Automatic Enrollment
Beyond the 401(k):
Automatic Enrollment in Welfare Benefit
Plans Before & After Health Reform
Jack Towarnicky
Employee Benefits Attorney
Human Capital Practice
towarnickyja@willis.com
jacktowarnicky@gmail.com
Hueristics
– Rules
of Thumb
Executive
Summary
 All employee benefit managers are also behavioral economists –
even if they do not know it or deliberately ignore it.
 Behavioral economics tools and applications are common in the
employee benefits marketplace.
 The most common biases/issues: Loss Aversion, Social Norming,
Hyperbolic Discounting, Heuristics & “Choice Blindness”.
 “Choice Architecture” is the most frequently deployed tool automatic (re-)enrollment/escalation, defaults, framing, etc.)
 Absolute Certainty in Employee Benefits: “If you offer
employees a choice of benefits, only one thing is certain, some
will make the wrong choice.” Jack Towarnicky
 The Behavioral Economics practices we use in employee benefits
may not be transferable (ERISA preemption, statutory authority)
Page 2
HueristicsAgenda
– Rules of Thumb
 The Intersection of Behavioral Economics & Employee Benefits
 Auto Enrollment In Employee Benefits … Today!
▫
▫
▫
▫
401k
Active Employee Medical
Retiree Medical
HSAs, Long Term Disability, Life Insurance
 PPACA Auto Features & DOL Regulatory Considerations
▫
▫
▫
▫
Public Exchanges
Employer Shared Responsibility
Eligibility for Taxpayer Financial Support
FLSA 18A
 Future Employer Strategies in Deploying Auto Enrollment
Page 3
HueristicsAgenda
– Rules of Thumb
 The Intersection of Behavioral Economics &
Employee Benefits
 Auto Enrollment In Employee Benefits … Today!
▫
▫
▫
▫
401k
Active Employee Medical
Retiree Medical
Health Savings Accounts, Long Term Disability, Life Insurance
 PPACA Auto Features & DOL Regulatory Considerations
▫
▫
▫
▫
Public Exchanges
Employer Shared Responsibility
Eligibility for Taxpayer Financial Support
FLSA 18A
 Future Employer Strategies in Deploying Auto Enrollment
Page 4
The Intersection of Behavioral
Economics & Employee Benefits
Behavioral Economics –
Disrupts classical economics’ “rational man”
Page 5
Hueristics – Rules of Thumb
Worker’s decision making toolbox – routine,
preset, simple, “rule of thumb”
 Good – Some repetitive situations – wellprepared/useful solution, save time & effort,
 Bad – In complex issues - often suboptimal,
counterproductive and/or damaging outcome
 Ugly – Often resort to social interactions,
group think, customs. What did you select?
Page 6
“Choice Blindness”
”Coffee,
Coffee, Coffee
Page 7
Welfare Plan Annual Enrollment
Time Starved Decision Making
Source: 2010 Met Life Employee Benefit Trend Study
Page 8
Welfare Plan Annual Enrollment
Time Starved Decision Making
2013 Met Life Study
 61% enroll immediately upon receiving data/information
 20 minutes – average time employees spend/year on benefits enrollment
 Only 20% review choices more than once
 38% are not very confident they made right decisions
Source: 2010 Met Life Employee Benefit Trend Study
2013 Met Life PSB Fall Enrollment Study
Page 9
HueristicsAgenda
– Rules of Thumb
 The Intersection of Behavioral Economics & Employee Benefits
 Auto Enrollment In Employee Benefits … Today!
