Innovations in Benefit Administration Leading to Health and Financial Wellness

Steven L. Farish

Apr 1, 2011

Innovations in Benefit Administration Leading to Health and Financial Wellness

Employers today have benefited from an explosion of technology applications that can help them manage their employee benefit plans, eligibility and enrollment of all benefit plans. In addition, the best new applications on the market are able to provide exceptional tools for educating the organizations workforce on everything from benefits, wellness initiatives, financial wellness and other learning management required learning. As a result, the savvy HR professional today is about to greatly increase their productivity even as many HR staffs are reducing in size. How is that possible? Technology and communication tools with consultative advice are the keys to success. The solution also requires employers to change their philosophy of providing Core, Supplemental and Voluntary Benefits and perhaps even modify their benefits contribution strategies. Now, you say we have opened up a can of worms, but these functions are all part of strategic benefit planning today and all connected to the successful strategy implementation.

Let’s discuss the components of the solution separately and then bring them together in an actionable plan that most organizations with over 1000 associates can champion as the “best in class” strategy that will:

Increase efficiency, productivity and create a great ROI;
Reduce fiduciary liability through comprehensive education, modeling and product menus that allow for multiple solutions to fit various lifestyles, needs and gaps;
Engage the workforce in all organization initiatives;
Increase Corporate Wellness and Financial Wellness;
Reduce long term costs and;
Increase attraction and retention of talented people.

To compete in today’s competitive markets with a real need to hire the best and brightest at all levels of the organization, the organizations that communicate the best with their workforce are the champions that others strive to emulate. So the first piece of the solution is to greatly increase communication quality and quantity and engage the organization into creating a culture. This is important in all aspects of the workplace, but we are trying to stay focused on employee benefits, so let’s discuss benefits communications.

I will state today that most employers, large and small, fail at adequately communicating the goals of the organization in the area of employee benefits. Most are better at other types of communications such as, safety, job performance, diversity, harassment, etc., but benefits communication usually takes a back seat. That is changing fast. The cost of providing benefits is such a large portion of the bottom-line to organizations that it has moved to a high priority. Reducing medical costs and promoting wellness in the workplace have replaced attraction and retention as the primary issues for organizations according to the most recent MetLife survey of employers. So communicating Wellness, new plan designs (CDHC or HSA, PPO or EPO) and then basing employer contributions on company goals is central to most new Open Enrollment efforts at most employers. What problems does this pose for HR when they know that the communications and engagement with team members is essential to success? The most common issues we see are:

The type of communication and how to engage a diverse workforce;
How is the calendar year planning affected by communication campaigns;
The costs associated with excellent communications;
The rankings of the messages that we wish to communicate throughout the calendar year based on organizational priorities;
How to measure the success of the communications, and success in changing behavior and establishing a culture?
Making benefit or wellness communications an integral part of an organization’s Learning Management strategy?
Assessing internal talent to create engaging material or rely on the Benefit Consultant or outsource communications?

The keys to success include; involved support and participation from management, team member assistance in design and planning, health promotions that meet team member needs, managing the costs and continually monitoring the plan. While most of the current communication and education focus on Wellness and other curriculum focused on cost and risk reduction for the organization, much of the new focus is on the “Financial Wellness” of the workforce particularly in the economic times we face today.

For instance, last month we heard that John Hancock was seeking 40-100% rate increases on their Long Term Care business and just this morning, MetLife announced they were exiting the LTC market. Two giants of the industry are dramatically responding to the “Boomer Tsunami” that is causing LTC claims to rise as cost of care and number of claims goes up faster than their models had built into the premiums. Bankruptcies due to medical bills (including LTC and Disability) increased by nearly 50 percent in a six-year period, from 46 percent in 2001 to 62 percent in 2007, and most of those who filed for bankruptcy were middle-class, well-educated homeowners, according to a report that was published in the August issue of The American Journal of Medicine.

In addition, Robert Kerzner, president and CEO of the LIMRA, the authority on life insurance, blames the economy for a major reduction in the amount of life insurance owned by families today, “Clearly, more American families are living on the edge -- surviving paycheck to paycheck -- and, as our new study suggests, too many without the safety net that life insurance provides. The numbers tell a grim story. Today, there are 11 million fewer American households covered by life insurance compared with six years ago. A majority of families either have no life insurance or not enough, leaving them one accident or terminal illness away from a financial catastrophe for their loved ones.”

What does this mean for the organizational workforce and how they manage their own financial risk management? What are the obligations of employers to assist them with their planning? How can employee benefit administration systems and communications assist in driving education and focus on financial wellness? What are the financial advisors and employee benefit brokers and consultants doing to assist their clients in providing Financial Wellness?

