Welcome to Insider Insights, where we dive into hot topics facing the financial services industry. Today, we're excited to have with us Kelly Benson Bray, member relations director at LIMRA, and Kim Landry, associate research director at LIMRA, to discuss why employees may be dropping benefits and what the industry can do to improve retention.
Hi, Kim. I'm excited to talk with you today. It's a great topic. It is annual enrollment season again, so looking forward to talking with you about all things enrollment.
Yeah. I'm happy to be here, Kelly. Thank you.
So, as I talk to our members and I talk to people across the benefits ecosystem, the number one thing I'm hearing is we get people to enroll, but how do we keep people from dropping benefits? And I know with the BEAT survey, you cover that extensively. What are your thoughts about why people drop benefits and how we can get them to stay?
Yeah. So, in the BEAT study this year, 12 percent of employees told us that they dropped some benefit that they were previously enrolled in sometime during the past couple of years. And the number one reason they gave for dropping a benefit is that they didn't use the benefit enough to be worth it. More than a quarter of employees who dropped something cited that as the reason.
And when you think about it, this is kind of a weird objection because most benefits offer coverages that employees don't ever want to use. I know that personally, I have life insurance and disability insurance and supplemental health coverage, and I really don't want to file claims on any of those if I don't have to. But, unfortunately, this situation can make it really hard for employees to recognize the value of these benefits, especially if, like most people and, like, human nature is tending to be, people don't think something bad's ever going to happen to them. So, there's this disconnect that happens, and we've seen this before in other research that we've done where employees perceive more value in benefits that they know they're going to use, things like medical and dental plans that they know they're going to have an appointment at some point during the year.
Even though the actual monetary value when there's a claim can be much higher for something like a disability plan. That's just not how people think about the benefits and the value they're getting out of them.
Yeah. That's so true. I know 500,000 people a year take out medical bankruptcy because they weren't able to meet their needs, and about a third of those do have medical coverage.
So, what are other reasons why they drop those due to cost? Do they not understand the financial coverage that they get? What are your thoughts, Kim?
Yeah. We saw a lot of employees dropping benefits due to cost-related concerns. And there were actually three different flavors of that that came up.
First, we saw employees say they dropped the benefit because the cost of the benefit itself went up, which happens sometimes, of course.
Also, dropping benefits because the cost of other benefits went up. So, you know, maybe the medical plan got more expensive, and they said, “Maybe I need to cut back somewhere else.” Or also just dropping because they were trying to reduce their spending on benefits in general.
As you know, we're coming off of several years of very high economic inflation in the economy overall, which has raised the cost of living for employees in a lot of different ways. So we expect that employees are going to continue to scrutinize the cost of their benefits very closely going forward. In addition to cost issues, I was also going to say we see employees drop because they say they no longer need the coverage. And that can make sense in some cases, such as, you know, someone dropping pet insurance because they don't have a pet any longer. But we wouldn't want to see that as a reason for dropping something like disability insurance, where you can't necessarily predict whether you're going to need it or not. And finally, we saw some people dropping benefits just because they had obtained the coverage from another source, such as through a spouse’s or a partner's employer.
Right. So how much do you think people are really willing to spend when you look at that one dollar that they have to spend on benefits? And, you know, health care is rising again this year at 22 percent. That's a huge increase that the employee will bear that burden.
How much do you think they're willing to spend for those types of benefits?
Yeah. So, this is actually something we've been tracking over time. We ask employees in our study to tell us the maximum out of pocket amount that they'd be willing to spend on benefits on a monthly basis, excluding retirement savings. And what we're trying to do is get a sense of where that line is. Where is that threshold where they're signing up for their benefits and they're, you know, sort of putting items in their virtual cart, and they look at the total and say, “Oh, no. That's way too much. Let me go back and take something out.”
Unfortunately, what the data shows us is that employee spending targets are pretty low. For 2025, the median amount employees are willing to spend out of pocket on benefits is only $150, and the average is $249. So it's higher for married people, especially if they have children, and it also increases with income, as you would expect. But really, no matter how you slice it, these are very small budgets, especially when you consider how much medical benefits cost. According to the Kaiser Family Foundation, the average employee contribution for major medical benefits is up to $114 a month for single coverage and $525 a month for family coverage. So that leaves very little left over for other products.
And we know employees' budgets have increased a little bit over last year, but only for employees at the upper end of the income spectrum. Spending targets for low and middle- income workers really haven't changed, probably because they just can't afford to be spending any more than they already are.
Right. And so that belt just keeps tightening on how much they'll spend. Do you think there's a difference in which products they're willing to spend more on?
We would expect it to be highest for medical coverage, just because that is, you know, obviously, the elephant in the room. You know, they know they need it. They know that they can't really afford to go without it unless, of course, they're getting it from some other source, like perhaps a public program.
So, yeah, what we see is that, you know, the highest priorities tend to be those things, again, that they know they're going to use, like medical and dental. And then it gets a lot harder to convince them of the value of things like disability and supplemental health plans, where they don't necessarily even know what this product is until someone explains it to them.
Right. So, it becomes even more important to have a strategy around communicating those benefits and to help people see the value. So, as we roll into annual enrollment season, what should employers, brokers, insurance carriers, and employees be thinking about around strategies to improve benefit utilization and help people understand?
Yeah. Sure. So we'll talk about utilization first and how to kind of encourage them to keep these benefits. And there are really four suggestions that I would put forward. You know, given all the concerns we hear about employees feeling like they don't use the benefits enough, we need to make sure employees are feeling like they're getting value out of the coverage that they have. And one strategy for that is to attach value-added services, things like wellness programs or EAPs, since those can provide benefits that employees will use on things that are otherwise low-incidence products.
