Spotlight on supplementary coverages
Growth in CDHPs and related programs has fueled interest in areas such as debit card systems and critical illness insurance
By Len Strazewski
Health Savings Accounts (HSAs), Health Reimbursement Accounts (HRAs) and Consumer-Directed Health Plans (CDHPs) are getting more popular with employers by the day, say agents and brokers that specialize in employee benefits. And they are doing more than pumping up a tired cycle of endless quoting and rising rates.
They are creating new opportunities to market supplementary health coverages and services, including critical illness insurance that pays cash for more than medical treatments, and administrative resources such as debit card systems.
In mid-July, about 600 agents, brokers and insurance company representatives attended Benefits Marketing Mania, an annual sales conference for the Benefits Marketing Association (BMA), a Twinsburg, Ohio-based group of 3,200 producers that specialize in worksite marketing of supplementary coverages and voluntary employee benefits programs.
Products include short- and long-term disability insurance, long term care insurance, and supplemental term life insurance and non-insurance programs such as transit and travel benefits.
This year, the organization was joined by the National Association for Critical Illness Insurance (NACII), based in Lincoln, Nebraska, an organization for agents, brokers, consultants and underwriters of critical illness insurance which provided a separate education track on the products.
BMA President Jeff Morgan, a senior field senior vice president for Allstate Workplace Division, greeted attendees with sobering news. The growth of worksite marketing for supplemental benefits—once the darling of life and health producers—has slowed to single digit growth.
Sales of voluntary supplemental life insurance, a key product, has flattened and work/life and non-insurance benefits have also slowed as employers focus more on their rising health care costs and employees on coping with a slowing economy.
But CDHPs and related programs are growing, he noted, fueling new interest in health care-related programs.
Dan Pisetsky, managing director of US Living Benefits in Old Lyme, Connecticut, and vice president of NACII, said critical illness insurance is one of the products that seems to be on the rise, attracting a growing number of underwriters—now more than 60 in the United States—as well as employer-based programs.
Still relatively new to the United States, the critical illness coverage was first introduced in South Africa in 1983 and spread quickly to 30 other countries, including the U.K. and Canada where it is often sold along with mortgage insurance to secure home mortgages and as companion coverage to long term care. It is designed to pay lump-sum benefits, usually ranging from $5,000 to $100,000 upon diagnosis. Annual individual premium ranges from $300 to $500.
The most commonly covered illnesses are heart attack, stroke and cancer, though new policies may also provide full or partial benefits for multiple sclerosis, Alzheimer’s and SARS, among other critical illness, Pisetsky says.
Coverage can be written as a stand-alone accident or disability policy, a term life insurance rider or as an accelerated life insurance benefit and can be written with a return-of-premium rider to be paid to beneficiaries if the coverage is not used by the insured.
Pisetsky said the coverage does not compare to the controversial cancer insurance of the 1970s and 1980s which paid only for hospital treatment, since it provides a lump sum that can be used for non-medical expenses such as mortgage payments, travel or home modification.
Bob Ley, vice president of Accident & Heath Sales for AIG Life Brokerage in Milwaukee, Wisconsin, says the coverage—which has been available in the United States for about 10 years—provides an opportunity to diversify the product portfolio of agents and brokers that provide life and health services.
“LIMRA studies have indicated that in general, our life insurance sales are flat and receding, driven only by replacements,” he said. “Combine these statistics with the collapse of the health insurance market and it becomes clear that we need to expand our product portfolio to meet evolving needs.”
Among those needs, he noted, are the steadily increasing personal costs associated with critical illnesses that are not covered by major medical insurance, such as travel to treatment centers, home care, and loss of income during long-term disability insurance waiting periods.
Jesse E. Leverette, Jr., president of the L Group in Jackson, Mississippi, which conducts sales training for agents and brokers as well as product marketing, says critical illness insurance “is a great fit with HSAs,” as a way of preventing the exhaustion of the underlying account of CDHPs and paying the high deductible in case of a critical illness which is likely to sap a family’s other financial resources.
NACII research indicates that critical illness insurance sales are growing at a rate of more than 20% annually and the insurance has become accepted by employers as an acceptable voluntary employee benefit. More than 40% of sales are generated from worksite marketing.
Other supplementary products are finding new life, riding the coattails of CDHPs, industry speakers noted. Mini-meds, limited coverage health plans previously packaged with required term life insurance, have become more available as inexpensive supplements to CDHPs, and stand-alone wellness programs that pay for health screening and annual physicals are also being packaged with CDHPs on a voluntary employee-paid basis.
Debit card systems that provide technology platforms for managing HSAs, HRAs, Flexible Spending Accounts and other tax-incented benefits are also good additions to the product portfolios of agents and brokers marketing CDHPs, speakers noted.
Despite the industry excitement over CDHPs, not everyone supports the concept—particularly as a way of lowering health care costs and expanding coverage. Benefits Marketing Mania luncheon speaker California Insurance Commissioner John Garamendi said CDHPs are doomed to failure—just as managed care failed in the 1990s.
HSAs and other CDHP components “are really not the answer to controlling costs,” or providing more and better health care to the uninsured, he said.
“If you are healthy and wealthy, they are a great product,” he said, but not a perfect tool for meeting a concern that is national in scope. “I think we have plenty of evidence right now that indicates that these plans will not be successful cost control vehicles in the long term.”
California, by the way, is one of the few states that have not followed the federal tax lead in making HSAs tax-incented.
Garamendi pointed to the steadily increasing portion of the economy devoted to health care—11% in the 1990s and 16% in 2006. “Yet the more we spend (providing health care), the fewer we actually have insured,” he said. “And as the cost of insurance premiums and care goes up, the fewer the individuals who can afford it.”
Garamendi also noted that as health care expenditures reach 19% of the economy by 2013 or 2014, the economic structure of the country would be stressed, as so much resource is focused on a single sector of the economy. He called for the creation of a universal health care plan in the United States that would provide “strong, considerable and comprehensive care.” *