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Defined Contribution: Drop Group Employer Coverage and Switch to Individual Health Insurance
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There are various strategies to attract and keep the best employees. In addition to wages, benefits are a key tool used to improve employee satisfaction, encourage loyalty, keep the workforce healthy, and create a competitive edge in recruiting and retention.
Benefits come in all shapes and sizes. Over the past several decades, everything from health insurance and paid time off to daycare and adoption assistance have been offered in an effort to strengthen the bond between employer and employee.
Why Employee Benefits Matter
Running a small business in the 21st Century is no easy feat. Businesses need a strong market position and in-demand
products and services. But it doesn’t stop there. Success also comes from hiring and keeping the best employees, managing costs, and mitigating human resource turnover. In other words, how successfully you manage employees can make or break your business.
After all, for most employers, the very reason for offering benefits is to attract talent, then keep it. And yet, when managing a legacy group plan, employers feel pressure to constantly evaluate whether or not employee needs and expectations are being met. With the consumerization of employee benefits, the pressure and constraints are lessened. This breathes all kinds of excitement back into the benefits offering and employers immediately save time and get control of costs.
There are thousands of different fringe benefits an employer may offer to employees as part of their overall compensation package. Some are tax-free benefits and others are taxable—but all can fit into the model of
consumerization.
Consumerization of Employee Benefits
An Employee Benefits Advantage for Small Business
What Do You Mean, Consumerization?
We define Consumerization as:
The reorientation of a product or service to focus on the end-user as an individual consumer, in contrast with an earlier era of only organization-oriented offerings.
Conclusion
Consumerization is a simple concept with a profound and effective shift in how companies offer employee benefits.
For America’s small business employers, the consumerization of employee benefits creates a game-changing advantage.
Unlike traditional benefits that attempt to provide a universal solution for the group of employees, a consumer-directed approach enables small businesses to offer true benefits, customized to the unique needs of each employee—all at a cost determined by the company.
With this approach, the benefits expectations of employees are met in ways that are much more manageable for the
employer—leveling the employee benefits playing field for small employers. With consumerization accomplished and true benefits offered, it’s game on.
But, consider this... In order for benefits to be benefits, they have to be beneficial.
The Small Business Benefits Challenge
Herein lies a challenge for America’s small and growing employers. Traditional benefits—such as health insurance or retirement savings plans—are typically designed as a one-size-fits-all package. One or two offerings are selected by the employer to cover the spectrum of needs represented by the group of employees. As a result, the one-size-fits-all package usually ends up being less beneficial for most employees in the group.
Additionally, traditional benefits are prohibitively expensive for most small businesses.
Since 2000, the cost of health insurance provided by employers has increased 253% for single coverage and 273% for family coverage. Today, the annual cost of employer-provided health insurance—split between the employer and employee—is $6,251 per single employee and $17,545 per family.
In addition to increasing costs, employee benefits are becoming less beneficial.
According to a recent Metlife employee satisfaction survey, only half of employees are satisfied with their benefit offerings at work. Instead, employees increasingly value choice and the ability to personalize benefits.
According to the survey, over three quarters (78%) of employees want a greater variety of benefits to choose from and 80% of employees would value benefits customized to individual circumstances and age.
As a small business owner or manager, you’re likely all too familiar with these challenges. You’ve grappled with the high costs of employee benefits and you’ve seen firsthand how employee benefits no longer align with the needs and expectations of your employees.
Benefits have become increasingly less beneficial and more expensive. By becoming less flexible on one hand, and less affordable on the other, employee benefits have disconnected from their original purpose.
And that’s where consumerization of employee benefits comes in.
According to the survey, over three quarters (78%) of employees want a greater variety of benefits to choose from and 80% of employees would value benefits customized to individual circumstances and age.
Introduction
Small businesses are the lifeblood of the American economy. Over 130 million Americans work for a small business and since 1995, these firms have generated over 65% of net new jobs in the U.S. Yet, many small businesses face a devastating competitive disadvantage—the inability to keep their most valued people. Only about half (52%) of small and medium-sized businesses offer health insurance and fewer than 15% offer retirement. Why? Because traditional solutions are prohibitively expensive and do not allow small businesses to meet employee benefits expectations.
Consumerization is happening in all industries of the American and global economy. Take Apple, for example. Prior to the era of Apple’s iPhone, Blackberry dominated the market. Blackberry devices were functional, widely adopted by enterprise users, and brought mobile internet to the masses. When Apple introduced the iPhone in 2007, Blackberry stock hit an all-time high on a market cap of $120 billion. But the market was in for a seismic shift. iPhones gave consumers something Blackberry did not—the ability to customize your device with thousands of apps and settings (and even color). Yes, the Blackberry was functional, but the iPhone reoriented the product to focus on the end-user. The result? A radical market shift to consumer-driven technology for mobile devices.
With the consumerization of employee benefits, the idea is the same. Instead of a fading era of only organization-oriented offerings, we shift focus to the individual employee and allow each employee to customize their benefits using technology. By consumerizing employee benefits, employees have the freedom to evaluate and choose their own benefits—using employer-provided dollars. Whether this type of model is used for health insurance, retirement savings, or any employee perk—this strategy empowers the employee to design their own package and choose their own features, tools, and coverage levels.