By Katie Kuehner-Hebert
More and more employers this year will begin offering voluntary employee benefits to their workers in preparation for the “real game changer” in 2014—the further implementation of the Patient Protection and Affordable Care Act.
A decade ago, voluntary products were offered mainly by larger employers as a way to increase engagement, but now organizations of all sizes are broadening their menu of voluntary benefits to offset coverage gaps, as employers further reduce their contributions to cut costs, according to MetLife’s latest annual employee benefits study, released in March.
Indeed, sales of voluntary benefits in 2011 rose 4.5 percent from a year earlier, to $5.478 billion, according to research from Eastbridge Consulting Group.
The trend will continue next year as more employers are mandated to provide health care plans for their workers under the PPACA. As a result, brokers and carriers alike expect further increases in employee deductibles and out-of-pocket responsibilities—spelling greater opportunity for the sale of voluntary products.
“You’re going to see a tremendous amount of movement next summer, as employers start preparing for 2014 when the exchanges will be launched,” says John Conkling, a vice president at Fringe Benefits Group Inc. in Austin, Texas. “We may see some shifts in the classification between full-time and part-time employees, which will create some new benefit opportunities. That has a lot of HR and benefits departments developing strategies right now, and it will only strengthen the voluntary benefits market.”
The new law’s medical loss ratio will also spur more brokers to push voluntary products, says Steve Hannah, regional vice president of group benefit services at Mutual of Omaha. Out of every premium dollar, $0.85 has to be used to pay claims, leaving $0.15 cents to pay for carrier expenses, including broker commissions.
“Brokers are now deciding whether to cut staff or services, or merge with other brokers,” Hannah says. “There’s also a mass influx of brokers, and some are now calling themselves ‘voluntary benefit experts.’”
Brokers also are capitalizing on the rising popularity of voluntary benefits among employees, he says. According to a Hartford study, employees who are offered voluntary benefits reported higher satisfaction with their benefits than did those who were not offered voluntary products (64 percent and 56 percent, respectively).
Here are seven voluntary products to watch.
1) Critical illness/cancer
Both cancer and critical illness product sales were up in 2011, according to Eastbridge. Cancer sales rose 2 percent from 2010, to $409 million, while critical illness sales jumped 20 percent, to $243 million.
“Critical illness/cancer policies are going to explode in 2013,” says Mathew Gahm, founder and managing director of M P Gahm & Associates Inc. in Colorado Springs. Colo.
“At least one in three adults will be diagnosed with a critical illness or cancer,” Gahm says. “The max out-of-pocket is between $5,000 to $10,000-plus in many health care policies, but very few people have that type of money to pay if something bad happens.”
Millennials are participating in critical illness at a slightly higher rate than boomers (27 percent to 14 percent respectively), according to the Hartford study.
Glenn Petersen, vice president, group voluntary and worksite benefits at MetLife in New York City, says Gen Yers might opt for these products because younger people tend to have a limited amount of savings to meet all the costs of a serious illness or accident. However, all age groups are likely to see a need for such polices, particularly if brokers and employers thoroughly explain their value and features, Petersen says.
“A Gen X member might need all the extra cash they have saved to meet children’s and household expenses,” he says. “Boomers might want a lump sum payment to take care of ancillary expenses and not have to tap retirement savings.”
Accident sales accounted for 13 percent of total voluntary sales in 2011, with a 14 percent increase over 2010 accident sales, to $738 million, according to Eastbridge.
Accident plans will become even more prevalent in 2014 as deductibles and out-of-pocket expenses are increased even further due to the implementation of health reform, Conkling says.
“People are going to realize that if they go to the emergency room, they are going to be responsible for the first $2,000, so a $5 a week accident policy can pay for that tremendous out-of-pocket expense,” he says. “Plus, they might have another $2,000 in hospital stay expenses as well.”
Moreover, brokers are going to increasingly sell these types of voluntary products to replace revenues, Conkling says. Depending on the structure of the benefit, some accident policies have hospital administration riders on them, while other carriers may sell separate hospital indemnity plans, he says. All of these benefits are being sold in conjunction with major medical plans as supplemental plans.
3) Hospital indemnity and other gap plans
Look for hospital indemnity/supplemental medical products to have great potential for sales upticks in the coming year.