Today, there are many great changes taking place in the workplace that will address Financial Wellness as comprehensively as organizations address Health Wellness today. The world of technology and learning systems has moved to a level where many organizations can now participate in using Benefit Administration Systems that not only combine administration and enrollment of Core Benefits for all team members, but now are aggressively moving into quasi-learning management systems that compete with the most expensive enterprise systems out there. The newest technologies combine web based learning libraries, modeling tools, calculators, flash video “coaching” and can use these tools in managing Open Enrollments while maximizing the communication efforts for both Health Wellness and Financial Wellness.

Currently there is a plethora of Wellness vendors focused on the health of an organization beginning with risk assessments and moving to health and disease management and lifestyle changes. These programs many times are tied to the contribution strategy of the employer to reward those “wellness champions” for good behavior resulting in reduced cost for the organization and lower healthcare premiums for the team member. This is part of the equation but not a complete solution.

Today, many benefit administration systems are building great tools that allow employers to dramatically increase the engagement of their workforce with corporate initiatives and educational requirements and opportunities. Many of the older HRIS and Payroll enterprise systems do not have the new benefit administration tools that are easy to use and are engaging to the workforce. These systems are the most advanced and upgraded communication and education tools today and they are focused on delivering year round communications and education support as well as detailed open enrollment delivery. The great news for employers is that they are designed to “bolt-on” to any enterprise system or home grown system and they create all of the electronic data exchanges to serve both vendors and technology vendors. The price of entry to these systems has come down tremendously, so even if you purchased an outdated benefit administration system in the past, the price of entry is well worth the cost and the ROI is amazing. Many times the insurance carriers support some of the PEPM fees associated with these engines as their work in administering their insurance products is greatly reduced and the participation in their product offerings is increased.

While the news for employers is good on technology advances, only a handful of the technology vendors have the forethought and vision to move beyond delivering on the old norms of providing benefits with great tools and resources. The most advanced technology partners and broker/consultants, are moving to platforms that will assist the employer in moving to “flexible benefit administration” and the much higher degree of coaching and counseling on financial products offered in the workplace. Some may remember back in the ‘80’s when a few major consulting firms rolled out “flex plans” to the large employers who could afford their expensive administration systems. The employer planned their benefit costs to a budget, while the consulting firm priced the product portfolio and managed the spending accounts to meet the employee’s needs with the employer contributions and the additional employee deductions to pay for their customized plan. We are headed their again and I would surmise that many of the large broker/consulting firms are moving in that direction now.

Why wait? What can be done today provide the best engaging technology and manage corporate costs to the needs, wants and desires of the workforce. Doing this at the same time we are managing the Wellness initiatives and now moving to Financial Wellness initiatives.

Here is the checklist of steps:

Analyze current plan offerings to determine corporate contribution strategy;
Determine deficiencies in the corporate offering and determine other products needed for portfolio on a Voluntary basis;
Determine the needs of employees based on their choices and the affordability of products in the portfolio;
Provide coaching and counseling on the financial needs and the appropriate amount of risk protection based on income and lifestyle;
Provide offers for team members that are both Group based and Guarantee Issue, and Health qualified (underwritten) products that may allow for greater amounts of coverage and lower costs;
Determine how to Reward compliance to Health AND Financial Wellness initiatives, including Focus Groups of management and rank and file;
Develop communication strategy and calendar;
Build out communications, benefit guides, video productions, counseling and coaching paraphernalia;
Plan Open Enrollment and support;
Plan New Hire on boarding
Review plans and adjust as needed;
Survey employees for the feedback;
Repeat the cycle.

Just to give you some perspective of some Financial Wellness initiatives, let me give you some insight to a particular strategy. Since Health & Wellness have been around long enough that most professionals reading this article have a grasp of that strategy, I believe the following strategy would be a great initial start. So let’s ask a few questions of our organization and our team members.

What is important to move the Financial Wellness of the workforce to a much higher level of personal risk assessment of financial products and tools needed to protect families and assets throughout their working career and into retirement?
What are you major concerns that cause financial stress?
How are you saving for college and perhaps weddings?
How much house can you qualify for and afford?
How do you manage credit?
Have you taken steps to protect your Retirement savings from financial loss due to long term care?
How would you survive without your paycheck?