▫
▫
▫
▫
401k
Active Employee Medical
Retiree Medical
HSAs, Long Term Disability, Life Insurance
 PPACA Auto Features & DOL Regulatory Considerations
▫
▫
▫
▫
Public Exchanges
Employer Shared Responsibility
Eligibility for Taxpayer Financial Support
FLSA 18A
 Future Employer Strategies in Deploying Auto Enrollment
Page 10
Perennially Auto 401(k)
Pension Protection Act of 2006 & regulations
Perennial Annual Enrollment
Eligible For Auto Feature
2013
2012
2011
2010
2009
2008
2007 2006
27,948 26,086 27,466 28,211 31,578 14,067 14,705
Reject Auto Enroll/Increase
37%
35%
35%
29%
31%
28%
23%
Accept Automatic Election
- Increase with Match
- Increase w/o Match
63%
13%
87%
65%
19%
81%
65%
34%
66%
71%
44%
56%
69%
48%
52%
72%
All
N/A
77%
All
N/A
2013 Escalate W/O Match:
13,941
2013 Opt outs:
1,080
Eligibles Participation Rate
97+%
74%
% Receiving Full Match: 2006: ~59%; 2013: 96+%
Page 11
Hueristics – Auto
Rules of
Thumb
Personalized
Enrollment
Page 12
Hueristics – Auto
Rules of
Thumb
Personalized
Enrollment
Retirement 20/20 Proposal:
• Multiple employer plan – different plan sponsor role (to allow aggregation,
consolidation of all savings into a single plan; minimization of fees),
• Perennial automatic enrollment defaults targeting the level at which the
full employer match is provided (for those who opt out),
• Perennial/auto 401(k) contribution increase/reduction (a self-adjusting
default mechanism, with worker opt out):
•
•
Based on projections of retirement income replacement adequacy,
Based on projections of existing tax code provisions (as amended) as well as an
associate survey - to maximize tax preferences,
• Perennial/auto Health Savings Account contribution increase/reduction:
•
•
Based on projections of need for post-employment medical expenses, and
Based on projections of existing tax code provisions (as amended) as well as an
associate survey – to maximize tax preferences,
• Perennial re-enrollment (investment reallocation – anticipate risk of loss
of capital, loss of purchasing power, maximization of retirement income)
via target maturity model allocations of core investment options.
Page 13
Employee
Benefits
Hueristics
– Rules
of Thumb
Automatic Enrollment
 Pension Protection Act of 2006 & regulations
 Welfare Plans:
▫ DOL Advisory Opinion 2008-02A, Feb. 8, 2008,
preempt KY state withholding statute
▫ IRS Revenue Ruling 2002-27, May 20, 2002,
cafeteria plans
▫ DOL Testimony Apr. 8, 2011, Mercer study (12%)
▫ DOL Advisory Opinion 94-27A, July 14, 1994,
preempt New York written notice requirement to
allow electronic elections
Page 14
Active Employee
Informed Enrollment
Take a look! This bar chart shows a comparison of what your
estimated total annual out-of-pocket expenses would be in 2011
if you were enrolled in the HSA option versus our Base PPO
$3,500
For comparison purposes, it assumes:
- The 2011 Plan design,
- You'll have the same health care needs as last year (this chart
uses your ACTUAL 2009 CLAIMS DATA).
- You'll have the same coverage tier as in 2010.
- All expenses will be in-network services only.
$3,000
$2,500
$2,000
$1,500
The blue section represents your payment when you go to the
doctor or use other health care services, including prescription
drugs. (Note: The blue section only appears if and whn you
actually used health care services.)
The green section represents what you will pay for coverage just to be in the plan - even if you never see a doctor.
$1,000
$500
0
"HSA"
"Base PPO"
Your Contributions
Rx & Services Cost Sharing
(Note: What you don't see on this chart is a company-matching
contribution to your health Savings Account, which is available to
those in the HSA option. Those monies can be used to lower
your out-of-pocket expenses.
Congratulations! Your choice of participating in the HSA has resulted in a cost savings to you!
15
Page 15
Active Employee
Informed Enrollment
Take a look! This bar chart shows a comparison of what your
estimated total annual out-of-pocket expenses would be in 2011
if you were enrolled in the HSA option versus our Base PPO
$3,500
$3,000
For comparison purposes, it assumes:
- The 2011 Plan design,
- You'll have the same health care needs as last year (this chart
uses your ACTUAL 2009 CLAIMS DATA).
