Rising Health Benefit Costs Could Lead to Decreased Retirement Savings

July 28, 2009 (PLANSPONSOR.com) - A survey from Sun Life Financial suggests an increase in health benefits costs to employees could lead them to reduce or eliminate other voluntary benefits.

According to Sun Life’s report, “What’s Driving Enrollment in Voluntary Benefits Today?” up through a 35% rise in health insurance costs, the majority of survey respondents (more than 80%) said they would be likely to reduce spending in other areas to address the increase in health insurance expenses. When faced with a 50% increase in health insurance, nearly 40% of respondents said they would cancel their medical insurance.

The report said nearly 45% of single heads of household would resort to canceling their health insurance.

Just under 25% of all survey participants said they would consider canceling or decreasing their other insurance benefits when faced with a 50% increase in health insurance costs, while 15% said they would eliminate or decrease contributions to their retirement plans.

Those who said they would consider canceling other benefits in response to rising health insurance costs indicated they would most likely cancel long-term care insurance, long-term disability insurance, and short-term disability insurance, in that order. Dental insurance was the least likely to be cancelled, according to the report.

The survey found that life events also triggered a change in employees’ benefit choices. However, some chose to decrease, rather than increase their benefits coverage. For example, 9% of those who had or adopted a baby decreased their life insurance coverage, as did 10% each of those who bought a house or became a caretaker. Eight percent of those who got married decreased their life insurance.

Similarly, 10% each of respondents who had or adopted a baby or bought a house decreased their long-term disability insurance, as did 11% of those who became a caretaker and 12% of respondents who got married.

The survey found that cost outranks need as a top employee consideration when choosing benefits. However, while respondents reported they were more likely to sign up for a benefit that was at least partially funded by their employers, the majority would still elect certain benefits even if they had to pay the total cost themselves.

Three-fourths of those offered medical insurance totally at their expense still reported electing this benefit, and 72% of those offered life insurance at their own expense also reported enrolling in this benefit.

The survey from Sun Life Financial indicates that an increased level of understanding of their benefits does not necessarily drive employees to value their benefits more.

According to the report, "What's Driving Enrollment in Voluntary Benefits Today?" how well respondents understood their dental benefits had little impact on their value of that benefit. However, certain types of benefits did seem to become more highly valued when they were better understood.

Both vision and life insurance benefits saw more than a 50% increase in their value scores when employees reported a higher understanding. Likewise, the value scores for long-term disability, short-term disability, and long-term care increased based on understanding, although in all cases the value leveled off at just a medium level of understanding, the report said.

The survey found that 79% of respondents reported printed benefits education materials were available to them, and 35% indicated they prefer that method of benefits education. Sixty-nine percent said benefits information was available to them online, and 32% prefer this method.

Preferences were lowest for benefits fairs (3%) and toll-free hotlines (2%). Sun Life said an interesting finding was that preference for assisted learning was low, but those who said some assistance was available to them also reported a greater understanding of their benefits.

On average, respondents indicated that the resource they trusted most to both explain their coverage and help them select their employee benefits was the insurance carrier who actually provides those benefits. More than one-third of all respondents indicated they trusted the carrier most to explain their benefits, and one out of every four employees would turn to the carrier to help them select their benefits.

Employers were the second most trusted resource for coverage explanations (30%) and for selection assistance (23%). A distant third was the group who rely on their own ability to research and make decisions.

Fewer than 10% of respondents turned to their financial adviser/broker for help, and even fewer relied on counsel from their friends and colleagues. While only 8% expected their spouse or family to be able to explain coverage, 15% said they trust spouse or family most to help select benefits.

A copy of the survey report can be requested from http://www.sunlifemomentum.com/09research .