Three Things to Know about Health Insurance Buying Patterns

Decision support tools are influencing employee purchasing decisions, and employees are being thoughtful in how they spend their money, a new study suggests.

The Private Exchange Research Council (PERC), a think tank composed of private benefits exchange experts and top national insurance brokers and consultants, released a report showing that decision support and recommendation tools have a significant impact on employees’ decisions to purchase health insurance and other benefits on benefits marketplaces. The report is based on an analysis of hundreds of thousands of employee enrollments from 1,356 companies offering benefits through a Liazon-powered benefits marketplace between 2013 and 2017. 

“Employers are increasingly adding employee choice and flexibility to their benefits program as a way to retain and engage talent, which is made possible through utilizing benefits marketplaces,” says Steve Nyce, director, Research and Innovation Center at Willis Towers Watson. “This provided an opportunity to look at the buying patterns of employees who have choice and flexibility to provide insights into employee behavior and to explore the impact of decision support tools in order to navigate that choice.”

Other key findings include:

• Employees are two to four times more likely to purchase a product when recommended to do so.
•  In 2017, 46% of employees bought the medical plan that was recommended to them, up from 33% in 2013.
• Certain employee groups were more responsive to recommendations to buy particular products. For example, Generations X and Y were more likely to follow recommendations concerning the purchase of life insurance.
• The recommendation engine has a significant impact on purchases of HSA-qualified medical plans. Employees for whom these plans are recommended are far more likely to purchase them, compared with employees who either were not recommended to buy them or bypassed the recommendation.
•  In 2017, employees who purchased medical coverage spent a total of $10,536 on their overall portfolio of benefits. Employers subsidized approximately 70% of this cost, with an average employer contribution of $7,385-meaning employees spent about $3,200 of their own money to purchase the benefits they valued.
• Overall, the average portfolio cost was 11% below what was recommended, as the system recommended an average of eight products per employee whereas employees typically only purchased five in 2017. This demonstrates that employees considered the products that were recommended to them and made tradeoffs between the added value of the products and the associated costs.

“Over the past several years, employers have been looking for ways to move their employees to lower cost plan options but often see low movement to high-deductible health plans (HDHPs),” says Nyce. “In this model, we’re seeing that when given the choice and the tools to help educate employees about the value of HDHPs, employees are gravitating toward these plans. Further, employee satisfaction surveys show that employees are satisfied with their plan choices in this environment.”

Nyce

Historically, according to Nyce, employers have provided their employees with a limited number of plan choices, narrowing down the options on behalf of their employees-a “one size fits most strategy”. 

“As employers begin to broaden the amount of choice that their employees have within the benefits offering, there is concern over employees’ ability to make good decisions for themselves,” he says. “For example, will employees just pick the lowest or highest priced medical plan because they don’t know how to choose between plans?  This research demonstrates that decision support tools help direct employees to the plans that are right for them and their families-rather than employers doing this on their behalf by selecting a small number of plan offerings that are best for most.”

When given meaningful choice and the ability to see the true cost of their benefits, employees purchase their benefits more efficiently based on their personal or family needs, according to Nyce. “This helps to improve the employees’ overall financial well-being as they’re able to allocate their benefits dollars to purchase the products and plans that will provide the best overall financial protection for their family based on their personal budgets,” he says.

Based on the study, Nyce has recommendations for healthcare executives:

• Choice in benefits is really important. “This must be meaningful choice, both in terms of the breadth of benefits that are offered and the breadth of plan designs within each product category, especially medical,” he says.
• Decision support and educational tools are a necessity to help employees navigate the choice in benefits. “Choice without this support can lead to decision paralysis,” says Nyce. “However, decision support tools, and specifically recommendation engines, can narrow down the choice set to a small subset of options with which individuals feel equipped to make their selections or even pinpoint specific plans that will be best suited to an individual’s specific needs.”
• Employers should incorporate their benefits enrollment experience and the choice of various products they offer to employees into their overall financial well-being strategy. For example, employees can choose to move to a lower-cost medical plan and purchase other benefits products, such as accidental, critical illness, or disability insurance, that can help to provide the financial security they are looking for, according to Nyce. “Or, other employees may be looking for low out-of-pocket costs throughout the year, and thus can purchase a more expensive medical plan if that gives them peace of mind,” he says. “Likewise, there are greater opportunities for employees to benefit from the tax advantages of health savings accounts regardless of their household income. In the current economic environment of low wage increases and increasingly tighter benefits budgets, this is a key way for employers to increase the value of their benefits programs.”