As employers try to return to business as usual, HR pros still face many uncertainties related to staffing levels, worksite policies, a slew of new compliance issues and more.
One thing is certain, however. Annual enrollment (AE) is coming, ready or not.
One of the most important decisions benefits managers face as they prepare for AE is whether to hold an active vs. passive enrollment. And this year, many are taking into consideration the dynamic nature of our economy and the rapidly evolving workforce.
First, some definitions.
In an active enrollment, employees must select their benefits by a certain date or risk losing some or all coverages.
During a passive enrollment, employees who take no action receive the benefits they had the previous year.
Among Businessolver clients who hold their AE in the summer, we’ve seen an increase in the number of employers holding passive enrollments compared to last year. The prevailing wisdom appears to be that HR teams would rather keep things as simple as possible for their employees whose lives have already been disrupted by COVID-19, racial unrest and other challenges 2020 has thrown their way. Working remotely and social distancing has also presented challenges regarding communications and onsite personal assistance.
That said, only 20% of Businessolver clients hold off-cycle annual enrollments; most schedule theirs in the fall. Another factor to consider is that the IRS did not allow mid-year changes without a qualifying event until late May—well after many off-cycle employers had made a decision about whether to hold an active versus passive enrollment. The impact of this latest compliance curveball remains to be seen.
Ultimately, each employer must decide which model works for them. With that, let’s review these two options.
Traditionally, the trend has been toward the passive model due to the administrative burden involved in active enrollments. In 2011, a study found that 71% of U.S. employers opted for the passive route. In 2019, however, approximately 50% of employers reported holding a passive enrollment. So, there appears to be a move away from passive, perhaps in part to the availability of better technology to support employees.
From the employees’ perspective, passive enrollment has a certain appeal; “If it ain’t broke, don’t fix it, right?” However, there are downsides. This model may lead to employees opting for the wrong benefits year over year, which can cause strain on budgets and stress for employees who aren’t properly covered. Plus, since there are no real action items in passive enrollment, employees are more likely to be disengaged and may not know or appreciate the benefits employers offer.
This model isn’t without its drawbacks either. If during annual enrollment employees aren’t informed about their benefits and they fail to make their selections before the end date, they may be left without coverage for a full year, the IRS’ recent decision on mid-year enrollments notwithstanding. This can cause major headaches for HR and benefits managers. Not to mention, an employee without coverage is not a happy one.
Direct communication with employees is key to active enrollment success. And, without a technology partner that can help streamline communications to relieve some administrative burden, active enrollment could become a huge lift for smaller HR departments.
Both have pros and cons. Here’s a quick guide to help you make your decision.
Active enrollment pros
- Higher employee engagement
- Better ROI on benefits offerings
- Higher benefits visibility
- Gives employees an opportunity to think about and select their benefits
- Can help promote higher benefits literacy
Active enrollment cons
- More administrative work
- If not properly implemented, employees may not have all the right information to make informed decisions about their benefits
- Employees could miss enrollment deadlines and be without coverage
- More time consuming
- Without a technology partner, could take more resources to implement
Passive enrollment pros
- Less time to implement
- Requires less communication to employees
- Employees don’t run the risk of being without coverage
- Less administrative work
- No plan changes? No worries.
Passive enrollment cons
- Employees are defaulted to coverage that may not be a good fit for them
- Employees are less aware of benefits offerings and might not be aware of new options
- Low engagement from employees
- Potential higher benefits cost if employees are over-insured from default coverage
- Lower benefits literacy
Still on the fence about which one to choose? Take our handy quiz to find out which option would be better for your organization. We’ll also address this topic at our special two-part webinar series on June 23 and July 9, Annual Enrollment 2021: Benefits Planning in an Uncertain World, which I am happy to help moderate. I hope to see you there!