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Why selling ancillary health benefits is so hard (and so good for your clients)

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Jay Starkman, the chief executive officer of Engage PEO, a professional employer organization (PEO), laughed a little at the idea that the midsize employers his firm serves might start thinking any time soon about buying employer-paid dental, vision or disability benefits. “All of the attention these days is on major medical,” he says. “The employers are not concerning themselves with ancillary products, for this year or next year.”

John Haslinger, a vice president at ADP, the payroll services and benefits administration, has run into the same lack of employer interest in products such as dental insurance, vision insurance and disability insurance. “They’re letting these plans go almost into auto pilot,” he says. In some ways, that indifference may be helpful to brokers who would like to go skiing while most of the in-force plans they serve keep themselves in force. “I have seen no trend whatsoever for employers to drop benefits,” Haslinger says.

But the same forces keeping employers from taking the time to drop benefits may be keeping those same employers from adding benefits. Anita Potter, an insurance researcher at LIMRA, says her group has not yet seen signs of employers returning to the traditional non-medical benefits market. “They’re really looking to pare costs,” Potter says.

Benefits specialists disagree about whether the Patient Protection and Affordable Care Act (PPACA) is responsible for the difficulty with getting employers to think about non-medical benefits. At LIMRA, survey results suggest that the fog in the benefits market rolled in around 2000, as a result of rapid increases in medical insurance costs.

Starkman thinks the non-medical benefits fog intensified around 2009, during the Great Recession. He contends that PPACA terror is now having a bigger, longer-lasting effect on the market than the recession did. “Companies are rebounding,” he says. “The job market is stronger. But there’s so much uncertainty around the Affordable Care Act. What is this Affordable Care Act thing going to look like when it’s finally done?”

A mind game

Employers’ sense of uncertainty has a psychological impact, and the uncertainty also has a concrete effect, by disrupting business planning, Starkman says. “You can’t budget for uncertainty,” he says. “Employers just shake their heads.”

PPACA daze is brutal for companies promoting benefits products and services unrelated to PPACA – for companies hoping to convey the idea that benefits are partly about attracting good people, retaining good people, and keeping workers productive, not just about meeting regulatory requirements and avoiding lawsuits.

Take, for example, Alegeus, a benefit plan administrator. The Internal Revenue Service recently granted a popular wish of flexible spending account (FSA) sponsors and FSA holders, by agreeing to let the holders roll some assets over at the end of the year.  Alegeus says it can show its program for implementing and explaining the partial end to the FSA use-it-or-lose-it rule can increase FSA enrollment and contributions by 17 percent.

But the company has had some trouble publicizing its approach. It’s not talking about PPACA.

In theory, government agencies care deeply about non-medical health risk. The Social Security Disability Insurance (SSDI) program is supposed to cover disability risk and some critical illness risk. The PPACA exchange program is supposed to provide some help with dental risk. Shortly before members of Congress began drafting PPACA, a 12-year-old boy died in Maryland because of a gum infection that went untreated. Congress responded by putting dental and vision benefits for children in the essential health benefits (EHB) package that all PPACA-compliant plans must cover.

In practice, SSDI is nearly broke. If Congress fails to act by 2016, the program will use up the assets in its trust fund and have to get the money for making benefits payments from current payroll tax revenue. Program trustees have estimated SSDI would have to cut benefits payments about 20 percent.

Dental decisions

When the U.S. Department of Health and Human Services (HHS) was developing regulations and operating guidelines for the PPACA exchanges, it gave exchange managers flexibility in the area of dental benefits: As long as a state’s exchange offers stand-alone dental plans, the state can decide whether to make QHP issuers embed dental insurance in their benefits, require QHP issuers to exclude dental benefits, or let the QHP issuers decide whether to include dental benefits.

The public exchanges run by HHS offer stand-alone dental plans but do not require parents of young children or other exchange users to buy dental coverage. The HHS exchanges let medical QHP issuers decide whether to offer benefits.

Colin Reusch recently reported at the Children’s Dental Health Project that, at the state-based exchanges, Connecticut, Rhode Island, Vermont and the District of Columbia require QHP issuers to cover health benefits, and Kentucky, Nevada and Washington State require parents to get their children dental benefits through their medical plans or else pay for stand-alone dental plans. Only one-third of the HHS exchange QHPs include children’s dental benefits. Fewer than 1 percent provide dental coverage for adults.

In August 2013, the American Dental Association estimated 8.7 million children would get basic dental coverage through the PPACA essential health benefits mandate. More than 8 million have paid for QHP coverage through the PPACA exchanges. At press time, HHS could not say how many had embedded coverage, or how many people had either embedded or stand-alone coverage through the state-based exchanges. At press time, all that HHS could say is that just 1.1 million QHP buyers got stand-alone dental coverage through the HHS-run exchanges.