Obviously, it needs to make sense for the plan. And sometimes there are regulatory concerns around this as well. So carriers need to be really thoughtful about how they roll that out. But that is something that they can do, you know, adding something like a health screening benefit on a supplemental health plan to help employees have something that they're actually getting back from that benefit.
Also, carriers need to be making sure that all of the relevant claims do get filed. So employees are getting the full value that they should be getting from these products.
We see that sometimes employees forget that they have coverage and don't necessarily file valid claims when they occur, especially for something like an accident or a hospital indemnity plan. You know, they might be focused on, oh, they had that medical claim, and you forget that they had that accident plan that would be relevant to the situation.
So claims integration strategies can help with that. That's where carriers look at claims on other lines of coverage and proactively reach out to employees about possibly relevant claims they might have missed. We also saw so many employees dropping benefits because of cost-related reasons, so I would really encourage carriers to think about whether the benefits they're offering are affordable to the end customer. And that's obviously going to vary a whole lot depending on the demographics of the group that's being covered and what those income levels are.
And finally, as you referenced, you know, so much of this ties back to employees not fully understanding the value of their benefits. So we can try to improve that by enhancing benefits education. We know that only 57 percent of employees feel like they understand their insurance benefits well, so there's a lot of room for improvement there.
Right. And I think with five generations in the workforce, it becomes even more important to use multiple pieces of education and communication with employees. So, Kim, let's talk a little bit about what are best practices around improving benefits education?
Yeah. So first of all, I'd say that multichannel benefit communication is really key. We looked at how many different types of educational resources employees had available to learn about their benefits during open enrollment, and we compared that to their benefit understanding.
What we were trying to do was find out which types of communication work best, but what the data told us is that it's not really about the specific communication methods used, it's about the variety.
The more different types of educational resources an employee had available to them, the better their understanding. And we think the reason for that is because employees have different learning styles and they don't all absorb information in the same way. Not everyone uses email, not everyone's going to watch a video, and so on. So the more different channels an employer uses to convey benefits information, the more likely they are to hit on something that employees are actually going to engage with.
We also know we need to be communicating about benefits multiple times throughout the year. Half of employees tell us that they only receive benefits information from their employers during the open enrollment period, but 73 percent say they would prefer to receive benefit communication either a few times or frequently throughout the year. And as you'd expect, employees who receive more frequent communications understand their benefits better.
Finally, we looked at which types of benefit communication employees found to be most helpful if they used it, and the key takeaway was that employees really want the opportunity to talk to someone or to get advice. Out of the top five most helpful resources, three of them involve talking to a real person, either in person one-on-one meetings, in-person group meetings, or phone consultations.
In addition, interactive recommendation tools, which provide advice or guidance in a digital format, were also seen as very helpful. So even though, like, you know, so much of communication is moving to digital and we know that they're responding well to the digital content, it's not enough to just put digital resources out there and call it a day. Sometimes employees are looking for guidance. They want to know what the benefits would apply to their own unique situations, and we need to give them that opportunity to ask questions and get personalized advice if they need it.
That's great, Kim. So what is that generation shift, and how are we driving those demands? And I guess, thirdly, what are the unmet needs of these generations in the workforce?
Yeah. So, the mix of generations in the workforce is changing. Gen Z has now surpassed baby boomers as a percent of the U.S. working population, and millennials now make up the biggest share of the labor force. So together, the two younger generations, millennials and Gen Z, account for 54 percent of all U.S. workers.
And the thing to keep in mind is that these younger generations just take a broader view of which benefits are important to them.
Older workers, we see they tend to be laser-focused on a small group of what we would think of as core benefits, things like medical, dental, vision, disability, and retirement plans.
Younger workers also really, really like those products, but they also show relatively higher interest in a whole array of other benefits. And that includes things like supplemental health plans, wellness and mental health benefits, and non-insurance offerings. So, the needs of the younger generations are just broader and more diverse, and we expect to see employers increasing the number and variety of benefits they offer in the coming years to better meet those needs. And in fact, our research with employers backs that up. That's what they're telling us is they think they're going to have to offer more benefits in the future.
That's great, Kim. So kind of wrapping this up, what are the benefits? Why are benefits a key tool to attracting and retaining the right talent as we look at these generations coming up in the workforce?
We see that benefits really play an important role in job satisfaction. This year, we did an analysis that looked at which employment attitudes were most closely correlated with being happy in your job, and one of the most predictive things was feeling that your employer cares about you. And benefits are a key way for employers to demonstrate that they care. If they can offer a holistic benefits package that takes care of employees in all the different aspects of their lives, including things like physical health, mental health, financial wellness, and so on, then that really says a lot about the kind of company that they are and how they feel about their employees.
And our data shows that people are really thinking about benefits when making employment decisions. So, I'll just share a few key stats there. Sixty-one percent of workers say that their benefits make them more inclined to stay with their current employer.
Half of all workers rank medical benefits among the top five factors they would look for when evaluating a new job opportunity.
And two-thirds of workers told us that their need for insurance benefits is influencing their thoughts and decisions about their careers right now. So there's really no question that benefits are an important consideration for employees, and this is an area where employers need to make sure they're staying competitive if they want to attract and retain that talent.
That's great, Kim. I love our conversation today, and I think it's a critical thing for people to understand that benefits are not just a support or not just something that we need, but they're necessary to drive employee value and to retain the right talent and meet their needs. I appreciate your time today. Thanks for joining me.
Yes. Thanks for having me.
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