- You'll have the same coverage tier as in 2010.
- All expenses will be in-network services only.
$2,500
$2,000
$1,500
$1,000
$500
0
"HSA"
"Base PPO"
Your Contributions
Rx & Services Cost Sharing
The blue section represents your payment when you go to the
doctor or use other health care services, including prescription
drugs. (Note: The blue section only appears if and whn you
actually used health care services.)
The green section represents what you will pay for coverage just to be in the plan - even if you never see a doctor.
(Note: What you don't see on this chart is a company-matching
contribution to your health Savings Account, which is available to
those in the HSA option. Those monies can be used to lower
your out-of-pocket expenses.
Congratulations! Your choice of participating in the HSA has resulted in a cost savings to you!
 Offered two PPO options – same in all respects except point of enrollment
(contributions) and point of purchase cost sharing (deductibles, copay, etc.)
 Post 2009 Plan Year Study: 68% chose wrong option – mostly over-insured
16
Page 16
Retired Employee
Informed Enrollment
2004
1234
Page 17
Retired Employee
Informed Enrollment
Page 18
Guidance & Education
Estimated
Rx Costs Per
Person
Best
Prescription
Drug Option
Less than
$2,850
More than
$2,850 but less
than $6,680
HRA Rx
More than
$6,680
Standard Rx
HRA Rx
Page
Page
19 19
2006 Rx Enrollment
2006
HRA Rx (includes individual PDP, No PDP
16%
Standard Rx (High Option)
84%*
* ~ 60% defaulted to Standard Rx in 2006, while ~ 25% affirmatively elected the
default, Standard Rx.
Page 20
2008 “Re-Frame”
Change Default
2008
2006
HRA Rx (includes individual PDP, No PDP
16%
Standard Rx (High Option, 2006 Default)
84%*
Individual PDP, No PDP
32%
Aetna Rx (Low Option, 2008 Default)
64%**
Anthem Rx (High Option)
3%
* ~ 60% default to Standard Rx in 2006, ~ 25% affirmatively elected default
** ~ 44% default to new, lower coverage, ~ 20% affirmatively elected default
Page 21
Increasing Coverage
Annual Enrollment
Choice Architecture – At Annual Enrollment, At Hire
Health Savings Account
Annual Enrollment
Default to HDHP
Issue: Eliminating option,
change default to HDHP
Pre-2009 HSA Default = 0
 New HSA Default: Sum of
Worker & company match
= HDHP deductible
 Rationale: HSA Unfamiliar
 Result: Declines in HSA
Participation: 97% of
HDHP enrollment to 87%,
Average Deferrals: ~ 15%
Page 22
Increasing Coverage
Annual Enrollment
Choice Architecture – At Annual Enrollment, At Hire
Health Savings Account
Annual Enrollment
Default to HDHP
Long Term Disability
Default to Coverage at
Hire
Issue: Eliminating option,
change default to HDHP
Issue: Less than 50%
enrolling at hire
Pre-2009 HSA Default = 0
Default = No Coverage
 New HSA Default: Sum of
 New LTD Default: After-tax
Worker & company match
= HDHP deductible
 Rationale: HSA Unfamiliar
 Result: Declines in HSA
Participation: 97% of
HDHP enrollment to 87%,
Average Deferrals: ~ 15%
coverage at hire
 Rationale: Opt out
possible if after-tax
 Result: Up 49% (from
51.2% ’08; to 76.9% ‘09)
 73% have higher, after-tax
coverage
Page 23
Increasing Coverage
Annual Enrollment
Choice Architecture – At Annual Enrollment, At Hire
Health Savings Account
Annual Enrollment
Default to HDHP
Long Term Disability
Default to Coverage at
Hire
Life Insurance
Default to Coverage at
Hire & Annual Enrollment
Issue: Eliminating option,
change default to HDHP
Issue: Less than 50%
enrolling at hire
Issue: 15% no coverage
Pre-2009 HSA Default = 0
Default = No Coverage
Default = No Coverage
 New HSA Default: Sum of
 New LTD Default: After-tax  New Life Default: 1.5 x pay,
Worker & company match
= HDHP deductible
 Rationale: HSA Unfamiliar
 Result: Declines in HSA
Participation: 97% of
HDHP enrollment to 87%,
Average Deferrals: ~ 15%
coverage at hire
 Rationale: Opt out
possible if after-tax
 Result: Up 49% (from
51.2% ’08; to 76.9% ‘09)
 73% have higher, after-tax
coverage
with .5 x pay contributions
 Rationale: Cheap, high
value. Age 40, $150,000 @
$2.31/biweekly/pretax
 Result: Waivers down 75%
from 15% to 4%, coverage
up from 85% to 96%
Page 24
HueristicsAgenda
– Rules of Thumb
 The Intersection of Behavioral Economics & Employee Benefits
 Auto Enrollment In Employee Benefits … Today!
