Aflac sees ACA as helping voluntary benefits growth
National health insurance in other countries has produced increases in demand for voluntary benefits
By Len Strazewski
The need for voluntary employee benefit programs was already on a solid upswing long before the Patient Protection and Affordable Care Act survived its legal tests—and the trend is accelerating, says Paul S. Amos II, president and chief operating officer of Aflac U.S. in Columbus, Georgia.
Aflac is one of the nation's largest underwriters of voluntary insurance benefits marketed in worksites, including individual hospital indemnity insurance, cancer and critical illness insurance, accident insurance and term life insurance.
Amos, grandson of Aflac founder Paul Amos, oversees all aspects of the insurer's U.S. operations, including 4,300 employees and more than 70,000 independent agents. He was named president in 2007. In 2009, he also managed the company's acquisition of Continental American Insurance Co., now Aflac Group Insurance.
Though the national mandate for health insurance is expected to rock the group health insurance industry when it is fully implemented in 2014, voluntary benefits are likely to emerge unscathed, Amos says, and grow even stronger.
"It is clear that health care reform is going to have a dramatic effect on the health insurance industry, but voluntary benefits have been growing steadily since before the law and show no signs of slacking off," he explains.
History repeats itself
Instead, national health insurance is likely to increase the demand for voluntary benefits, he says—if U.S. history and the company's international experience is any proof. Amos compares the Affordable Care Act to the introduction of Medicare in 1965, which provides major medical insurance to all seniors. Medicare, he explains, created a huge demand for supplementary insurance that fills in gaps of coverage in the original government product. Today Medicare supplements are one of the most commonly purchased supplemental insurance policies.
As with Medicare, "Almost everyone will be offered national health insurance and the coverage will be more uniform than ever. More people will have the same sort of benefits," he says. And as a result, they will have the same sort of gaps in their coverage that supplemental voluntary benefits can fill, which will create an almost universal demand for supplemental products.
The prediction is not just supposition, Amos adds. Nearly 75% of Aflac's business comes from its Japanese subsidiary, Aflac Japan, which is the largest individual life insurer in the country. About 25% of the Japanese population purchases voluntary insurance from Aflac.
"Japan has had national health insurance for many years, and the program has only increased the market for voluntary insurance products," he says. "Our success in Japan is indicative of the type of need national health insurance reveals in a marketplace."
Aflac Japan's total revenues in yen were up 9.2% in the second quarter of 2012. Premium income in yen rose 9.7%, benefiting from strong sales of WAYS, Aflac Japan's hybrid whole-life product. Net investment income increased 6.9%.
Aflac U.S. total revenues rose 5.2% to $1.4 billion in the second quarter. Premium income increased 5.5% to $1.3 billion. For the first six months, total revenues were up 5.2% to $2.8 billion and premium income rose 5.3% to $2.5 billion. Net investment income increased 4.5% to $304 million. Pretax operating earnings were $529 million, 7.2% higher than a year ago.
The Continental American Insurance Co. acquisition provides a platform for marketing Aflac products to large employer groups on a discounted guaranteed issue basis through employee benefits brokers, Amos notes. The acquisition has poised the company to take advantage of an expanding market for voluntary benefits that will evolve from national health insurance and the increasing needs of the security-conscious baby boomers as they approach the financial needs of a longer life and retirement.
In July, Aflac started offering a group hospital indemnity insurance plan to New York employers. The program provides a wider range of benefits than individual products, including hospital admission, confinement, intensive care and emergency room and physician benefits.
Amos expects that health care reform will increase the need for voluntary products as employers continue to shape their benefit plans with higher deductibles and co-pays and consumer-driven plan features that will create financial gaps for policyholders.
Voluntary benefits will evolve in parallel to fill in the gaps, Amos says. And as employers confront their increasing benefits costs, ancillary benefits such as dental insurance, vision care and short- and long-term disability insurance will move into the voluntary market.
Employers will continue to rely on their employee benefits programs as critical tools for employee recruitment and retention, and as medical insurance becomes uniform and universal, the voluntary benefits will grow in their importance as differentiators.
Aflac research supports Amos's view of the changing marketplace. The Aflac 2012 Workforce Report, conducted with national polling firm Research Now, polled more than 6,100 American workers in early 2012. The study reveals that more than one-third of respondents said benefits were extremely influential in their job satisfaction and 49% said that benefits were the key to keeping them in their job.
About 73% of employees who said they were extremely satisfied with their benefits package were also extremely satisfied with their job. Only about a third of employees who said they were extremely satisfied with their job were not satisfied with their benefits.
Worker productivity and voluntary benefits
The study also measured the effect of wellness programs, and found that employees taking advantage of those programs are more satisfied and secure in their jobs. Well-designed wellness programs also help moderate job stress and health issues such as headaches and migraines. Nearly half of workers report that such symptoms and their financial concerns related to illness affect their productivity.
Though some employers reduced their voluntary benefits in recent years, the Aflac poll says that about 60% of employees said they would be interested in purchasing voluntary benefits, a pattern consistent with their concerns. About 32% of respondents said "maintaining my health care benefits" was among their most important concerns and 22% said they were concerned about increasing out-of pocket expenses in their existing benefits.
The role of technology
Aflac continues to invest in new technology to support product education and enrollment, Amos says. While workers will continue to learn about voluntary benefit products at their worksite, they are increasingly likely to use the Internet to research their choices, shape their individual packages of benefits and make their final enrollment decisions at home online.
The technology trend, however, is not undermining the role of agents, who continue to have an important role in marketing voluntary products and advising purchasers about how products meet their individual needs, he says.
Amos also expects that state insurance exchanges, a key component of health care reform, will create more opportunities—not fewer—for agents as they learn to work with the exchanges in the delivery of individual health insurance and filling the needs that will be consistent with the changes in coverage.
Len Strazewski has been covering employee benefits issues for more than 30 years. He has an M.S. in Industrial Relations from Loyola University in Chicago.