Employers face multiple challenges in providing competitive benefits - rising medical costs, a difficult economic environment, and uncertainty concerning the impact of last year's health care reform law.
A Fresh Look At Voluntary Benefits
Some companies are responding by curtailing benefits, but savvy brokers are advising their clients to take another route - supplementing benefits packages with voluntary products such as dental, vision, life, disability, critical illness, accident and other insurance. Voluntary benefits are increasingly playing a vital role in helping companies keep costs down while providing financial protection for employees.
Currently, 57 percent of U.S. employers offer voluntary benefits, according to LIMRA . A recent LIMRA study found that the voluntary benefit market has held relatively steady for the past four years and is now poised for growth:
- More than four in ten employers are considering adding a new voluntary benefit within the next two years.
- Companies currently sponsoring voluntary benefits are very satisfied with their programs.
- Half of employers that are not offering (but are aware of) voluntary benefits are receptive to purchasing voluntary benefit products.
This optimistic assessment suggests a significant sales opportunity for brokers who understand the voluntary benefit market and align themselves with solid carriers offering an array of products.
Improving Bottom Line
Adding voluntary benefits to a core benefits offering can help improve companies' bottom lines by increasing productivity and presenteeism. Studies show that nine out of 10 employees believe it is important that companies offer a full range of health benefits, including voluntary.
More than eight out of 10 employees whose companies offer voluntary benefits are satisfied with their overall benefits offerings, compared with just 30 percent of those whose companies do not offer voluntary benefit products.
Also, two-thirds of employees say that having voluntary benefits provided by their employer would increase their productivity. Brokers can help their clients design the funding of voluntary offerings in a way that best suits their clients' budgets.
Many companies offer such benefits on an "employee-pay-all" basis, while others pay a portion of their employees' premiums. Employers may also choose to fully pay the base plan and offer their employees a buy-up option for additional coverage. Brokers can give several reasons why employers should consider offering their employees voluntary benefits. Voluntary benefits can:
- fill gaps or reduce out-of-pocket costs in medical plan coverage, potentially lowering an employer's and employee's total health care costs;
- enable access to group rates, which are generally more cost-effective than purchasing insurance independently;
- provide coverage on a guaranteed-issue basis in some instances with no medical underwriting required;
- allow employees to tailor their coverage to their lifestyles and select from a range of coverage levels that meets their unique needs; and
- reduce administrative burden through automatic payroll deductions.
Critical Illness Insurance Surging
Critical illness insurance is one of the fastest-growing voluntary benefits products. Critical illness carriers surveyed by LIMRA reported a 40-percent increase in sales for the first quarter this year. An estimated 1 million Americans have this protection, which generally provides a lump-sum payout upon diagnosis of a critical illness such as stroke, heart attack or cancer.
The payout can be used for any purpose - such as out-of-pocket medical costs, daily living expenses, transportation, child care, or even to offset the loss of income. One of the drivers behind the surge in popularity of critical illness insurance is the continued shifting of health care costs from employers to employees.
According to a recent Towers Watson survey, 61 percent of employers currently offer a high-deductible, consumer-driven plan, and an additional 17 percent expect to offer one next year. While these plans generally have lower premiums than traditional plans, the higher deductibles present employees with potentially significant financial exposure in the event they suffer a catastrophic illness before their deductible is fulfilled or before they have built sufficient savings in their Health Savings Account (HSA) or related health care account.
For example, to make a health plan compliant for an HSA in 2012, employers must design a high-deductible health plan with a minimum deductible of $1,200 for employee-only coverage, and $2,400 for family coverage. Maximum out-of-pocket expenses (including deductibles, copayments and co-insurance) are limited to $6,050 for employee-only coverage, and $12,100 for family coverage.
Seeking to ease employees' cost burden and encourage more health-conscious behavior, employers are increasingly embracing these high-deductible health plans, combined with HSAs. More than 11 million Americans are covered by HSA-eligible plans, according to a recent study by America's Health Insurance Plans, an increase of 14 percent over last year, and enrollment has nearly doubled in the past three years.
Combining a critical illness product with high-deductible medical plans is a solid strategy to help reduce costs to the employer while providing added financial protection to employees.
Critical Illness: Alarming Frequency
To make the case for critical illness plans, brokers can educate employers about the chances that an employee may become critically ill during his or her lifetime.
- Nearly 1.6 million Americans are expected to be diagnosed with cancer this year, according to the American Cancer Society.
- Every year, about 785,000 Americans have a first heart attack, and another 470,000 people who have previously had one or more heart attacks have another attack, according to the Centers for Disease Control and Prevention (CDC).
- Someone in the United States has a stroke every 40 seconds, according to the CDC (stroke is the third-leading cause of death after heart disease and cancer).
- A 25-year-old male non-smoker has a 24 percent chance of having a critical illness (cancer, heart attack or stroke) before turning age 65, according to a risk assessment study by actuarial firm Milliman Inc.
The financial impact of these illnesses can be devastating. Last year, more than 1.5 million bankruptcy petitions were filed by individuals, a 9 percent increase over the previous year, and about 60 percent of these bankruptcies were due to medical bills, according to the American Association for Critical Illness Insurance.
Even more surprising is the fact that nearly 80 percent of people who declared bankruptcy due to medical bills had health insurance. In those cases, critical illness insurance may have prevented insolvency and kept these people out of bankruptcy court.
Making The Case
The chart below illustrates just one example of how an employer can implement a high-deductible health plan, pair it with an HSA as well as critical illness coverage, and still reduce out-of-pocket costs for both employee and employer. In this example, the hypothetical ABC Transportation's current medical plan costs $6,275 per employee annually.
If the firm switched to a high-deductible plan combined with an HSA, that annual cost would decrease to $5,175. That, in turn, would yield a savings of $1,100 per employee annually. ABC Transportation could give some or all of those savings to employees by helping fund their HSAs.
If the company contributed up to $600 to each employee's account, it could also spend $55 per employee to provide $5,000 of critical illness coverage, and still reduce its health care costs.
Brokers should conduct due diligence by carefully comparing the financial strength of the voluntary benefits carriers their clients are considering, and examining the carriers' respective policies. Employers may find it convenient to use a carrier that also has enrollment capabilities including educational materials and simple, personalized enrollment materials available in both in paper and electronic form.
Brokers can also help their clients by identifying programs that integrate medical and critical illness benefits under a single carrier. Extra support and resources are provided to employees diagnosed with a critical illness under these programs.
For example, experienced nurses can help answer questions from employees about their critical illness, identify resources in the community, and work closely with the employees to coordinate their health care needs.
In today's sluggish economy, employers are understandably vigilant about reducing costs while still providing a competitive benefits package. Providing voluntary benefits, such as critical illness insurance, is a smart way to provide the benefits that employees want and need, without busting the budget.
4. LIMRA's Worksite Marketing of Voluntary Products, Quarterly U.S. Sales Survey, first quarter, 2011
6. 2011 16th Annual Towers Watson Employer Survey on Purchasing Value in Health Care
12. http://www.uscourts.gov/uscourts/Statistics/BankruptcyStatistics/BAPCPA/2010/2010BAPCPA.pdf (page 5)
About The Author
Barbara Howe, Vice President Voluntary Products and Services, UnitedHealthcare. With 30 years in the employee benefits and insurance industries, Barbara Howe is the national leader of UnitedHealthcare's voluntary benefits business and responsible for developing and implementing UnitedHealthcare's strategy, products and services. Her experience includes reporting and analytics, account management, operations, network management, product and voluntary strategy development.