Once you have answered these questions, you need to again review both your employer provided and employee paid benefits in your portfolio to determine how you can focus on communications and education while at the same time determine if another product platform providing for Individual products is in line. This would be the example. In looking at many current benefit portfolios of large clients and prospects over 2500 employees, we have found that there are gaps in multiple areas:

Life Insurance- Employers are paying for 1 x earnings up to $50-$100K and offering Guarantee Issue Supplemental Term at step rates usually up to 4 x earnings. Many also allow the employees the opportunity to purchase Individual Whole Life or Universal life on a Guarantee Issue basis. If we use the measure that a person with a family needs at least 8 times earnings to adequately insure their family. Looking at all available sources of coverage and the 8x factor, let’s see what is needed to protect the family for the employee making $55,000. Our calculation says he needs up to $440,000 to adequately protect his family from their premature death.

a. Employer pays for $50,000

b. Employee can pay for additional $220,000 at $0.17 per $1000 at age 55 for a cost of $37.40 per month Guarantee Issue. At age 56, the cost goes up to $0.38 per $1000 and either they pay more, $83.60 per month for the same coverage(124% increase) or reduce coverage to an amount they can afford.

c. Can purchase $70,000 of Whole Life at $69.33 per month, Guarantee Issue.

d. Offer another option that allows the employee to qualify for Individual coverage. Employee could purchase a 10-30 year level premium plan. Subtracting the $50,000 the employer paid for from the $440,000 of adequate coverage, leaves us with a balance of $390,000 to purchase to meet “financial wellness”. If the employee is moderately healthy, they could be issued “Standard-Non-tobacco” $390,000 for a premium ranging from $83.50-$98.00 for the top 10 carriers.

►Scenario a only leaves the employee under insured by $390,000 at no cost.

►Scenario a + b leaves the employee under insured by$170,000 at a cost of$37.40 at age 55, but $83.60 at age 56.

►Scenario a+b+c leaves the employee under insured by $100,000 at a cost of $106.73 at age 55, but $152.93 at age 56.

►Scenario a+d adequately protects the employee for $440,000 at a cost of $72.37 at age 55 and $72.37 at age 56. In addition, the premiums for the additional $390,000 over the employer provided life is locked in to age 84 and is fully portable, owned by the employee.

Disability Insurance-Employers typically provide Long Term Disability of 50-60% of earnings up to a monthly maximum benefit of $15,000. They then may offer no additional offers; Supplemental Group LTD on a Guarantee Issue basis with step rates; and/or Voluntary Worksite Disability on a GI basis up to 70% of pre-disability income through all sources. Some will offer Individual Disability insurance for those white collar, management and executive team members that will get them to a higher income replacement and cover bonuses and incentive compensation, since Group plans only cover base earnings or wages. Using the 70% of pre-disability income replacement as our goal for “financial wellness” lets look at our same team member for the first example who makes $55,000 per year. To replace 70% of his pre-disability earnings, he would need to have a benefit of $3,208 per month, well below the $15,000 maximum. So let’s look at how our team member can meet “financial wellness.”

a. Employer pays for 50% of earnings to $15,000 per month. Employee then gets $2,292 in disability benefit. Employee is in a 28% tax bracket based on married and filing jointly with income less than $70,000. So, the DI benefit provided by the employer is taxable at 28% and the net DI benefit after tax is then, $1,650 or 36% of the pre-disability income of $4,583. This benefit is provided at no cost to the team member, but we must be very careful to educate the team member on how underinsured they are with this benefit level and not get a false sense of security since it was the plan provided by the employer. This happens frequently.

b. Employer offers a Supplemental Group LTD plan on a Guarantee Issue basis that allows employee to purchase additional LTD to 66 2/3% of pre-disability income. So at age 55, our team member can get another 16 2/3% benefit, or $764 and pay $36 per month, and at age 56 it goes to $51 per month.

c. Employer also offers Voluntary Worksite Disability on a GI basis that does not exceed 70% of earnings on a post-tax basis up to a maximum of 15% of pre-disability income. Employee could purchase another $687 per month for about $22 per month.

d. Employer offers another option that allows employee to qualify for coverage on a Multi-Life simplified issue basis or an underwritten basis for personally owned disability insurance. The employee can qualify for up to $2500 of disability with no offsets at a price based on age 55 of $ and age 56 of $.

► Scenario a leaves the employee underinsured with only 36% of their pre-disability income covered but at no cost.

► Scenario a+b leaves the employee underinsured with only 52.66% of their pre-disability earnings covered at a cost of $36 to $51 per month.