▫
▫
▫
▫
401k
Active Employee Medical
Retiree Medical
HSAs, Long Term Disability, Life Insurance
 PPACA Auto Features & DOL Regulatory Considerations
▫
▫
▫
▫
Public Exchanges
Employer Shared Responsibility
Eligibility for Taxpayer Financial Support
FLSA 18A
 Future Employer Strategies in Deploying Auto Enrollment
Page 25
Hueristics
– Rules ofFeatures
Thumb
PPACA
Automatic
1.
Federal & State Exchanges – Three notices 8+MM (Nov. 15 – Feb. 15)
 Insurer – Auto enrollment confirmation of default to current option
 Exchange – Notice on how to update financial information to improve accuracy of taxpayer
financial support credits (86%)
 Insurer – Special notice concerning loss of cost-sharing improvements if silver plan
discontinued and not replaced
Page 26
Hueristics
– Rules ofFeatures
Thumb
PPACA
Automatic
1.
Federal & State Exchanges – Three notices 8+MM (Nov. 15 – Feb. 15)
 Insurer – Auto enrollment confirmation of default to current option
 Exchange – Notice on how to update financial information to improve accuracy of taxpayer
financial support credits (86%)
 Insurer – Special notice concerning loss of cost-sharing improvements if silver plan
discontinued and not replaced
2. Employer Shared Responsibility – IRC 4980H


Prior year choice continues each succeeding plan year unless affirmative employee election
Must provide an effective opportunity to accept or decline coverage (not required where
offer Minimum Value coverage with contribution <= 9.5% of federal poverty level / 12)
Page 27
Hueristics
– Rules ofFeatures
Thumb
PPACA
Automatic
1.
Federal & State Exchanges – Three notices 8+MM (Nov. 15 – Feb. 15)
 Insurer – Auto enrollment confirmation of default to current option
 Exchange – Notice on how to update financial information to improve accuracy of taxpayer
financial support credits (86%)
 Insurer – Special notice concerning loss of cost-sharing improvements if silver plan
discontinued and not replaced
2. Employer Shared Responsibility – IRC 4980H


Prior year choice continues each succeeding plan year unless affirmative employee election
Must provide an effective opportunity to accept or decline coverage (not required where
offer Minimum Value coverage with contribution <= 9.5% of federal poverty level / 12)
3. Eligibility for Taxpayer Financial Support – IRC 36B

Deemed not to have employer-sponsored coverage for those automatically enrolled
where coverage terminates prior to the latest of:
▫ The end of the employer’s opt out period,
▫ 1st day of 2nd calendar month of that plan year, or
▫ Pursuant to DOL regulations.
Page 28
Hueristics
– Rules ofFeatures
Thumb
PPACA
Automatic
4.