The National Association of Dental Plans reported in July that insurers in 10 states with state-based exchanges had persuaded 176,338 people to sign up for stand-alone dental plans. The NADP could not find any stand-alone dental plan enrollment information for the exchanges in California, Connecticut, Minnesota and the District of Columbia.

The HHS exchange enrollment system,, does not offer consumers private disability insurance or gap-filler products. The agents who represent the HHS exchanges cannot offer consumers non-medical health products other than exchange dental plans when serving exchange customers.

Performance statistics are also scarce for the private non-medical health benefits market. Gen Re is still working on the mid-year 2014 disability insurance market report. The National Association of Dental Plans and LIMRA are also compiling 2014 dental market data.

Changes in the dental market may be a better indicator of the state of the non-medical benefits market than changes in the disability insurance market, because disability sales are tied closely to fluctuations in employment and interest rates as well as to employer sentiment and workers’ interest in benefits.

The new 2014 survey results from the Kaiser Family Foundation support the idea that enrollment in the dental plans already in force is reasonably stable.

Effects of PPACA daze

Analysts at the Henry J. Kaiser Family Foundation have given some clues about the effects of PPACA daze on the overall benefits market in the foundation’s latest biennial benefits survey report. Analysts found that 53 percent of the participating employers said they offer either an employer-paid or employee-paid dental plan. That’s down from 54 percent in 2012 but up from 46 percent in 2010, and the analysts say the decrease between 2012 and 2014 is not statistically significant.

Penetration of vision benefits increased to 35 percent this year, from 27 percent in 2012 and from 17 percent in 2010. Publicly traded insurers have given additional clues about the market by publishing a little information about dental unit performance:

  • Aetna: Dental enrollment increased to 14 million at the end of June, up 1.3 percent from the total recorded a year earlier.
  • Cigna: Dental enrollment rose 3 percent, to 13 million. First-half dental revenue rose 6 percent, to $600 million.
  • Humana: Group dental enrollment fell 4.3 percent, to 2.4 million, but enrollment in self-insured group dental plans increased 8.3 percent, to 792,100.
  • Lincoln Financial: Sales of group dental fell 28 percent, to $21 million. Dennis Glass, Lincoln’s chief executive officer, said during a conference that the company expects employment at employers with 100 to 1,000 employees to grow about 9 percent.
  • WellPoint: Dental enrollment increased to 5 million June 30, up 1.5 percent. Enrollment in managed dental plan fell 0.7 percent, to 4.9 million. Vision enrollment rose 8 percent, to 5 million.

The enrollment numbers do not necessarily show clearly whether employers are paying for the benefits or the workers are. Starkman says he continues to see employers replacing traditional employer-paid plans with employee-paid plans, or “contributory” plans set up in such a way that both the employer and the employees pay in.

One question is whether there are any pockets of growth in the non-medical health benefits market.

At the NADP, some of the employers Haslinger works with are trying to cut costs by adding wellness programs. Potter and Haslinger have also run into employers that add employer-paid gap-filling products, such as critical insurance or hospital indemnity insurance, when they shift to high-deductible major medical plans.

Help from private exchanges

For the most part, managers of private exchange programs have been tighter with details about their operations than the PPACA exchange program managers have been, but the private exchanges have been quicker to sell or announce future plans to sell non-medical health benefits.

In California, for example, managers of the long-established CaliforniaChoice exchange have competed with the Covered California public small-group exchange by emphasizing that their customers can use Choice Builder, a sister exchange that offers access to dental, vision, chiropractic and life products.

The non-medical benefits exchange “is still one of our fastest-growing products,” says Ron Goldstein, president of CHOICE Administrators, the manager of the CaliforniaChoice and Choice Builder exchange programs. The company is getting ready to expand the non-medical products menu to include critical illness insurance and accident insurance plans. Other private exchange managers are also highlighting non-medical offerings. Aon has been offering Cigna dental plans through its exchange and recently added Cigna LTD coverage.

Some have wondered if the upheaval in major medical will chase brokers out of the individual and small-group market, and cause collateral damage to the distribution force for non-medical health problems. Chad Hogan, a senior vice president at Quotit, a quote service for benefits brokers, says he thinks young, Web-literate brokers who have no memories of the good old days are coming into the market and doing well. For brokers who can accept the market as it is now, “there’s a lot of opportunity,” he says.

One opportunity may be a chance to talk to employers as the employers emerge from their current PPACA daze and remember that there’s more to benefits than reading Federal Register regulatory documents. But, of course, that might be bad for your clients’ state of mind — they might start thinking about the good old days…


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