► Scenario a+b+c

Long Term Care Insurance- LTC has been a much underutilized product in the past, but as Boomers get older and still make up a sizeable portion of the workforce, it is going to become a more sought after benefit. This will be particularly true for employers with team members who have older parents and for the team members and their spouses. Unfortunately, the benefit many times is offered to the workforce without much insight as to why the program is being offered. There is no doubt that LTC is designed and priced to protect the insured’s assets or the inheritance of heirs. If the assets are minimal and the team member is lower paid, the need for LTC is limited. So it is careful to determine the need before designing the product offering. Rule of thumb here may be that a true LTC policy should be offered to team members that have significant assets either in their retirement plans, IRAs, or investments and savings. Significant should be an amount over $100,000 at least. Still, LTC exposure can cause calamity to any team member since most of the costs are not covered by any medical or disability plan including Medicare (limited) and Medicaid (requires spending down to poverty level). For those team members, there are special Life Insurance riders that will accelerate the death benefit in the event of the loss of 2 or more activities of daily living. The value of these policies of course depends on the face amount of the policy, but typically the benefit is equal to 4%-6% of the face amount as a monthly benefit.

Now, let’s look at a reasonable approach for assisting the team members with their LTC needs assessment. According to many financial planners, if your assets excluding your home are between $200,000 and $2,000,000, you are a likely candidate for LTC. Under the amount makes you a likely Medicaid prospect and over the amount makes you a candidate for self-insuring LTC, but remember, even people with assets over $2 million purchase LTC so their families have the support and expertise in treating them. So how does the plan sponsor educate and communicate the benefit in a needs test? It really is quite simple:

► Provide LTC calculators;

► Needs assessment will gather information on current vested retirement account balances;

► Add any other retirement plans, investments, savings;

► Balance between $200K-$2M, LTC should be looked at as potential coverage;

► When to purchase? Most planners will tell you age 55 is the optimum age, but can you be sure you will be healthy at 55? Certainly healthy individuals over 55 should consider LTC.

Then it is a matter of determining the average daily or monthly benefit for the area that you live in or will retire in and getting a plan to cover at least 75-80% of the daily or monthly rate. Determine the cost of coverage and then look at your available income to determine if you can afford the plan. If not, look at reducing the coverage (self-insuring a portion) or look at a more limited offer such as a rider to a Life Insurance Policy.

Conclusions: Benefit planning today at the Worksite is an evolving enterprise. H R teams need to have great technology tools and communications to be able to engage the workforce and assist them in their financial wellness. In addition, most banks have a “bankname@work” programs that will provide financial planning and counseling, debt management, mortgage training, budgeting advice and college financing advice. Many of these programs are available at the worksite in lunch and learns and at no cost. These programs will greatly benefit your organization. Look at what one expert has said about wise employers who educate their workforce with “financial wellness”. His company does worksite financial consulting on a fee basis.

E. Thomas Garman, president of the nonprofit Personal Finance Employee Education Foundation Inc., said, “it’s only a matter of time before all employers adopt financial training. Why? Employers can cut health-care costs by $300 for each employee who improves his or her financial behaviors and financial well-being. In addition, employers can improve productivity by $450. Employers who offer flexible benefits accounts could realize additional savings of $1,274 by improving employee financial literacy”. Garman continues, “Financially troubled employees are like sharks swimming around the workplace taking bites out of the bottom line. In exchange for your corporate investment, the employer gets a healthier, more productive worker, which means more profits for the company.” From the website of Personal Finance Employee Education Foundation here is what one large healthcare organization experienced with finance education not associated with risk management.

This initiative began in September, 2008 and has:

Over 450 participants
94% "graduation" rate
About $1.5 million in overall financial improvement
More than 500 credit cards destroyed

“These results are even more remarkable considering the current economic climate at a time when most people in the U.S. are very worried about their personal financial well-being," said Shannon Carr, Assistant Director of Employee Relations at McLeod Health. “It has been incredible seeing employees, family members, and accountability partners get excited about taking control of their money."

This program was focused on the financial management employees personal finances. What if they could have also utilized personalized benefit planning to further reduce the team member financial risks? More Wow! Greater impact!!

You are probably beginning to see results from health care wellness programs you have implemented in the past several years. It is time for you to research solutions that will help you provide Financial Wellness at the Workplace also. Your employees will be more engaged, less stressed, more productive and less likely to look for employment elsewhere. You will maximize your “stickiness” and attract and retain the brightest because you are the employer of choice. You will be the “The Health & Financial Wellness Champion”.

About The Author

Steve Farish is a Senior VP and National Practice Leader for Voluntary Worksite Benefits for Wells Fargo Insurance Services, Inc. His team provides full deployment of communications, technology and rewards portals as well as product consulting for Core and Voluntary Benefits and Affinity products.

Steve has been affiliated with Wells Fargo since 2005, and Wachovia Insurance services. He served as Partner with Palmer & Cay for 9 years. Prior to that, Steve served in sales and management of Provident Life & Accident Insurance Company for 19 years.

Steve is a graduate of Presbyterian College with a BS degree in Biology. . He can be reached at: Steve.Farish@wellsfargo.com, 803-765-3521 or 803-479-8397