Employees, like all humans, are not always rational. Applying the lens of behavioral economics to understand why employees choose or don’t choose particular voluntary benefits can help motivate employees to make benefit choices that appear appropriate when judged against other decisions they have made. 

“Behavioral economics offers an explanation for this deviation between predicted and actual take-up by imposing limits on the extent to which human beings are able to rationally process information,” according to the authors of a recent survey (CRR WP 2015-16) published by the Center for Retirement Research.

Authors Anek Belbase, Norma Coe and Matthew Rutledge examined employer efforts to “improve” employee decisions regarding life and disability insurance and to “investigate correlations between employer practices… and employee take-up.” The survey based was SHRM members; 850 of them completed the survey.

The study revealed substantial differences among them in enrollment timing, “benefit communication bundling,” and whether the enrollment coordinator was employed by the company, or provided by a broker or insurance carrier. One-third of employers have multiple “enrollment events.”

Also see: Life insurance: Thinking outside the box

Also, half of surveyed employers communicate all benefits simultaneously, 38% communicate group benefits with medical benefits, and 8% “communicate each benefit individually.”

Factors associated with strong employee interest in voluntary life included the maximum issue amount and “the practice of enrolling all employees online or over the phone using interactive tools, as opposed to enrolling new hires in person using paper forms.”

The study found two employer practices with respect to voluntary long-term insurance that affect enrollment: the enrollment window, and the enrollment channel. “Similar to life insurance,” the authors wrote, “having a single event for long-term disability insurance … is associated with a higher take-up rate.”

Online enrollment variability

In contrast to life insurance, however, “allowing existing employees to enroll online or over the phone decreases take-up compared to enrolling in-person using paper forms.”

A factor associated with higher enrollment in short-term disability is communicating the opportunity only in conjunction with health benefits, as opposed to with both health and retirement benefits.

Looking at life, short- and long-term disability coverage as a group, however, the study found that “timing enrollment to focus attention on benefits in one annual event is associated with higher take-up than when employees are allowed to enroll at any time of the year.”

“Similarly, bundling less-salient benefits — life and disability insurance — with more salient ones (health insurance and retirement benefits) — is linked with higher take-up across all three benefits examined.”

The study’s authors cautioned that the study “does not establish a causal relationship between employer practices and benefit take-up” in all cases, since some employers may have offered a particular benefit based on employee requests, and others not. Thus even using an enrollment strategy that didn’t pan out well with other employers could still result in higher enrollment than would occur at employers where employees had not expressed any interest in the particular benefit.

Richard Stolz is a freelance writer based in Rockville, Maryland.

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