There has been a clear trend in recent years for health insurance companies, disability carriers, group retirement plans and payroll management organizations to bundle employee assistance program services into their core products and offer the EAP as "free."

Under this arrangement, an insurance plan buys an inexpensive EAP from a vendor partner or provides an EAP within an affiliated division, then embeds the EAP in the plan to create product distinction and a competitive advantage.

Of course, the EAP is not truly free, but the minimal cost of the program allows the insurer to easily absorb the cost into the overall plan fee. Employers pay the EAP premium as part of their insurance plan fee, and many find it convenient to contract with one provider for two or more insurance products rather than pay a separate bill for EAP services.

The free EAP is a variation of the "loss leader" concept in marketing, whereby products are sold at or below cost to attract attention to higher-margin products. The original idea was to use the free EAP offer as a differentiator in the market and provide an inexpensive perk to an employer. However, in the current marketplace, the free EAP is so common that many insurers recognize their competitors also have free or low-cost EAPs embedded in their plans.

We explored how the trend toward free EAPs is viewed by benefits stakeholders - specifically, HR managers, benefits brokers/consultants and EAP professionals. The three populations agreed with each other more often than not. First and foremost, they recognize that free EAPs are a market reality and indicative of forces that influence all industry sectors. They also see several factors at work:

* Cost and the economy. Cost is a significant - and quite likely the primary - factor for many employers when considering a free or embedded EAP, which free EAP providers report cost anywhere from 10 cents to $1.20 per employee per month, compared to the typical fee-based EAP, which can cost $1.50 to $2.50 PEPM. This trend is being driven by budget cuts, the administrative efficiencies of using a single vendor for multiple services and the reduction in time required for an HR/benefits manager to oversee the service.

* Perceived or realized value. An EAP's value to employers was the dominant discussion point in the survey. High EAP value is associated with efficient and effective vendor responsiveness, innovative approaches to meeting the needs of employers and quantifying the results of the services provided. Low value is associated with low utilization, limited visibility and minimal involvement with management or those responsible for EAP oversight.

* Large versus small employers. Small employers (fewer than 500 workers) are more likely to embed or opt for a free EAP. Their financial and human resources are more limited and, while they sometimes appreciate value, cost drives their decisions. For larger employers, economics is a factor, but value is more likely to be the driving force.

* Visibility and knowledge. Although EAPs have become common within U.S. organizations, employers report that management and workers have limited awareness of them and lack a deep understanding of the full scope of EAP services.

* Free and fee-based services. Employers are generally familiar with the primary services offered through an EAP and know that typical utilization ranges from 5% to 10%. When examining descriptions of a free EAP compared to a fee-based EAP, the programs appear similar, if not identical. The survey found, however, that fee-based EAPs provide the services as advertised and achieve expected utilization rates, where the free or embedded EAPs provide limited services and achieve utilization rates of 1% or less.

* Future trends. Employers, consultants and providers all foresee the continuation of free or embedded EAPs. Employers have multiple factors to consider, including perceived value, cost and desired outcomes, when determining the best arrangement for an EAP. Many EAP providers understand these factors and are contracting with insurance companies to provide the free EAP portion of the insurance plan.

Themes among brokers/consultants

Consultants interviewed generally recognize EAPs as a viable and essential service for employers. At the same time, they believe many employers are oblivious to the full benefits of an EAP or see it as somewhat redundant to an outpatient mental health counseling benefit. As one consultant remarked, "Being a strong advocate of an EAP does not necessarily translate to the effective implementation and oversight of an EAP."

Most consultants say EAP providers need to better demonstrate and quantify their value. They note that the more EAPs are promoted, the more they are used by employees. Brokers also see a linkage with total health and productivity management, but do not always understand it or routinely take advantage of it.

Consultants view the EAP marketplace as extremely competitive and see EAP providers continually lowering prices to retain business. Service expectations, however, are remaining the same or increasing, creating an untenable position for EAP providers. Further, the lack of quantitative performance data has created a perception among employers that the plans have marginal value, which only pushes prices lower. Consultants generally recommend that EAP providers retool or expand their services beyond a simple "employee counseling model" into a broader health and productivity framework.

According to broker/consultants, large employers (more than 5,000 employees) are value purchasers who recognize the limitations of a free EAP. Consultants largely say they recommend a free EAP when it appears to be the only way a cash-strapped employer will retain the program. They predict free EAPs will continue to be marketed for the foreseeable future, but could diminish as progressive providers begin to better demonstrate and quantify their value.

Consultants say integrating and embedding services are significant trends. However, they also note that being part of a larger plan can result in an EAP being easily overlooked and even invisible, and a few raised concerns about the potential for service dilution.

Consultants also noted that when an EAP is incorporated into a specific benefit offering, such as a disability management program, the EAP can become limited in scope. In this case, the focus of the EAP can become strictly limited to disability cases and not the broader needs of the entire workforce.

Views of HR/benefits managers

HR/benefits managers perceive an EAP as a standard offering for employees and their dependents, but their expectations of service offerings differ significantly when comparing large employers with small or mid-size businesses.

For employers of all sizes, cost is the defining issue in decision-making about EAPs. The cost of an EAP is a microscopic part of the total benefits budget, but employers still want perceived value for what they spend. By their own admission, HR/benefits managers indicate that fee-based EAPs they cancelled were responsive and beneficial, but satisfaction levels were not high enough to dissuade them from moving to a cheaper or free embedded program.

In fact, one HR manager reported having higher levels of service and accountability from a free EAP. Others who switched from a fee-based to a free program noticed some negative differences with the free program but seemed content to stay with it, since an EAP is a low-profile program and low-budget priority. The most common complaints were not receiving any utilization reports and not having an assigned account manager to call with the occasional request or question.

Overall, benefits managers with a free EAP said they would likely not go back to a fee-based program. Particularly among smaller and mid-size employers, the message seems to be that vendor decisions are primarily about cost, especially when the components of the fee-based and free programs are so similar on paper that differences are not readily apparent or appreciated.

EAP providers' perspectives

EAP professionals who do not deliver free EAPs expressed concerns about the perceived poor quality of free EAPs. Specifically, these EAP providers believe that free EAPs typically have:

* Little or no regular promotion, leading to poor utilization.

* Few or no utilization reports, leaving the HR/benefits professionals unable to decipher employee needs and actual EAP activity.

* No critical incident response available except as a "buy-up" service.

* No management consultations or referrals.

* Intervention limited to telephonic or online assessment and referral.

* Limited face-to-face counseling.

* Infrequent follow-up with cases, leaving no way to know whether employees have improved or received additional help.

Fee-based EAP providers recognize that demonstrating value and quantifying outcomes are necessary if they are to successfully compete with free EAPs. However, there is little evidence of any investment to measure outcomes. Rather, such providers continue to emphasize value propositions centered upon building loyal relationships with key employer-stakeholders and providing a greater depth and scope of service.

Conclusions

The free EAP is projected to be an option for employers well into the future, and while employers know that nothing is truly free, many seem intrigued by the opportunity to receive a "free" benefit. It removes one expense line from the budget and reduces the number of vendors, time and effort required to manage the service.

The future of the fee-based EAP will be challenged if purchasers do not have a clear understanding of how it differs from the free offering. Some type of comparative-effectiveness research is needed to inform purchasing decisions.

Although value was the dominant theme among the three sectors, value is mostly subjective, anecdotal and intuitive. In the current economic environment, the more that EAP services provide only subjective value, the lower the price points become, making a free EAP even more attractive.