“Medical bridge plans cover some but not all of the employees’ expenses incurred under a standard medical plan thus reducing employees out of pocket costs for high deductible plans,” says Tom Wagoner, president of Accelerated Benefits in Columbus, Ohio.
Traditional gap plans pay to fill a deductible and is integrated 100 percent with the employee’s medical plan, he says. In more recent years, medical bridge plans have replaced traditional gap plans and now contain specific schedules of benefits for a variety of medical services, such as hospital confinement, outpatient services, MRI and CT scans.
“But they don’t cover everything and there are a lot of holes in those plans,” Wagoner says. “A lot of people selling them are not disclosing those holes and that could be a problem. But they are going to be popular even with all the holes. We definitely think producers are going to be moving more toward integrated plans with the medical versus the life and disability traditional plans.”
4) Long-term health care insurance bundled with life policies
Dan Johnson, vice president of sales and marketing for voluntary benefits at Trustmark Insurance in Lake Forest, Ill., says that bundled life and long-term care products are gaining in popularity, as many carriers stopped offering stand-alone long-term health care insurance.
“Their hope was when they originally priced the products, groups that implemented the product would spread out participation among more age groups within the active employee population,” Johnson says. “This did not occur as often as they assumed and it affected their spread of risk, rates and profitability. The continued escalation of health care costs, along with long-term health care facility cost escalation made these products unprofitable.”
Conversely, the hybrid universal life contracts that have long-term care as an integrated benefit are becoming more popular and have changed with the needs of the customer and the market over the years, he says.
“The big question from brokers and employers who have been burned by this long-term care exit is, whether the products still being sold in the market are priced properly or will they be affected down the road with more exits to the market due to the products profitability,” Johnson says. “With our universal life with living benefits product, we’ve been able to spread the risk of across many insureds and age groups. We have 20-year-old employees buying this bundled product along with 65 year olds.”
Moreover, when using this hybrid product, the insured person can always get a death benefit if the benefit restoration rider is purchased, even if the insured also uses the long-term care benefit for long-term care, home health care, adult daycare and assisted-living care, he says.
5) Life and disability
Life insurance continues to be the top selling business line, according to Eastbridge. Total life sales in 2011 were $1.347 billion, up about 1.3 percent over 2010.
However, studies show that life insurance isn’t a mature market. According to the Life Insurance and Market Research Association, 56 percent of U.S. households didn’t have an individual policy as of 2010, and 30 percent lacked any coverage, not even through an employer’s group benefits plan.
This represents an opportunity for brokers to educate workers about the value of supplemental life and disability if their coverage is inadequate, Petersen says.
“As they make decisions, employees can benefit immensely if is it pointed out to them that their needs can change as life circumstances change—for example through the birth of children,” he says. “Purchase decisions are made on the basis of solving a real-life problem or exposure, where the employee can see the value of a certain benefit.”
6) Dental and vision
In the past, employers might have paid for dental and vision along with major medical plans, but as employers continue to struggle to manage their budget, particularly as medical costs increase, dental and vision are increasingly becoming voluntary benefits, Conkling says.
“These voluntary benefits are also becoming more important to employees, as their out-of-pocket costs continue to increase due to the increasing popularity of consumer-driven plans,” he says.
According to Eastbridge, dental sales increased 22 percent in 2011, to $610 million, while vision sales increased 8 percent, to $231 million.
7) Legal benefits
Donald Rowe, vice president of employee benefits worksite marketing at Legal Club of America, says that more employers are offering legal benefits because “most employees don’t leave their personal problems in the parking lot when they come into work.”
“These issues interfere with their productivity,” Rowe says. “Rather than pretending employees don’t have those issues, employers give them solutions.”
While family law issues such as adoption, divorce, wills and power of attorney continue to be the most popular reasons to utilize legal benefits, the recession has caused more people to use them for home foreclosures and bankruptcies, he says.
Dennis Healy, vice president of sales for ARAG Legal Solutions in Boston, predicts that in 2013, “true legal insurance” products will become more popular than discounted legal benefits or “do-it-yourself” online templates.
“Employers will want to retain their best employers by offering a menu of rich benefit offerings, particularly if they are having to lower their participation in health care plans,” Healy says.
Marcia Bowers, sales and marketing director at Hyatt Legal Plans, a Cleveland, Ohio unit of MetLife, agrees that true insurance products are on the upswing, including “mini-legal packages” that are tied to another benefit, such as life insurance and disability.