You might think of voluntary benefits as insurance benefit plans that employees can purchase “voluntarily” through their employer if they decide they want to enroll in them. While technically this is true, it also implies that some insurance benefits are required to be purchased by the employee. But this is not the case. Employees are not required to buy any insurance benefits at work. All insurance products offered for purchase through an employer are optional benefits as far as the employee is concerned.
Mandatory Benefits: The Employer Must Provide Them By Law
For an employer though, it’s different. There are some benefits that the employer must provide to employees. Mandatory benefits are things like:
- Paying social security taxes
- Providing unemployment insurance
- Providing workers’ compensation
It’s the law – or mandatory – that an employer provide the benefits listed above. They have no choice.
Voluntary Benefits: The Employer Can Offer Them If They Choose To Do So
However, it’s not the law that an employer offer a product like life insurance that employees can purchase and so life insurance is a voluntary benefit as far as the employer is concerned.
So, the main reason we use the word voluntary is because there are some benefits employers must provide to employees that are mandatory. Anything not required by law is voluntary. The employer can offer them if they want but they don’t legally have to.
Just Because A Benefit Is Voluntary Doesn’t Mean There Are No Underwriting Requirements
I make the distinction between mandatory benefits and voluntary benefits being used in terms of whether an employer has to offer them by law for a very important reason. The reason is that most employers often use the word voluntary in a different context.
The context is that the word voluntary seems to mean that it’s voluntary that the employee buy it and therefore there are no underwriting requirements on the employer to offer programs to their employees when there are.
It’s important to understand that any program you offer to your employees does come with underwriting requirements attached to them, even if the employee pays the full premium.
Old School View Of Voluntary Benefits – Worksite Benefits
Traditionally, employee benefits have been broken down into two distinct categories. Those two categories are:
- Group insurance This is insurance provided through group contracts that are owned and controlled by the group. These would be things like basic group term life insurance, group dental and group disability. While enrollment in these types of group benefits is voluntary, aside from the group health insurance, group contracts are often labelled ancillary benefits to differentiate them from the second category of insurance benefits.
- Worksite benefits This is insurance provided through an individual insurance contract that is owned and controlled by the employee offered through work. These would be things like life, cancer and accident insurance. These types of insurance have historically been called worksite benefits or “voluntary” benefits. Typically, worksite products have their roots in individual contracts. Since employees owned these contracts, they could continue them after they left employment as well.
Both group and individual insurance offered through an employer help the employee. That’s because the employer uses the group’s buying power to negotiate a better deal than employees can get on their own for insurance they feel they need. This could be seen in:
- Lower insurance premiums
- Reduced underwriting requirements
- Both lower premiums and reduced underwriting requirements
- The convenience of paying premiums through payroll deduction
These are the true benefits that employers offer when offering voluntary benefits.
What I see in practice is that most employer groups often look at the group insurance contracts as the real benefits and focus most of their time on those. They often gave little thought or importance to the old school worksite benefits.
The insurance companies and agents offering those benefits through an employer were typically the second class citizen of insurance benefits with employers. More times than not, it was implied that the worksite benefits are available but we aren’t going to do much to facilitate their purchase.
With the rising costs of health insurance, this attitude is changing because employer groups are reducing their contributions to the overall costs of an employee’s benefits. Since the financial burden on the employee is increasing significantly, employers are under a lot of pressure to help employees find ways to assist them in paying these rising costs at their own expense.
The answer is a bigger focus on voluntary benefits to help fill those financial gaps.
The New Voluntary Benefits – Workplace Benefits
A transition has been made over the last few years from the old school of group contracts and individual worksite contracts. Those lines are being blurred. Today, the new landscape is that you’ve got the health insurance and then everything else is referred to as workplace benefits, aka “voluntary” benefits. These benefits are written through group contracts more than individual contracts like in the past.
These workplace benefits are now broken down into five different types of insurance plans. Those are:
- Life insurance Life insurance provides money to employee’s beneficiaries in the event they die to soon. The types of life insurance offered can be term, universal or whole life insurance.
- Disability income insurance Disability income insurance provides income replacement in the event of a disability. There are two types of disability insurance, short term and long term.
- Supplemental health insurance Supplemental health insurance provides medical coverage for gaps in an employer paid health insurance plan.
- Accident insurance Accident insurance provides cash paid directly to the employee in the event of specific accidents.
- Critical illness/specified disease insurance Critical illness coverage provides a lump sum payment to the employees in the event of certain catastrophic illnesses like cancer, heart attacks, and strokes.
Rising health insurance costs have put voluntary workplace benefits in the spotlight. Employers have figured out they can reduce health plan benefits or raise deductibles in the main health plan and then reduce their overall premiums. Employees then have the choice to fill the gaps important to them with the menu of workplace benefits but now at their own cost.
That’s a summary of what the industry’s view of what voluntary benefits are today.
In my view, I believe that if the employee has to pay the full cost of a voluntary benefit, then the benefits of ownership should also be included. So, while the industry has shifted their focus more on using group contracts to fill the need of the old worksite benefits, I still prefer individually owned insurance contracts at work whenever possible.
If you have any questions, feel free to let me know in the comments below.
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