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 (PPACA).
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 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.”
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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.
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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.”
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