The cost of health care is one of the biggest expenses for small businesses and has kept many from providing their employees full coverage or other benefits. According to a 2008 Employee Benefits Research Institute study, employer-paid benefits are decreasing, worker-pay-all benefits are increasing and this trend is likely to continue, Entrepreneur Magazine says.

However, less than one-third of workers are willing to go without benefits, and the rest expect at least some employer funding for benefits like health insurance, the report notes. Not only does this challenge employers to come up with a suitable benefits plan, but it could also be the difference in attracting and retaining top talent.

So what are business owners doing to create a desirable benefits package for employees without compromising their bottom lines?

Some are turning to voluntary benefits to make up for the limits in their benefits programs. "For many, adding voluntary benefits to compensate for cutbacks elsewhere in a benefits package or to enrich an existing core benefits plan — particularly one with a high deductible — makes more sense than making cuts in critical areas of a business, laying off key employees or losing them to a competitor with a richer benefits package," Entrepreneur Magazine explains.

Instead of including disability insurance, life insurance, dental insurance and other benefits in their core benefits programs, employers — particularly small-business owners — have begun offering them on a voluntary basis. Employees can then pick and choose which benefits they can afford and which they can do without.

"Not only does offering voluntary benefits cost small employers virtually nothing and help level the benefits playing field with large companies, it also affords employees access to various types of insurance coverage," Entrepreneur Magazine adds.

According to Eastbridge Consulting Group, voluntary benefits are becoming more popular as employers look for ways to scale back costs. By 2008, voluntary benefits was a $4.4 billion-a-year market with significant potential for growth, Health Plan Week reports. More than half of employers now offer at least one voluntary benefit, and in companies with more than 100 employees, that figure jumps to 70 percent. In businesses with at least 10 employees, 65 percent of the workforce is covered by at least one voluntary benefit "product."

Voluntary benefits range from low-premium medical benefits to non-health-related policies, such as life, accident, home, auto and pet insurance. These can also include non-traditional benefits such as shopping discounts, identity-theft protection and legal services.

Although employees pay for at least half, or more typically all, of these benefits out of their own pockets, a voluntary benefits program gives them access to benefits they would normally be unable to afford, the Wall Street Journal notes.

"These programs are attractive to employees because they typically can get institutional pricing when they buy these products through their employer, and, in the case of insurance policies, group underwriting rules that provide some level of guaranteed issuance," William Mullaney, president of institutional business for MetLife Inc., told the Journal. "Plus, they can pay for it through the convenience of payroll deductions, which employees like a lot."

According to Entrepreneur Magazine, the most popular and cost-effective voluntary policies are:

• Short- and long-term disability insurance;
• Life insurance;
• Dental insurance;
• Supplemental limited-benefits plans;
• Gap insurance policies; and
• Supplemental accident and critical illness insurance.

Employers like voluntary benefits because they allow them to increase benefits offerings to employees without spending any or much money, Michael Carter, vice president of the Hay Group's benefits practice, told HR Wire (via Jim Mooradian and Associates, Inc.). And the payback for a small monetary investment has been great. Prudential Financial's 2008 study on employee benefits found that two in five companies offering voluntary benefits claimed to have had a positive impact on their employees' overall benefits satisfaction, HR Wire says.

Still, there are drawbacks to implementing a voluntary benefits program. It requires additional time and investment and can damage how employees see the company if the program is rolled out without their input. "If you have low participation, it hurts more than it helps," according to Carter. "Employees perceive what was given as not having a lot of value if no one uses it." Thus, employers should first find out which benefits are in demand through employee focus groups or surveys.

Once the employer knows which benefits they should offer, they have to select a provider from a range of widely different vendors. "Be aware of these differences and make sure that the insurance company has strong financial ratings, has a good history of working with employers of your size and industry, and provides support to your [human resources], benefits and payroll departments after the initial sale," Employee Benefit News (EBN) cautions. While the vetting process can be done in-house, there are firms that can do this process for companies.

After the vendors and benefits are chosen, employers must also devote resources to communicate how the voluntary benefits work, HR Wire notes. "All employees should understand what is actually covered," EBN says. "A good employee communication plan, with real-world examples and case studies, is critical for employee understanding."

Lastly, gather feedback from participants and nonparticipants to gauge any weaknesses in the program so that it can be improved for the benefit of the entire company.

While they are a good way to expand benefits offerings, voluntary benefits should not be used as a replacement for core medical, life or disability programs, EBN warns.

Resources

The Value of Voluntary Benefits
by David Port
Entrepreneur Magazine, April 22, 2009

Voluntary Benefits 101
by Elizabeth Wilson
Entrepreneur Magazine, March 31, 2009

Voluntary Benefits Become More Popular as Employers Scale Back on Health Benefits
Health Plan Week, September 2008

New Thinking in Employee Health Care (page 4 or A14)
by Randy Myers
The Wall Street Journal, April 22, 2008

Study of Employee Benefits: 2008 & Beyond
Prudential Financial, Inc., Sept. 24, 2008

10 Tips for Success with Voluntary Benefits
by Patrick J. Haraden
Employee Benefit News, June 15, 2009