It’s a scary truth that so many working Americans admittedly know very little about how their benefits work. What’s worse is that there are even more who THINK they understand, but really grasp far less than they claim to when it comes time to make decisions about their benefits. In fact, a recent study revealed that the majority of employees are grossly overestimating their understanding of their employee benefits.
This knowledge gap is not only causing them to make what might not be the best decisions about coverage. It’s ultimately undermining their financial security. Here are some of the areas where employees most misunderstood their benefits and how employers can help bridge the gap.
Overconfidence
In the study, four out of five workers surveyed claimed they understood their benefits very well. They felt confident about the selections they made during their last enrollment period. Confidence was highest among early baby boomers, those earning at least a six-figure salary, those who have a financial advisor, and those who worked for large companies.
However, when employees were asked the same question, only 62 percent said their employees have a good grasp on how their benefits work. What’s more, only one out of six employers thought their employees realize the monetary value of the benefits they’re getting.
When their knowledge was put to the test, literally, employees averaged a C grade on a quiz about their benefits knowledge. Early boomers performed the best, and the lowest scores went to millennials, with one out of four receiving an F.
What this tells us is that employees don’t know as much as they think they do about their benefits. This overconfidence can cause them to make the wrong choices when selecting coverage and fail to take full advantage of all the benefits available to them.
Areas of difficulty
The study highlighted some specific areas where employees were particularly confused about their benefits. Here are a few.
- Insurance terminology – Many workers couldn’t correctly define or answer questions related to terms such as guaranteed issue, portability, and elimination periods.
- Supplemental health group insurance products – Coverages like critical illness and hospital indemnity were other topics that tripped up the survey participants.
- Disability – Understanding of disability insurance was particularly low. Many incorrectly assumed that they would receive 100 percent of their income if they became disabled and were unaware they could purchase additional income replacement beyond the standard amount.
The importance of communication
The fact that so many workers don’t understand their benefits as well as they think they do indicates that employers need to do a better job communicating with their employees about their benefits. Not only will it improve their workers’ financial security, but having this solid foundation will boost workers’ perceptions about their benefits and, ultimately, their employers.
But what’s happening is the exact opposite. Instead of improving, benefits communication and education is trending downward. Only 62 percent of employees rated their company’s communication about benefits as being highly effective, verses 68 percent just two years prior. Less than half (47 percent) said their employer was doing a good job of educating them about how their benefits work. That’s down from 66 percent in 2014.
Improving enrollment
One of the most crucial times to communicate clearly with your employees about their benefits is the enrollment process. The good news is that you have several months to prepare for this all-important step.
Employees who reported a positive experience during their last enrollment period were nearly twice as confident in their benefit elections than those who did not. They also had a much higher benefits value index score.
A positive enrollment experience also helps ensure employee loyalty. Among the workers surveyed, 75 percent who placed a high value on their benefits package said they planned to stay in their current job for at least five years. Among those who placed a lower value on their benefits, only 53 percent could say the same.
Strategies for improvement
Today’s workforce wants more benefit options, as well as a simple, guided enrollment experience. Here are four ways you can improve and streamline your enrollment process.
- Provide clear, consumer-friendly language. Avoid jargon or unfamiliar terms. Take the extra step to over-explain complicated benefit options, such as the ones mentioned above.
- Provide personalized recommendations. Factors like age, life stage, and lifestyle should be taken into consideration, as well as any additional insurance or investments an individual might have.
- Offer professional advice. Since most employees don’t have their own agent or advisor (especially millennials and Gen Xers, who increasingly want personal service but aren’t likely to seek it themselves), offering the support of a broker or advisor is a great option.
- Make good use of technology. Employees want online support, both during and after the enrollment process. At minimum you should offer selection tools and other interactive media to educate and engage employees.
The bottom line is that employees simply don’t know what it is that they don’t know. But now you do. As an employer, take this opportunity to better educate your workforce on their benefits and reap the rewards of more confident, and secure employees!