FLSA 18A (PPACA § 1511)
•
•
•
•
•
•
Employer subject to FLSA
200+ full-time employees
Automatically enroll new full-time employees in health coverage
Continue enrollment of current employees
Adequate notice and opportunity to opt out
Preempt state laws to extent they prohibit automatic enrollment
29 U.S.C. § 218a - Automatic enrollment for employees of large employers
“In accordance with regulations promulgated by the Secretary, an employer to which this chapter applies that has more
than 200 full-time employees and that offers employees enrollment in 1 or more health benefits plans shall automatically
enroll new full-time employees in one of the plans offered (subject to any waiting period authorized by law) and to
continue the enrollment of current employees in a health benefits plan offered through the employer. Any automatic
enrollment program shall include adequate notice and the opportunity for an employee to opt out of any coverage the
individual or employee were automatically enrolled in. Nothing in this section shall be construed to supersede any State
law which establishes, implements, or continues in effect any standard or requirement relating to employers in connection
with payroll except to the extent that such standard or requirement prevents an employer from instituting the automatic
enrollment program under this section.”
Page 29
PPACA Automatic Features
Before you get started, know
Senator Isakson has introduced: S. 2546, The Auto Enroll Repeal Act
• June 26, 2014
• Committee on Health, Education, Labor, and Pensions
• “To repeal (Section 18A of the Fair Labor Standards Act (29
U.S.C. 218a), as added by section 1511 of the Patient Protection and
Affordable Care Act) the requirement that new employees of certain
employers be automatically enrolled in the employer’s health benefits
plan…”
• Repeal? Automatic Enrollment, certainly. Automatic renewal, ?
DOL
Regulatory Considerations
DOL
Regulatory Considerations
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
Conference Committee Reports
Committee Debates and Bill Mark-ups
Committee Reports
The Status of the Person Speaking—Sponsor, Committee Chairman, Floor Leader, Etc.
Accepted and Rejected Amendments
Floor Debates
Planned Colloquy
Transcripts of Discussions at Committee Hearings
Prepared Statements on Submission of a Bill, in Committee Hearings, and at the Time of Floor Debates
Revised and Amended Statements
Actions on and Discussions About Separate Bills on the Same Topic
Prior Relevant Administrative Action or Judicial Decisions, with or without Congressional Acknowledgement
Executive Branch Messages & Proposals (from the President, Cabinet Secretaries, or from Independent Agencies)
Analysis of Bills Legislative Counsel
Analysis of Bills by Relevant Executive Departments
Related Statutes, Provisions, and Terms
Dictionaries
Statements by Executive Branch Administrators
Statements and Submissions by Lobbyists
Subsequent or Prior Unrelated, but Conflicting Legislation
Recorded Votes
Source: Nicholas J. Waggoner, Top 21 Sources of Legislative History (1= most
important, 21 = least important)
Hueristics –DOL
Rules of Thumb
Regulatory Considerations
Why the delay?
1. Many terms not defined; many provisions not specified
▫
▫
▫
Definition of full-time employee
Default election selection process
Adequate notice & opportunity to opt out
Page 33
Hueristics –DOL
Rules of Thumb
Regulatory Considerations
Why the delay?
1.
▫
▫
▫
Many terms not defined; many provisions not specified
Definition of full-time employee
Default election selection process
Adequate notice & opportunity to opt out
2. Past practice of phased implementation for PPACA changes
Page 34
Hueristics –DOL
Rules of Thumb
Regulatory Considerations
Why the delay?
1.
▫
▫
▫
2.
Many terms not defined; many provisions not specified
Definition of full-time employee
Default election selection process
Adequate notice & opportunity to opt out
Past practice of phased implementation for PPACA changes
3. Cautious about “mandates”* - despite broad acceptance in 401(k)s*
and modest take up rates in employer sponsored plans
* American United Life Insurance Company (55% favor, 29% unsure, 19% opt out, July, 2014
Page 35
Hueristics –DOL
Rules of Thumb
Regulatory Considerations
Why the delay?
1.
▫
▫
▫
2.
3.
Many terms not defined; many provisions not specified
Definition of full-time employee
Default election selection process
Adequate notice & opportunity to opt out
Past practice of phased implementation for PPACA changes
Cautious about mandates – despite broad acceptance in 401(k) plans – 55% favor, 29% unsure, 19% opt out
4. Demands by stakeholders to influence result – calls to
“maximize flexibility”, “offer extended period of advance
notice” (at least 18 months after regulations finalized).
