Consumers generally consider choice a good thing. And usually it is. But can having too many choices actually lead consumers to make a poor decision—or even no decision at all?

Breadth of choice is a growing challenge with benefits these days. With the growth of voluntary benefits and other employee-funded coverage, consumers have more choices than ever [Read "Some seniors overwhelmed by Medicare Advantage"]. This can leave them feeling overwhelmed and confused. In some cases, employees give up, make no choice and go unprotected.

If employers and benefits providers understand some key principles of decision-making and know how to best present benefits information, employees have a better chance of making the most informed decisions and getting the coverage they need.

Setting the stage for effective decisions

Decisions about insurance and financial products are among the most difficult for consumers, according to a 2008 study by Yale University. When they're faced with decisions on complex subjects, consumers may hesitate to make any decision at all if they feel they lack the information to make a sound choice. This means consumers could miss opportunities for important financial protection.

Employers and benefits providers can make it easier for employees to choose the right benefits by becoming “choice architects”—a term coined by two scholars that is used to describe those who present and organize information in a way that supports well-informed decisions.

When choice architects understand what helps and hinders consumers in making purchasing decisions, they can communicate benefits information in a way that is relevant and helpful.

Key principles of decision-making

As choice architects, employers and their benefits partners should understand some of the fundamental principles and characteristics of decision-making—and how to address them at enrollment time.

Here are four of the most relevant principles of benefits decisions and recommended actions to provide better guidance to employees:

Inertia, or the tendency to take no action

Employees often maintain their benefits elections year after year rather than making changes to meet their current needs. Some decisions made due to inertia—such as failing to adjust life insurance coverage after children are born—can have serious repercussions.

Because consumers tend to take the path of least resistance, employers and benefits providers should offer default settings—a pre-selected choice that can simplify benefits decision-making. For example, employers are encouraged to offer a short-term disability plan rather than a specific product. A 2009 Unum study found employees are more satisfied and less doubtful when options are bundled and recommended for them.

Automatic enrollments have also proven successful, increasing participation in some retirement funds to more than 90 percent, the Yale study found. Using an automatic enrollment, instead of an opt-in approach, can be a valuable tool for improving the adoption of benefits the employer considers essential to employees' health or financial well-being.

Too many choices

When consumers have an overwhelming number of choices, problems arise. Consider Medicare Part D, which was created to help seniors pay for the cost of prescription drugs. The program included a variety of plans so each person could find the right coverage.

Almost two-thirds of seniors were automatically enrolled by their insurance providers, but of the 17.5 million who had to make a choice, 5 million failed to enroll. Enrollment rates were lowest for low-income individuals who needed the coverage most.

Research analyzing the program found an abundance of choices—up to 63 options in some states—caused the low participation. Many seniors could not determine how the available options differed from their current plan.

To help avoid these problems, consider the total number of benefits offered. Studies on buying behaviors suggest that employees may be able to make decisions without being overwhelmed if they are offered a maximum of four or five benefits at one time.

Employers are also encouraged to start shallow and go deep; in other words, when grouping benefit choices—in printed or electronic communications—start with the benefits that involve the least number of choices. If consumers feel overwhelmed by information early in the process, they are likely to shut down and avoid making any decisions at all.

Making a decision based on something they know

Decision-making abilities can be clouded if consumers don't have complete information before they make a choice. For example, a Unum post-enrollment survey in 2006 revealed that when employees understood how long-term care coverage could apply to their own lives, they were more motivated to purchase the type of insurance.

The study shows 50 percent purchased because they read statistics on how many people need long-term care insurance. In other words, their decision had changed due to their new knowledge.

Because employees are often presented with several benefits decisions at one time, it's important to place the coverage in context, so employees can understand how the products fit together. As choice architects, employers should include pricing information to help employees determine what fits their budget and easy-to-understand explanations of options for comparison.

Benefits providers often combine the use of benefit statements with personal guidance from a benefit counselor to help employees understand how different coverages can work together. Benefit statements are designed to show employees their current employer-paid and voluntary benefits. Benefit counselors are typically available to meet with employees in person or by phone to explain the new benefits and how they complement current coverage.

Logic versus emotion

Many consumers make decisions based on emotions, not logic. As a result, they may put off decisions about life, disability and critical illness insurance because it forces them to think about grim situations.

But research shows that once they take the time to make these decisions, many consumers are relieved, calm and optimistic, and they feel wiser and more responsible after making the purchase.

To help consumers better understand their benefits, employee educational resources should include:

Personal stories that relate to their own circumstances
Explanations that can help them visualize how the benefits work
Financial tools to help them see how a benefit—or an option—impacts their budget
One-on-one meetings with benefit counselors who can answer their questions and show them how their benefits will apply to them personally

Employees should also be educated about risks. Educational resources should include statistics and real-life stories that accurately reflect these risks. A McKinsey study shows three out of four consumers have “no idea” how much major medical procedures actually cost. And consumers overestimate the risk of relatively low-probability events (like fatal accidents) and underestimate the risk of more common events (such as heart attacks).

Employee education

Employees place a lot of trust in their employers when it comes to benefits. This gives employers the opportunity to engage employees in the benefit decision-making process. Through their partnership with the benefits provider, employers can provide a benefits education program that encourages sound benefits decisions.

The 3+3 rule

For effective benefits education, employees need at least three ways to learn about their benefits as well as three weeks to process the information before enrollment.

Multiple communication resources—from printed pieces to Web-based interactive tools—allow for different learning styles. Employees also need sufficient time to study the information—taking it home to consult with family, evaluating their personal situation and attending group and individual meetings.

Simple, relevant education materials

Simplicity is important in making benefits information easier to understand and relevant to employees. Begin with an explanation of what the benefits cover and how much they cost. Use tables and graphs to appeal to visual learners, and keep it short—use bullet points and Q&A formats.

Expert guidance

Employees who attend group meetings or one-on-one meetings with a benefit counselor typically find them helpful because they have the opportunity to ask questions and hear more in-depth information about the benefits.

Make recommendations

Employers can look to their benefits providers to make recommendations to employees based on their age, income or life stage and personal responsibilities. And for benefits that offer several options, the provider can give employees guidance on how to choose among the options.

The coverage employees need

Making effective benefits decisions can be difficult, but employers and providers can help.

If benefits managers understand the key principles of decision-making and serve as choice architects by effectively presenting employee benefits information, employees have a better chance of making the most informed decisions, understanding the value of their benefits and getting the coverage they need.

David Leopold is the vice president of marketing strategy and communication at Unum. Leopold graduated from the University of Pennsylvania with a bachelor's and master's degree in history and earned an MBA from Harvard Business School.

Instant Insights /

How to help employees make informed benefits decisions

More From HR Executive

Related Stories

Recommended For You