Richard Thaler just won the 2017 Nobel Prize for Economics for his work in behavioral economics, which breaks the notion of people as rational actors in economic equations and “humanizes” market forces in many ways. This work brings some interesting perspectives for this year’s open enrollment season. We will come back to this and how it relates soon, but for now, let’s talk about what is in front of us as HR Professionals.
It’s that season again… HR department’s favorite time of year… open enrollment.
The most common question we get from employees is usually in a somber, droning voice, asking “What changed and how much this year?” Many times, HR departments are looking to take the path of least resistance to try and minimize excess strain on an already strained department.
Our team; After sitting down with thousands of employees found that both employers and employees are missing out on one of the best opportunities, for quality in reaction that they have all year. For employers, open enrollment is an opportunity to roll out new innovative benefits, drive additional engagement, boost satisfaction and even accomplish other tasks such as cleaning up employee data, rolling out new HR technology, and shaping behavior relating to benefit utilization. For employees, it is an opportunity to make sure that they are still protecting their families and getting the most out of their benefits program. It is a chance for the majority of working Americans to take a pause and assess their changing life needs.
The challenge is helping employees make informed decisions about one of the more complex and contingency based areas of their personal planning. For the majority of employees, their employer benefit offerings represent the only financial and insurance safety net that they have. Far too many employees do not even know what questions to ask as it relates to their benefits offerings, they often turn to the person next to them to ask “What did you do”, or they take it home and relegate the task to a spouse, or who is most likely not trained to ask the right questions either.
Needs are changing and the financial stability of many employees is not getting better. Higher education costs are soaring, leaving younger workers strapped with significant debt and older workers struggling to help fund their children’s education. Elder care costs are putting financial, emotional and time strains on employees in a variety of age groups. Younger workers are placing a higher premium on flexibility and paternity benefits. All the while, adoption of driven plans continues to grow, increasing the financial hurdle to access sometimes even basic care. Many employees still can’t afford an unexpected $500 bill.
The social contract for work has also evolved, increasing turnover among employers, not just for millennials. New data is showing that generation X and boomers are transitioning even more than ever before as the competition for talent is increasing. The most innovative companies are leading the way in introducing new benefits, both employer-paid and voluntary.
Page after page of benefits communications material will be produced. Benefits administration technology and communications portals will be updated and built. Other print and email communications materials will be deployed. Yet many surveys show that only 35% of employees are extremely satisfied with their benefits. So how do employers and advisors use open enrollment as a time to meet working Americans where they are and engage them in appreciating and truly understanding their options?
This is where Thaler’s work comes into play for us HR Professionals. I picked up my dusty copy of “Nudge”, a 2008 best seller co-authored by Thaler. The Royal Swedish Academy of Sciences, which is by all accounts a very smart group of people, reviewed the work and claimed that, “Nudge has built a bridge between the economic and psychological analysis of individual decision making.” I think they just described what happens in Open Enrollment. This policy is also credited with clearing the way for negative enrollment into 401(k) plans. So, let’s break this down a bit.
Thaler’s body of work includes insights on the ways in which limited rationality, social preferences and a lack of self-control affect decisions that shape market outcomes. (Sounds like some employees that HR professionals have stories on…) Part One of this article will talk about a key area as it relates to strategies for this year’s Open Enrollment, Biases and Blunders. Part 2 will go deeper on the others including:
• Resisting Temptation
• Following the Herd
• Saving for Tomorrow
Part 1: Biases and Blunders:
Anchoring:
We can use decision science to help put different decisions at eye level. For instance, “Anchoring” a medical plan choice as a base plan and placing a couple of other choices in front of employees that are smartly designed can influence which medical plan employees choose. This can produce intended and unintended consequences which can increase or decrease satisfaction. Helping employees ask a few questions to “carrot” them into more consumer driven plans coupled with decisions science can positively impact outcomes for your enrollment.
Availability
Another strategy that we can pull from Thaler’s work is around Availability Biases as it relates to guaranteed-issue products; these are products designed to be extremely affordable options to create safety nets for major medical expenses. Communications around these opportunities should be targeted and limited. One mistake we see is offering too many of these, which results in fewer decisions being made, because it is simply too much to process. So, too much availability can be a bad thing.
Optimism and Overconfidence
Everyone thinks they are an above average driver, right? One force that, these strategies are always fighting is optimism and overconfidence as it relates to employees perceived risks which are often uninformed. Specific year-round communications can help overcome this.
Fear of Loss and Framing
The last two biases relate to Fear of Loss and Framing. When eliminating options, framing the alternatives in the right light is always key to success. On their own, these two biases hold enough sway over our human psyches. I have always said that people will fight twice as hard to keep something that they have rather than going after something new, and this is absolutely true. So, structuring options during passive enrollment situations is important. Default options really matter. Framing changes to keep employees informed and not feeling manipulated is also key to success. What if your doctor says, “Out of one hundred patients who have this operation, ninety are alive after five years,” now compare that with “Out of one hundred patients who have this operation, ten are dead after five years”.
For Part 2 we will go deeper on the other concepts, but in the meantime, try some of these tactics in your open enrollment. Consider hiring a firm with professional benefit communications and counseling experience. People are nudge-able and we can use these tactics to help make sure that working Americans are not left behind in this year’s open enrollment process.
About the Author- Austin Baker is the President of HRO Partners a Human Resources Consulting, Managed Services and Technology Firm with an emphasis in Benefit Administration and Enrollment. HRO Partners is a fast-growing provider of Benefit Enrollment Solution that works with many strategic vendor partners. In the past year HRO Partners has saved their clients over 220 Million with their innovative benefit strategies and managed services deployments. Their team boasts more than a 96% average satisfaction score with employees and their clients. For more information, call Baker at 1-866-822-0123, visit www.hro-partners.com or connect with the company at www.facebook.com/hropartners, http://www.linkedin.com/in/jaustinbaker or http://twitter.com/jaustinbaker