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Mile 5 benefits is an outsourced voluntary benefits center of excellence that specializes in Critical Illness Insurance, Accident Insurance, Hospital Indemnity Insurance, Voluntary Life Insurance, and benefits administration. We specialize in voluntary benefits insurance, gap insurance, and filling high deductible health plan gaps. Mile 5 is a niche voluntary employee benefits consulting agency. Critical Illness Insurance and Accident Insurance are vital components of the modern employee benefit plan.

Voluntary Benefits Accident Insurance Critical Illness

Mile 5 benefits is an outsourced voluntary benefits center of excellence that specializes in Critical Illness Insurance, Accident Insurance, Hospital Indemnity Insurance, Voluntary Life Insurance, and benefits administration. We specialize in voluntary benefits insurance, gap insurance, and filling high deductible health plan gaps. Mile 5 is a niche voluntary employee benefits consulting agency. Critical Illness Insurance and Accident Insurance are vital components of the modern employee benefit plan.

Basic Life or Basic Critical Illness

Are Employers Paying for the Wrong Benefit?

by Mark Hebert

Think back to Benefits 101, when the instructor asked why employers offer benefits and every student in the class recited in monotone “To attract and retain employees.” Years later this rationale still holds true, but how often do we measure our benefit decisions against this bar to see if they are really doing what we want them to do? Let’s try it with Basic Life Insurance.

Is Basic Life a Good Value for Employers?
Basic life pricing has been eroding for years, so the cost side of the cost/benefit equation is low. But for a benefit to offer value, it has to attract, retain, or at least increase productivity of employees. I have interviewed hundreds of people over the years, and while I fielded frequent questions about the health and dental plan, I never once had a candidate ask me about my company’s basic life benefit. Unless an employer is building the Hoover Dam or Brooklyn Bridge, I question the role that a company provided death benefit plays in their ability to attract employees. You could argue that the goodwill created from a benefit payment helps to retain employees, but the very nature of basic life insurance makes this unlikely. First, group term life claim frequency is extremely low, between 1 and 2 claims per 1000 employees per year, making the opportunity for goodwill infrequent. Second, since the beneficiary of the goodwill is not the employee, there is no opportunity for a water cooler discussion about the value of the life benefit. Since it neither attracts nor retains employees, even at a low cost, the basic life fails to support the mission of the benefit plan.

Is Basic Life a Good Value for Employees?
A free benefit must be a good value – but is it really free? In reality, basic life used to be a good value for employees until the Race to Zero in basic life rates began. While never openly admitted, in order to compete, the carriers have been shifting the cost of the basic life insurance to the supplemental life insurance plan. If you don’t believe this, look at their financial statements and note the disparity in the loss ratios of the basic and supplemental lines. This shift minimizes the employer cost at the expense of the supplemental life participants. Aside from the ethical questions this practice raises, the math does not work. Let’s assume the employer saves $1 per employee with this shift. Because a supplemental life plan may only have 20% participation, each supplemental participant must pay an extra $5 to cover the employer savings. The value erodes because employees in the supplemental plan, who presumably most appreciate the benefit, subsidize the cost for those who may not know they have it.

But Employees Get Mad if You Take Away a Benefit…
Even if basic life is a bad value, how can an employer reduce or eliminate it without employees perceiving it as a takeaway? The answer is not easy, but the timing has never been better to right the ship on basic life and instead offer a high value benefit like critical illness or accident insurance. Here are a few trends making this the right time:

The so called Cadillac Plan Tax going into effect in 2018 will drastically raise employee out of pocket costs.Without a cushion, this is a much bigger perceived takeaway than a death benefit.Employees are already going to be mad.

Recent guidance from the Treasury has indicated that while one possible cushion, direct employer contributions to an HSA, will count in the taxable value calculation, a post-tax employer paid Critical Illness or Accident plan will not.

While reducing the basic life benefit is a takeaway, if the message is that the employer is shifting those dollars to partially fund a CI or accident plan to help cushion the deductible, then the takeaway is not as painful.

If the supplemental plan is funding less of a basic life plan, then Supplemental life rates should decrease.Those who wish to replace their lost basic life benefit would be able to do so at these reduced rates.

Many of the employer paid CI or accident plans have wellness riders.Those employees who take an active role in their wellness can receive an additional cash benefit, providing additional cushion against the high deductible.

Claim incidence on CI and accident is 10 – 15 times higher than basic life, and exponentially higher with a wellness rider.The higher frequency results in many more water cooler discussions about how the employer paid CI plan helped in a tough financial jam.This goodwill, lacking in basic life insurance, helps retain employees.

If appropriately communicated, these points make a compelling argument to an employee that the employer is doing the best they can in a tough situation, and replacing one low perceived value benefit with a better, higher perceived value benefit.

The Time is Now!
The employee benefits space is entering a period of unprecedented change. This is the time to challenge all of our old assumptions and move on from practices that exist only because of the inertia of how we have always done it. Mile 5 Benefits can help you challenge your own assumptions. We help brokers and employers make better voluntary benefits decisions in the context of the overall employer benefit plan. Give us a call and find out how we can help you!