Employers who offer health benefits are required each year to hold a benefits enrollment "window", commonly referred to as an open enrollment period.
During open enrollment, employees can renew, adjust, or waive benefit options. Outside of a Qualifying Life Event, open enrollment is essentially the only time an employee can make changes to most (though not all) of their benefits.
While an employer is required, by law, to hold an open enrollment, what's not defined is whether the enrollment needs to be structured as "active" or "passive". A passive enrollment period is one where an employee's benefit selections from the previous year simply roll-over and/or auto-migrate (within reason) to similar options. An active enrollment, on the other hand, requires an employee to elect, renew, adjust, and sometimes actively decline benefit elections. (The SPD and other plan documents will usually spell out these rules for employees.)
In a nationwide survey conducted by the JP Griffin Group this April, 2019 amongst full-time, benefit-eligible employees in the U.S., 50 percent (half) reported participating in a passive enrollment this year. Compared to a 2011 survey of employers, where 71% reported holding passive enrollments, these new findings represent a 30% decrease in the number of companies conducting their open enrollments passively.
This transition to active enrollments shouldn't come as a surprise to anyone who has been following the growing popularity of healthcare consumerism amongst employers.
What is somewhat surprising is that this migration to active enrollment is directly in-line with employee preferences as well, with 52% of employees in the above mentioned JP Griffin Group survey favoring active enrollments. Experts in human behavior and cognitive bias will likely be surprised by this figure, expecting it to be considerably lower based on what's known as status quo or inertia bias. How these concepts relate to passive 401(k) contribution elections was covered extensively in the book "Nudge; Improving Decisions About Health, Wealth, and Happiness."
So which enrollment option is better for you, as the employer? Which is better for your employees? The answer isn't as cut and dry and some might have you believe.
Most Employers Favor Passive Enrollment For Convenience
Most employers who implement a passive open enrollment do so for one simple reason - it's easier. Passive enrollment automatically re-enrolls employees in their previous benefit elections. This reduces administrative tasks considerably, even though these days the vast majority of employers are utilizing online enrollment systems which also reduce some, but not all, administrative burdens.
Another upside to passive enrollment; employees who neglect to take action during open enrollment don’t run the risk of losing their benefits once the new plan year starts. This greatly reduces the stress on HR and benefits teams who often times go to great lengths during an active enrollment to ensure that less than diligent employees don't miss the open enrollment window. From emails and phone calls to the casual office "drop in", the time and energy spent on nudging these employees can be exhausting - and frustrating.
And as many seasoned HR professionals can attest, should an inattentive employee's benefits lapse, the affected worker, spouse, and/or covered dependents may become upset, and unfairly blame the employer for their own inaction.
With a passive enrollment, employers and front-line HR and benefits personnel can avoid any confrontations with irate employees who suddenly find they have no benefits coverage at the start of the next plan year. After all, nothing is worse than having your employee benefits plan backfire on you. Something that is designed to engender goodwill shouldn't also carry the risk of generating feelings of anger and resentment.
Passive Enrollment May Also Benefit (Some) Employees
As recently reported in a January, 2019 New York Times article entitled "Why a 'Passive' Health Approach Can Produce the Most Action", some people find choice problematic - a situation which gets greatly exacerbated by busy schedules and the stress of daily life.
Barry Schwartz gave a terrific Ted Talk on this called "The Paradox of Choice", which essentially stipulates that although we have more choice as consumers than any who've come before us (which should theoretically contribute to our happiness and satisfaction), we aren't benefiting from it psychologically.
The Times article suggests that people are quite often required to make decisions with inadequate information and lots of uncertainty, which results in stress that impairs the ability to make good choices. The article references a study which found that individuals under stress tend to make riskier decisions.
With this as a backdrop, an argument for passive enrollment would suggest that employees were perhaps less stressed when they made their initial benefit selections. This may very well be true for new hires, for example, if they were afforded a leisurely "onboarding day" which is sometimes provided by employers.
Active Enrollment Offers Considerable Upside for Employers & Employees Alike
While passive enrollment may be the easier option from an administrative and conflict avoidance standpoint, employers who manage to successfully implement active open enrollment periods do so to the advantage of both their employees and themselves. Compared to passive enrollment, active enrollment has multiple advantages.
- First, active enrollment forces employees to review and re-select their benefits at least once a year. This helps to better ensure that each employee's benefit elections are more appropriately tailored to their present situation. Much like online tax preparation software, a good enrollment system can prompt the enrollee with probing questions, getting them to think about how the upcoming year might be different than the year prior. Perhaps they are trying for a baby or plan to adopt, or perhaps they are now carrying a mortgage they need to protect, or caring for an elder who was formerly on their own.
- Second, an active enrollment affords employers a better opportunity to educate their workforce on plan changes and new benefit options, most especially if an employer is introducing something like a HDHP with HSA or a Dental DMO. An active enrollee is more likely to review new plan options and existing plan changes, and then reconsider their options, most especially in the wake of rate changes or price disparity between new options.
- Third, an active enrollee is also more likely to drop benefits they no longer need while enrolling in new ancillary or voluntary benefit options that appeal to them. After all, if you're building your benefits package with an "employee first" mindset, the vast majority of new benefits you offer should provide additional health coverages, conveniences, financial security, and peace of mind - and at a fair price. Active enrollment shines a light on these versus burying them under a bushel.
- Fourth, active enrollment provides an opportunity to improve the integrity of your data, from emergency contact information to beneficiaries and eligible dependents, the latter of which can potentially lower benefit costs if you discover that dependents, ex-spouses, and others who are no longer entitled to benefits are still on your plan.
- Finally, active enrollment ensures that benefits which can't be treated passively aren't overlooked, namely Flexible Spending Accounts (FSAs). While contributions to HSAs and 401(k)s can be adjusted throughout the plan year, the "use-it-or-lose-it" nature of both Dependent Care FSAs and Medical FSAs preclude them from being eligible for roll-over elections, as well as revisions to contributions throughout the plan year.
Communication is Key When Implementing Active Enrollment
The key to implementing a successful active enrollment is communication, persistence and intuitive online enrollment tools. Frequent and omni-channel communications reduce the risk of employees ignoring the enrollment period and thus, potentially losing benefits. Well crafted communications will assist in the reading and comprehension of otherwise dense and confusing benefit information. And easy-to-use enrollment tools should help guide employees through their benefit options in a thought-provoking, logical, and sequential fashion.
Set-Up a Benefits Plan for Your Employees
For assistance setting-up or changing a benefits plan for your employees, contact our representatives. We’ve worked with companies that have both passive and active open enrollment periods, and one of our representatives would be glad to discuss both options in more detail with you. Whichever you deem more appropriate for your business and employees, we can help put it in place.