Voluntary health benefits—a bright future
Industry responses indicate a positive evolution
By Len Strazewski
Remember cancer insurance, one of the consumer scandals of the 1970s? As with hospital cash insurance, personal accidental death and dismemberment, term life and some individual disability insurance coverages, it acquired a negative reputation that persists today.
The plans were great moneymakers for agents and personal life and health insurers. On the other hand, they came under attack from consumer advocates and state regulators because benefits and claims terms were so murky and limited that policyholders often failed to collect even when they documented clear diagnoses, injuries and treatment costs.
Now redesigned and much more consumer friendly, many of these personal coverages have evolved into valuable and popular financial protection products, endorsed by employers and sold at worksites as voluntary employee benefits.
Critical illness insurance
Critical illness insurance, for example, the distant descendant of cancer insurance, is turning into a star of the line, with broader coverage terms, lower premiums and a much better reputation, sold as a financial protection product rather than as a form of personal health insurance.
The coverage pays out cash benefits whenever an insured receives any of several critical medical diagnoses. Among those covered events are cancer, stroke, heart attack or coronary bypass surgery, kidney failure or major organ transplant. The benefits can be applied not only to treatment costs but also for ancillary costs such as transportation to treatment, home care support and other expenses triggered by the diseases.
Unlike older versions that paid out to policy limits only once—and after treatment had begun—the newest policies pay on diagnosis and may pay for reoccurrence or multiple diagnoses of covered diseases.
The coverage is available from several life and disability insurers, including AFLAC, UNUM, Colonial Insurance and Mutual of Omaha, among others.
Jay Wink is an employee benefits producer in the Greensboro, North Carolina, office of Trion, an employee benefits specialty brokerage with offices in nine metropolitan areas. He has been marketing critical illness insurance as part of a comprehensive package of voluntary benefits for more than five years and sees a significant increase in recognition and employee participation.
Most agents and brokers would be satisfied with employee participation of 10% to 15% for most voluntary benefits; however, Wink reports participation rates of 15% to 35% for employer groups.
“I’m very excited about the evolution of the product. Insurers have really remade the coverage with benefits for reoccurrence of critical illnesses and the possibility of multiple payouts for occurrences of different covered diagnoses,” he says. Voluntary programs also offer guaranteed issue to employer groups.
Wink adds: “And what has been particularly appealing for me as a producer is that even though the coverage has increased, the premium hasn’t gone up very much.”
Wink says the voluntary market is very price sensitive and, depending on coverage limits, critical illness insurance premiums can be marketed within an affordable range.
Other voluntary products
Sales of other voluntary products, such as short-term disability insurance and term life insurance, are also growing, with the support of employers who are eager to improve the diversity of employee benefits while attempting to contain health care costs.
UNUM, based in Chattanooga, Tennessee, confirms the market growth. Its critical illness insurance sales were up 20% in the first half of 2009, and the insurer’s group critical illness insurance plan, which was introduced last year, accounts for 30% of all sales, says Scott Brown, director of critical illness insurance products.
“As economic realities force employers to adjust their health benefits, employees are exposed to additional financial pressures,” he says. “Critical illness insurance can help fill gaps in medical coverage and help pay for expenses that fall outside the scope of health coverage. Our sales trends show that employers recognize the need to help their employees fill these gaps.”
Participation rates are also improving, he confirms. Overall, he reports participation rates of 15% to 20% of groups, well ahead of traditional participation rates.
Education, enrollment and voluntary benefit plan design remain the greatest challenges for agents and brokers, however. To be successful, agents and brokers need to relieve employers of the entire administrative burden of creating a voluntary employee benefits package, educating employees about the merits of the benefits and conducting employee meetings for enrollment.
Brown recommends that producers stick to two or three voluntary products, combining critical illness insurance with term life or whole life insurance, vision services or a short-term disability insurance product.
The acceptance of voluntary employee benefits is part of a major shift in the understanding and recognition of employee benefits outside the realm of group medical insurance and salary-based life insurance, according to recent industry surveys.
Traditional employee benefits are clearly on a decline, according to the Society of Human Resource Management (SHRM) annual membership survey. The Alexandria, Virginia-based organization says employers are continuing to cut back on paid employee benefits—particularly health care coverages. About 60% of the 522 employer respondents said the U.S. recession has caused them to scale back or hold steady on paid employee benefits.
“The recession, plus rising health care costs are causing companies to evaluate all operating costs closely, even employee benefits, where a reduction in some benefits is required to survive the economic crisis,” SHRM President Laurence G. O’Neil noted, when the study was released this summer.
Overall, health and employer-paid health and welfare benefits declined in 2009. One exception is mental health coverage. About 80% of respondents offered mental health coverage this year, compared to 75% last year.
Survey reveals increasing confidence
Nevertheless, the new Eastbridge Consulting Group Voluntary Industry Confidence Index survey indicates that confidence in the future of the voluntary employee benefits industry has rebounded overall and employee benefits producers are leading the growth with positive forecasts.
The Avon, Connecticut-based industry consulting company reports that its overall Confidence Index increased to 92.9, up from 88.8 at the end of 2008. “In the latest survey findings we see that brokers are more positive than they were six months ago—and more positive than our carrier respondents,” says Bonnie Brazzell, Eastbridge vice president.
“In the year-end survey, brokers were ‘divided’ on the outlook for 2009. Only 9% of brokers felt that sales would stay about the same, 66% expected an increase, and 26% expected a decrease,” says Brazzell. Today, 81% of brokers believe there will be increases over the next 12 months, with one-third claiming that sales will ‘increase a lot.’”
The survey also indicated that:
• A majority—93%—of broker respondents believe they will be more profitable 12 months from now.
• Brokers were significantly more positive regarding employee enthusiasm; 85% expect employees to be more enthusiastic about voluntary compared to just 60% of insurers.
• A total of 89% of brokers expect to acquire more new groups in 2009 than in 2008, compared to just 73% among insurers.