Page 36
Hueristics –DOL
Rules of Thumb
Regulatory Considerations
April 8, 2011 - Testimony Focus:
 Definition of full-time employee
 Default election selection process
 Adequate notice & opportunity to opt out
“HOLD OFF”
Source: Department of Labor Transcript, April 8, 2011
Page 37
Full Time
Employee
Hueristics
– Rules
of Thumb
Definition
 Separate applications:
 “Large employer” determination,
 “Full time” employee determination
 “Full time” not defined by statute – PPACA, FLSA, ERISA
 Coordinate with IRC § 4980H 30 hour rule?
 No requirement to use “monthly measurement”, “look back”
 Clarify - not intended to drive eligibility, but enrollment
 Consider a “look forward” test:
▫ “Reasonably expected to work”, or
▫ “Regularly scheduled to work”
 Change in status, re-evaluation (avoid churn from turnover)
 Turnover – avoid churn New hire only Source: Department of Labor Transcript, April 8, 2011
Page 38
Default
Election
Selection
Hueristics
– Rules of
Thumb
Process
Timing
 Offer/notice date versus effective date of coverage
 Typical 30 days vs. 91st day (coordinate with waiting period)
 Coordinate with other communications
 Summary of Benefits and Coverage
 Public Exchange Notice (14 days)
Default Option
 ERISA fiduciary rules apply?
 Single, not dependents
 Misunderstandings
 All employers do annual enrollment
 HDHP/HSA “eligible individual” – IRS Notice 2008-29, Q&A 16
Source: Department of Labor Transcript, April 8, 2011
Page 39
Adequate
Hueristics
– RulesNotice
of Thumb
Opportunity to Opt Out
Notice Characteristics





Easily understood
Linguistically appropriate
Coordinate with other notices, enrollment processes
1st class mail not always effective
Concerns:
 “COBRA-like” “free-look”, “free bite”
 Incorporating a mandate to explain Individual Mandate
 Obtain confirmation receipt notice was received
 Opt out refund of contributions – confusion about whether “coverage
was used”
Source: Department of Labor Transcript, April 8, 2011
Page 40
HueristicsAgenda
– Rules of Thumb
 The Intersection of Behavioral Economics & Employee Benefits
 Auto Enrollment In Employee Benefits … Today!
▫
▫
▫
▫
401k
Active Employee Medical
Retiree Medical
HSAs, Long Term Disability, Life Insurance
 PPACA Auto Features & DOL Regulatory Considerations
▫
▫
▫
▫
Public Exchanges
Employer Shared Responsibility
Eligibility for Taxpayer Financial Support
FLSA 18A
 Future Employer Strategies in Deploying Auto Enrollment
Page 41
Future
Employer
Hueristics
– RulesStrategies
of Thumb in
Deploying Auto Enrollment
Risk Exposure – Change coverage, worker eligibility
 Change to offer “bare minimum” coverage designed to avoid penalty taxes
▫ bare Minimum Essential Coverage (bMEC) – 63 preventive services, employee pay all
▫ bare Minimum Value Plan (bMVP) – full time employee and adopted/natural children up to age
26 (excluding spouse, step and foster children), $6,250 (embedded deductible), 99%/1%
coinsurance up to $6,600/$13,200 out of pocket expense maximum, single contribution of 9.5%
of wages ($120/mo @ minimum wage/40 hours a week), employee pay all if cover a child
 Freeze full time employment (29ers’s and 49er’s) – Gallup 2013 small business survey
showed 41% held off hiring, 19% reduced staffing, 18% reduced workers to part time:
▫ < 50 – to avoid all penalty taxes, or
▫ < 100 – to minimize penalty taxes
 Expand the “contingent workforce”
▫ ↑50% after recession end (6/09)
▫ Kelly = Worlds 2nd largest private employer (538k)
▫ Coupled with a change in the nature of “temp” jobs:
▫ More skilled workers (JD, MD, IT)
▫ More “indefinite” temps
▫ As a placement tool
▫ In lieu of “probationary” periods
Only 48% of working age adults are employed full time
Page 42
Future
Employer
Hueristics
– RulesStrategies
of Thumb in
Deploying Auto Enrollment
 Risk Exposure – Offer of coverage (many eligible but not currently enrolled)* - no
reduction in coverage offered by large firms, 20+% reduction at small firms:
 Risk Exposure:
 Increase part time, common law employment – new, all time high (27+MM)
www.bls.gov/news.release/pdf/empsit.pdf
 Reduce hours – 450+ known examples of voluntary/involuntary reductions to < 30, including 100+ school districts
http://news.investors.com/politics-obamacare/090514-669013-obamacare-employer-mandate-a-list-of-cuts-to-workhours-jobs.htm
 Add Incentives to Opt Out: Spousal surcharges, spousal waivers, spousal eligibility, financial opt out incentives
 Redefine eligibility: Part time who are currently eligible, Spouse, Others (household members, domestic partners, etc.)
