Calculus of workplace benefits shifts
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Joann Visconto was considering buying life insurance that was offered through the bank where she works. But the policy had a premium that could rise every year, and it wasn't portable, so she would lose coverage if she changed jobs. So Ms. Visconto, who is over 40, called an agent and bought a guaranteed level-premium policy for a similar price.
"When you go with a broker," says the Burlington, N.J., resident. "You can tell him this is what I want, and he is going to get it."
Increasing numbers of Americans are encountering similar choices as employers ask them to buy their own benefits, including disability and life-insurance policies, medical and dental coverage, and even benefits not normally found in the workplace like homeowner insurance and identity-theft coverage. Few businesses are actually replacing employer-paid benefits with these so-called voluntary benefits -- "voluntary" because you pay for them yourself. But some experts predict that eventually, American workers will have to buy many of the benefits they now get free at work, much the way most of the burden of funding retirement savings has shifted from employers to employees in recent years.
For now, many small businesses that could never afford to subsidize benefits are contracting with insurance companies to offer them to workers at a group discount. And large companies are adding more such benefits, figuring that the discounted rates help to offset the pain for employees who are being asked to pay a bigger share of their major medical coverage. Employees can usually buy such benefits at a discount of as much as 25 percent to what they would typically have to pay on their own.
But as Ms. Visconto's experience shows, voluntary benefits sold through an employer aren't necessarily the best -- nor the cheapest -- alternative. While it's often hard to beat workplace deals on essential health benefits, consumer advocates caution that employees should weigh any benefit offered in the workplace against similar products they can buy solo. Young, healthy employees, for instance, might find term life insurance on their own that is cheaper than discounted life insurance in the workplace.
Danny Sparks, plant manager at Willacoochee Industrial Fabrics, says the Georgia manufacturing concern has always paid the bulk of the health-insurance premiums for its 55 employees. For the company to continue to afford that, Willacoochee's other benefits, including disability and accident insurance, are only made available for workers to buy themselves. "Our major medical continues to go up, and instead of passing along that increase to our employees, we keep absorbing that in," Mr. Sparks says.
Many companies also make available benefits that workers can buy to supplement employer-paid coverage, such as life and disability insurance. "It's a nice enhancement to our normal benefits package," says Jan Jedliskowski, director of benefits at Brandywine Senior Care, which operates assisted-living centers in Pennsylvania and New Jersey.
Insurance companies, including MassMutual Financial Group, Metropolitan Life Insurance Co. and Allstate Corp., are rolling out more products aimed at individual workers. Last year there were about $22 billion in sales of new and renewed voluntary benefits, mostly life, disability and accident insurance, about double the amount from 2000, according to Eastbridge Consulting, a firm specializing in the area.
That represents a small part of the estimated $735 billion spent last year by U.S. employers on workplace benefits, according to the Employee Benefit Research Institute. But insurers are counting on growth. American International Group Inc. says sales of voluntary benefits have grown 25 percent annually for the past several years, and now make up 50 percent of overall benefits sales. And both Aetna Inc. and Cigna Corp. recently acquired companies that specialize in providing limited-benefit medical plans that are sold in the workplace.
When benefits are offered for sale in the workplace, employees often assume the products have been independently vetted by their company's officials and are better or cheaper than those in the marketplace. That isn't always the case, though, and consumer advocates and financial advisers say employees should shop around before buying a number of the benefits offered at work. Some benefits offered for sale at work, which are typically simplified, mass-market products, also might not be right for all employees.
But when it comes to buying health benefits, it's often hard to find a better deal than what is offered at work. That's because voluntary benefits like medical, disability, dental and vision insurance typically don't require that you undergo any prior medical testing, and employees usually can't be excluded because of their health status. That makes them cheaper for many people, but not all. Young and healthy workers in particular may find they can beat the price on such products by shopping around on Web sites such as Insure.com, Insweb.com and ehealth.com.
Companies that currently fund employee benefits get to deduct them as business expenses, a tax break they lose if workers pay all of the costs themselves. Meanwhile, workers may gain some tax advantages from paying for their own benefits. Payouts from disability insurance, for instance, are tax-free if workers have paid the premium with aftertax dollars. Some voluntary benefits, including some health-insurance products, can also be purchased with pretax dollars, reducing an employee's taxable income.
One of the fastest-growing voluntary benefits is a stripped-down health plan called limited-benefit medical insurance, often offered to part-time and temporary workers who aren't eligible for a company's group comprehensive health plan. The plans typically cover routine and preventive services with no or low co-payments. But doctor visits may be limited to four or five a year, and overall benefits may be capped at as little as $2,000 annually. Major needs, such as surgery and hospitalization, generally aren't covered or have low benefit caps.
Insurance-industry officials say the plans are an affordable alternative to going without health insurance. Monthly premiums for Cigna's limited plans, for instance, range from about $200 to $800 a month for a family. By contrast, the cost for comprehensive coverage is more than $900 a month for the average family, according to Kaiser Family Foundation.
Critics of limited-benefit medical plans say an individual could be insured, but still risk ruinous hospital bills. Health-insurance experts say employees should opt for the plans only if affordable comprehensive group coverage isn't available from a spouse, parent or other source.
Another benefit that more workers are buying themselves is insurance that pays cash benefits if you are diagnosed with certain cancers or critical illnesses, such as heart disease or stroke. Allstate sells basic cancer policies starting at about $420 a year for family coverage. The policy pays a one-time benefit of $2,000 if you are diagnosed for the first time with a cancer, with the exception of skin cancer, the most common kind. The policy also pays limited cash benefits for treatments and nursing care.
But financial advisers and consumer groups say cancer and critical-illness policies are too specific in their coverage to be really useful, and should never be bought in place of a comprehensive medical or disability plan. Both types of policies often have long waiting periods and numerous exclusions for pre-existing conditions, although some policies sold in the workplace are offered on a guaranteed basis during an initial enrollment period.
More employees are buying their own workplace benefits. Here's what to consider:
Some workers may be able to find certain benefits, such as term life insurance, more cheaply on their own.
Sales of cancer and critical-illness policies are growing, but consumer groups warn that the coverage is too specific to be useful.
It's often hard to beat workplace deals on essential health benefits, which are guaranteed and sold at a discount.
First Published January 16, 2007 12:00 am