The financial seas are looking pretty rough out there. Sales heave up and down, CNBC is a howling gale of bad news, and Greece keeps banging about the economy like a loose tackle locker. Amid the maelstrom, the traditional major medical plan is taking on water in a bad way, which is forcing employers and their benefits advisors to offer storm-tossed workers a menu of voluntary benefits that might be money wasters – or might be personal financial flotation devices. Meanwhile, the health insurers are throwing agents and brokers overboard, and wholesalers and consumers are telling the producers to swim toward voluntary benefits market for safety.
In place of the stability that came with selling expensive, must-have major medical coverage, those producers are trying to cobble together an income life raft by selling supplemental life insurance, supplemental disability insurance, voluntary dental insurance, voluntary dental benefits, cancer insurance, critical illness insurance, hospital indemnity insurance, and other products and programs that may not even have existed a few years back.
The storm is not yet over, and the big question on everyone's mind right about now is this: will voluntary benefits keep everyone's practice afloat, or will this voluntary strategy spring holes of its own?
A Good Year to Date
Insurers once used the term "contributory" to describe group coverage paid for partly by the employer and partly by the workers. "Voluntary benefits" were group policy-based products paid for entirely by the workers, and "worksite products" were individual products sold at the worksite.
Today, insurers and the organizations that track the voluntary benefits market, such as LIMRA, Windsor, Conn., and Eastbridge Consulting Group Inc., Avon, Conn., typically lump the voluntary group benefits market together with the worksite market.
"Most companies know that the voluntary and worksite segments are the same," Eastbridge said in a recent newsletter. "We each compete against everyone."
In 2009, total voluntary products increased about 3% to $5.4 billion. Then, as the recession washed over employers and employee head counts, sales fell 2.9% in 2010.
But voluntary market growth has been strong over the past decade, and LIMRA reported that sales were up 5% for the first three quarters of 2011. Sales of voluntary critical illness insurance jumped 24%; sales of accident insurance, long-term care insurance, long-term disability insurance and vision benefits through the voluntary market rose 15% to 21%.
No one wants to jinx the 2011 full-year results – in 2010, sales started out strong, then swooned.
Dr. Ronald Leopold, a vice president at the insurance company unit of MetLife Inc., New York (NYSE:MET), said his company finds more employer interest in pure voluntary benefits and in programs that combine traditional employer-paid benefits with employee buy-up options.
MetLife also is finding that younger workers are more interested in voluntary programs.
"They are significantly more likely to agree that benefits that they can customize, even if they have to pay for the whole cost themselves, drives loyalty to their employer," Leopold said.
The life arm of Hartford Financial Services Group Inc., Hartford (NYSE:HIG), organized a major voluntary benefits and benefits communication marketing push this fall. Hartford has seen more employers actively converting group benefit plans into voluntary plans, not simply using voluntary products to add benefits options, according to Mike Fish, a group benefits vice president at the company.
The Big Push
One force shaping the voluntary benefits market is rising health care expenses. Because of changes in plan design, workers are learning more about the actual cost of care: About half of small employers now have health plans with deductibles of at least $1,000, and 20% have plans with deductibles of at least $2,000, according to Bob Ruff, director of market analysis at Colonial Life & Accident Insurance Company, Columbia, S.C.,
A second force shaping the market is the erratic state of the U.S. economy, a third is worker interest in niche benefits, a fourth is advances in technology that ease the process of drawing regular streams of payments from paychecks, and a fifth is, obviously, the Patient Protection and Affordable Care Act of 2010 (PPACA).
PPACA already is requiring states to publish health insurer notices of rate increases of 10% or more, and PPACA already is requiring health insurers to spend at least 85% of large group revenue and 80% of small group revenue on health care and quality improvement efforts. Many big major medical insurers are starting or expanding voluntary benefits operations in an effort to create revenue generators outside the reach of PPACA, according to Lydia Jilek, head of voluntary products at the Minneapolis-based operations of ING Group N.V.
Over on the life side of the life-health sector, many insurers that have been focusing on selling products such as annuities and term life insurance now see selling voluntary benefits as a low-risk way to escape from low interest rates, volatile stock prices and tough new accounting and risk management rules.
Because of the big push on the health insurers from PPACA, and the push on life and annuity companies from the economy, "we have a lot more companies entering the market than exiting the market, said Rich Reda, an executive vice president at Lockton Companies L.L.C., Kansas City, Mo., an insurance broker.
PPACA and the Products
PPACA could have a huge effect on the types of products consumers and employers need as well as the number of insurers that want to issue the coverage and the number of producers that want to sell the products.
Exactly what PPACA will do and what opportunities will exist is still unclear. "Even in 2014, we probably will not have total clarity," Jilek said.
At ING, Jilek suggested that PPACA could have many subtle, hard-to-predict effects on existing products.
In a world where PPACA means that almost everyone can get a checkup without paying an out-of-pocket fee, the role of the preventive care benefits now bundled into voluntary products such as critical illness insurance might change, Jilek said.
At Lockton, Reda said he thinks PPACA will lead to a big increase in demand for supplemental medical products, because, as he sees it, the government appears to be implementing PPACA in a way that will encourage employers to offer a benefits package that offers less coverage than the typical employer's benefits package offers today.
Once workers understand how big their out-of-pocket costs will be, "the supplemental medical benefits programs are going to have more appeal," Reda said.
Jim Hettenbach, director of market development at Unum Group Corp., Chattanooga, Tenn. (NYSE:UNM), said the fragile state of workers' finances likely will increase the appeal of gap-filling products, and products that protect against risks such as accidental injuries.
Tacks
So, what could pop the voluntary benefits life raft? In this age of Occupy Everything, the most piercing attacks could come from consumer groups, regulators, state and federal lawmakers, and sobbing mothers who show up on television newscasts with stories about how unexpected problems with voluntary benefits left them unable to feed their houses full of wailing, photogenic children.
In the 1980s and 1990s, for example, Consumers Union, Yonkers, N.Y., lobbied against the sale of cancer disease products and other dread disease products.
Dr. Stephen Barrett, a Chapel Hill, N.C., psychiatrist who runs the Insurance Reform Watch website and the better-known QuackWatch site, contends in a statement on the Insurance Reform Watch site that specified disease products should be avoided.
"Although promoted as a way to supplement basic or major medical coverage, they are a very poor investment," Barrett says. "Some of the benefits offered would duplicate existing coverage and thus are unnecessary. Other benefits typically are so narrowly defined that even if the dreaded illness occurs, the policy will cover only a small part of the cost…Therefore someone who wishes greater protection should purchase a high-limit comprehensive policy that covers all illnesses rather than one or a few."
Timothy Jost, a law professor at Washington and Lee University and a consumer liaison representative at the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., said at a breakout session at the NAIC fall meeting that the PPACA consumer protection provisions probably ought to apply to voluntary benefits such as hospital indemnity policies and cancer insurance policies. Many health insurers want to use niche products to "avoid the consumer protections in the legislation, offer inadequate coverage [and] deceive consumers," Jost said.
Voluntary benefits sellers say the best defenses against law and reputation problems are to make sure that consumers understand the nature of the products they are buying, and to make sure that the products deliver on the promises made.
Insurance company executives also emphasize the importance of avoiding signaling in any way that a voluntary product has anything to do with major medical coverage, or is anything that should come within the reach of PPACA.
"We have to be careful about wading too far into the realm of medical coverage," Jilek said. "We want to be sure we clearly define our products."
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