Business of Well-being

Closing the Knowledge Gap: Addressing the Low Employee Benefits IQ of Working Americans

When it comes to understanding their employee benefits, working Americans don't know as much as they think they do. A recent study by Guardian (the 4th Annual Workplace Benefits Study) shows that the majority of employees believe they have the knowledge necessary to make informed decisions about their benefits, yet research suggests they're overestimating their knowledge.

This knowledge gap can impact the effectiveness of an employee's benefits selections and ultimately their financial security. By understanding the areas in which their employees lack the right information - and knowing how to communicate effectively to different groups of workers - employers can help bridge the knowledge gap and ensure their employees are better informed and more engaged to make the best choices.

Misplaced Confidence?

Guardian's survey revealed that four in five working Americans say they understand their benefits very well. Most also say they felt confident in the benefits selections they made during their most recent annual enrollment period.

Confidence about the benefit options presented to them is most prevalent among those who use a financial advisor, early boomers, those with incomes of at least $100,000 and those who work for larger companies. Yet, employers see things differently. Only 62 percent believe their employees have a strong understanding of their benefits, and just one in six employers think their employees understand the monetary value of the benefits they receive.

When quizzed about their benefits knowledge and graded, employees received a C. Early boomers scored the highest grades while millennials received the lowest scores, with one in four scoring an F. Employees seem to think they have the knowledge to make the best possible selections yet they don't really understand important aspects of the products available to them.

This overestimation of what they know is concerning and can negatively impact their financial security if they make the wrong choices or don't take advantage of all that's available to them.

The Knowledge Gap

There are several areas of benefits confusion among employees, starting with basic insurance terminology. Many struggle with commonly used terms such as elimination periods, guaranteed issue and portability. For example, in the Guardian study, just one in three answered a question about guaranteed issue correctly when quizzed.

Supplemental health group insurance products are also poorly understood. The percentage of workers correctly answering questions about critical illness (57 percent), hospital indemnity (30 percent) and disability (22 percent) illustrates that there's work to be done in making sure employees understand these products.

In particular, there's a lack of understanding about the percentage of salary that disability insurance can replace. Employees often assume that their employer is offering them 100 percent income replacement with disability insurance because the concept is not adequately explained to them.

They also don't realize they have the opportunity to buy up increments of income replacement beyond the standard offering. The implications of these knowledge gaps are significant. A poor understanding of benefits means workers are less prepared when it's time to make important decisions about their future. Ultimately, they may not optimize their insurance and retirement benefits, leaving them under protected.

The Importance of Effective Communication

The fact that half of working Americans don't have a solid understanding of their employee benefits suggests that employers can do a better job communicating this information. In addition to helping employees chart a more informed path to financial security, more effective communication may also boost employee perceptions about the benefits enrollment process.

This is important because the effectiveness of benefits education efforts has been trending downward. According to the Guardian study, employees are less likely to rate their company's communication efforts as highly effective in helping them make the right choices (62 percent in 2016 compared to 68 percent in 2014).

More concerning, less than half (47 percent) feel their employer is doing a good job educating them about how to use their benefits, a significant drop from 66 percent two years ago. Despite the efforts of employers to enhance the employee enrollment experience, only 55 percent of employees termed their annual enrollment experience as "excellent" or "very good." The majority of workers want more personalized information and advice to help them when making selections during the enrollment process.

An Effective Benefits Enrollment Experience is a Win-Win

A positive experience for employees during the enrollment process translates to higher confidence in decisions and higher perceived value of benefits, a boon to both employees and employers. Employees who had a positive experience during their most recent annual enrollment are nearly twice as confident in their benefit decisions as those who had a less positive enrollment experience.

Likewise, those who are confident in their benefits decisions had a much higher benefits value index score according to the Guardian study. A positive enrollment experience can also increase employee loyalty. Seventy-five percent of workers who place a high value on their company's benefits want to stay with their employer for at least five years compared to only 53 percent who place a lower value on their benefits.

Reliance on Traditional Sources for Benefits Information Continues

The workplace continues to be the most popular way for working Americans to get their benefits-related information. Nearly half consider their HR department to be the most effective source of benefits information. However, insurance company representatives and insurance company websites are also common ways that people gain their knowledge.

Other sources of information include printed and online materials, benefits meetings and fairs, friends and family, financial professionals and Google. Millennials, as a group, are unique in how they obtain benefits information. While they place great value on HR as a resource, they are also more likely to turn to friends and family, as well as Google.

Benefits meetings and fairs are less effective ways to reach this demographic. Millennials were also the least confident that they understood benefits, which is logical given they've spent the least amount of time in the workforce.

Strategies for Improving the Enrollment Process

Given that employees lack in-depth knowledge about their benefits, there are opportunities for improving the way benefits information is communicated. In general, today's workforce prefers more benefit options, along with a simpler, guided enrollment experience.

The Guardian study suggests four primary ways that employers can make the communications process more effective. The first is to provide clear, consumer-friendly language. While terms such as elimination period, portability and guaranteed issue are commonly used in the industry, they should be explained in plain language as much as possible.

A second way that companies can help their employees get more out of the benefits selection process is to provide personalized recommendations. Customized guidance can incorporate an individual's age, life stage, and lifestyle, as well as investments and insurance they may have outside the workplace.

Providing access to professional advice is another way to help employees learn more about their benefits. Most employees, particularly millennials and Gen-Xers, do not have a relationship with an agent or an advisor. While these employees desire to have access to professional advice, they don't necessarily want face-to-face conversations, instead often preferring to receive advice over the phone or through chat.

Finally, providing online support before and during benefits enrollment can help educate and engage employees. Selection tools, including interactive media, can allow workers to enter specific information about their financial situation, life events, and preferred savings and income scenarios.

Today's benefits environment provides understandable challenges to American workers. The proliferation of high-deductible health plans, expanding employee-paid options and new benefits administration platforms - spurred on by the Affordable Care Act - has overwhelmed employees and created confusion for many.

However, by improving the way they educate, communicate and engage their employees, employers can bring greater clarity to the process, ultimately helping workers make the best benefits decisions for themselves and their families.

About the Author

Gene Lanzoni is Assistant Vice President, Thought Leadership, Group & Worksite Marketing at The Guardian Life Insurance Company of America.

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