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Forest For the Trees – The Unrecognized Financial Exposure Employees Face
By admin | December 21, 2011
The news is full of stories about increasing health care costs or the uninsured population. However, the real story is that benefits packages are being cut, and out of pocket expenses for employees are increasing. In short, when it comes to benefits, employee financial exposure is rising. How did this happen? It is a simple case of “forest for the trees”. In this article we will walk through how to calculate your employees’ average financial exposure and explore what options exist to allow your employees to protect themselves.
Based on common health and disability benefit packages, many employees making ,000.00 a year have a total financial exposure of ,000.00 or more. This exposure increases significantly with higher incomes, increased waiting periods for long-term disability, or even worse – no long -term disability plan is provided at all.
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Financial exposure is particularly concerning for those people who make less than ,000.00 annually, have little savings, live paycheck to paycheck, and are often in debt. For these people, the financial impact of a serious illness or off-the-job accident can be devastating.
The question is, how is it that no one has calculated, and presented the total financial risk to the employee?
Every year at enrollment, employees are given packets describing what their benefit choices are, and if there is a significant change in their benefits they probably see a presentation detailing those changes. Missing in all of this is a calculation as to what an employee’s total exposure would be given a serious illness or off the job injury. This makes it difficult for the employee to figure out how much they need in savings or assets to cover their total financial exposure. It also makes it difficult for the employee to make educated choices about how to take action and protect themselves.
Major medical benefits are presented separately from disability benefits. The information is there, but the math to calculate total financial exposure is not. The exposure is highlighted, but abstract. I finally took it a step further and did the math to come up with a formula that will produce hard numbers.
Here is how to calculate the average financial exposure per employee in your organization:
Determine the deductible for major medical
Figure out what the co-insurance and yearly out of pocket maximum is.
Determine the waiting period before long-term disability benefits start to pay.
Calculate your employees’ average monthly salary, and multiply that by 60% to figure out how much income needs to be replaced in the case of a total disability.
Now you have the information to determine what your employees’ average exposure is. Plug the figures into the following formula:
Medical Deductible + Medical Out of Pocket Max Per Year+ ((Average Monthly Salary x 60%) x Number of Months Without Disability Coverage)= Average Employee Financial Exposure
Example:
Medical Deductible: 0.00
Out of Pocket Maximum Per Year: ,000.00
60% of the Average Monthly Salary (based on k/yr): 50.00
Waiting Period for Disability (Income to be Replaced): 3 months
0.00 + 00.00 + (50 x 3 months) = ,000.00 Total
As you can see, exposure will increase as the average salary goes up and as the waiting period for long term disability increases. Also, keep in mind that the above assumes that the disability plan provided by the employer replaces 60% of the employee’s income. If this is not the case exposure will increase even more. Just for your information, if the waiting period for long-term disability is 180 days or 6 months, the above average financial exposure increases to ,750.00.
What can you, the employer, do to provide employees protection to cover this financial exposure without significantly increasing costs? Offering voluntary or supplemental insurance is the only real answer for the time being. Depending on the income to be replaced, an employee can often protect their assets, or lack there of, for about – per month.
One of the great advantages supplemental insurance products offer is that they are highly focused and individualized. Supplemental insurance allows employees to adjust their protection to the level of coverage they need, while focusing on the areas they are most exposed based on lifestyle, age, and general level of health. Supplemental insurance is very specific with products like accident, disability, cancer, critical illness, and life insurance.
Once you have figured out your employees’ average exposure, you have to ask yourself a few questions. Do your employees have all the information regarding their financial exposure, and do they fully understand it? Given your knowledge of your employees, and the cost of living in your area, do you think that your employees have the resources to cover their financial exposure in the case of a serious illness or off the job accident? Finally, do you think it is your responsibility as an employer to offer your employees the opportunity to protect themselves by offering them a broad range of supplemental insurance products that will reduce their exposure where they need it most? After all it is no real cost to you the employer. However, it is up to you, the employer, to decide how important this issue of employee financial exposure is.
Forest For the Trees – The Unrecognized Financial Exposure Employees Face
Zach Poitra owns and operates NW Voluntary Insurance in Seattle, WA, [http://www.nwvoluntaryinsurance.com] NW Voluntary Insurance Specializes in Supplemental Insurance. Zach Poitra can be contacted at zachp@nwvoluntaryinsurance.com
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