savings.
Some employers are finding that redesigning their benefits packages can help employees better manage the costs of health issues without increasing the total cost of the benefits themselves. These employers are applying a counter-intuitive solution: they are increasing rather than decreasing their healthcare deductibles to improve their employees’ financial wellness.
How can this be so? Is this some cynical twist that applies a whack-a-mole solution, solving one problem only to see another pop up?
The solution actually relies upon the creative use of voluntary benefits, managing the costs of healthcare insurance to free up resources to secure other coverage to plug gaps. Raising the deductibles on healthcare insurance frees up dollars for employees to spend on accident insurance and critical illness coverage.
For example, let’s say the employer boosts the deductible on a high-deductible healthcare plan to $10,000 from $6,000. Doing so generates premium savings that the employee can then use to purchase critical illness and accident insurance policies for a total cost of between $700 and $750.
A critical illness, like a heart attack, stroke or invasive cancer, can have a significant financial impact on a worker as well as his or her family. Critical illness insurance can help cushion the financial impact by providing a lump-sum benefit, paid directly to the employee, to help cover medical costs, mortgage payments, childcare, or even groceries.
Meanwhile, emergency rooms treat more than 40 million injuries a year across the country, according to the U.S. Centers for Disease Control (CDC)2. Unfortunately, a medical emergency can quickly turn into a financial emergency, especially for those who have little or no savings. Accident insurance provides a lump-sum payment, helping cover medical insurance deductibles and co-pays, down time from work and other expenses.
The number of employers offering critical illness or accident policies has steadily increased in the past several years. Accident insurance, offered by 19 percent of employers in 2002, is now available through 29 percent of employers, according to the latest figures from LIMRA International3. The availability of critical illness insurance through employers has likewise risen from 12 percent to 23 percent in the same time frame, LIMRA reports3.
Expect more employers to offer those coverages in the near future. The value of voluntary benefits – especially critical illness and accident policies – is becoming increasingly apparent as both employers and employees balance the costs and coverages associated with today’s high-deductible health care plans.
With some redesign innovation and the creative application of voluntary benefits, it’s possible to bridge the gap between lower healthcare premiums and higher deductibles. No duct tape required.
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Jon Shuman is leader of the workplace insurance sales team for Massachusetts Mutual Life Insurance Co. (MassMutual).
12015 MassMutual Employee Benefits Security Study, https://www.massmutual.com/~/media/files/MM-EE-Benefits-Security-Study-Report.pdf
2Centers for Disease Control and Prevention, http://www.cdc.gov/nchs/fastats/emergency-department.htm
3Weathering the Storm, LIMRA International, http://limara.com/Research/Abstracts/2011/Weathering_the_Storm_(2011).aspx?LangType=1033