* Kaiser/HRET Annual Survey of Employer-Sponsored Insurance, 2014
Page 43
Future
Employer
Hueristics
– RulesStrategies
of Thumb in
Deploying Auto Enrollment
Where continue to offer coverage
 Private Exchange: 25 options, five levels of coverage, five TPA’s/insurers
 Full Replacement: 1 or 2 HDHP/HSA options
 Encourage enrollment in other available options (spouse’s, parent’s, or
former employer’s plan, Medicaid, Medicare, Public Exchange, etc.) via
spousal surcharge/waiver/ineligibility, opt out financial incentives
Page 44
Hueristics
– Rules
of Thumb
Executive
Summary
 All employee benefit managers are also behavioral economists –
even if they do not know it or deliberately ignore it.
 Behavioral economics tools and applications are common in the
employee benefits marketplace.
 The most common biases/issues: Loss Aversion, Social Norming,
Hyperbolic Discounting, Heuristics & “Choice Blindness”.
 The most frequently deployed tool is “choice architecture” automatic (re-)enrollment/escalation, defaults, framing, etc.)
 Absolute Certainty in Employee Benefits: “… If you offer
employees a choice of benefits, only one thing is certain, some
will make the wrong choice.” Jack Towarnicky
 The Behavioral Economics practices use in employee benefits are
not transferable (ERISA preemption, other statutory authority)
Page 45
Learn More
Reading:
 Dan Ariely, Predictably Irrational: The Hidden Forces That Shape Our Decisions, Harper
Collins, 2008.
 Cass Sunstein and Richard Thaler, Nudge: Improving Decisions About Health, Wealth,
and Happiness, Yale University Press, 2008.
 Daniel Pink, Drive: The Surprising Truth About What Motivates Us, Canongate Books,
2011
 Barry Schwartz, The Paradox of Choice: Why More is Less, HarperCollins, 2004.
 Daniel Kahneman, Thinking Fast and Slow, Farrar, Straus and Giroux, 2011
TED/Others:
 Pink:
http://www.ted.com/talks/dan_pink_on_motivation.html
 Ariely:
http://www.mentalfloss.com/blogs/archives/25702
 Thaler:
http://www.youtube.com/watch?v=3MV8dbPeHxs&feature=fvw
 Schwartz: https://www.youtube.com/watch?v=VO6XEQIsCoM
Page 46
PPACA Automatic Enrollment
• We seek:
▫ Behavioral economics guidance for the DOL
▫ Partners looking for opportunities to:
 Study PPACA auto enrollment outcomes
 Partner with Willis clients to improve outcomes from
deploying behavioral economics tools
Jack Towarnicky
Employee Benefits Attorney
Willis Human Capital Practice
towarnickyja@willis.com
jacktowarnicky@gmail.com
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QUESTIONS