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2013 Benefits Special Report

Voluntary benefits: Filling the gaps

In era of individual responsibility, employers and employees need help with choices

By Dave Willis

A number of factors—many related to health care reform—are coming together to boost the market appeal of voluntary insurance benefits. Risks of the digital age are helping drive increased interest in another type of voluntary benefit.

"A few years ago, when people saw their 401(k) balances plummet, they realized they probably should be paying more attention to where their investments were," says Eric Reisenwitz, senior vice president of market solutions for Lincoln Financial Group's group protection business. "We're starting to see something similar occur with employee benefits. Employees are starting to pay more attention."

For years, he notes, employees trusted their employers—with good reason—to provide access to coverage. "They knew there'd be some health care, some life insurance and probably some disability, and they knew the employer would choose the right coverage from the right carrier," he explains.

"Today, employees are taking more responsibility and they're learning more," Reisenwitz adds. "They're asking what they have and how they'll be protected if something happens. That's a good thing, because the more people know, the better choices they'll be able to make."

Even as they're becoming smarter, many employees are finding employer-sponsored coverage being reduced. "Rising costs have led employers to look for ways to bring insurance expenses under control," he notes. "At the same time, they want to provide access to benefits. Many are turning to voluntary products with the option of payroll deduction."

Pending implementation of health care reform elements is leading to other changes. "The Affordable Care Act says that on January 1, 2014, employers with more than the equivalent of 50 full-time employees must provide health insurance to their full-time employees or face penalties," explains Brian Robertson, executive vice president at Fringe Benefit Group. "This will make the number of part-time workers in America explode."

He says many companies—particularly those in the hospitality, retail and restaurant industries—already have started restricting their employees to less than 30 hours a week. "Early data suggests this will increase as we get closer to 2014," Robertson adds.

"What we can't forget is that part-time workers are full-time people," he says. "They need benefits to help pay for medical and other out-of-pocket expenses. There's a great opportunity for agents and brokers to educate employers about the importance of offering voluntary benefits to their part-time employees. It's good for recruiting and morale—and the right plan can be easy on the HR department, too."

Even with full-time employees, health care reform will bring opportunities. "Some employers are cutting back on benefits, while others are opting for high-deductible health plans, which could lead to coverage gaps," explains Reisenwitz. Something needs to fill these gaps.

"We're seeing more people interested in accident coverage and we're seeing critical illness coverage take off," he notes. "Critical illness coverage, especially, can be an important filler in the gap created by high-deductible health plans."

Peggy Hayes, vice president of sales and business development at American Public Life, is seeing increased flexibility in voluntary benefits. "There's a shift toward more modular products," she explains. "The voluntary benefits industry is finding, after using a one-size-fits-all method, that one size does not fit all. Not all brokers are alike, not all employers are alike, and certainly not all employees are alike. Carriers need to be able to serve all three of these groups."

Along with this flexibility comes increased complexity. "No longer is there just a small, medium, and large version of a plan," Hayes notes. "Based on the needs of the particular business and its employees, a broker almost could custom design a plan. We're seeing pieces of what used to be a base plan being split up."

For example, she says, with a supplemental medical product, a broker could separate the hospital benefits from the outpatient benefits. "And then you could create multiple levels of those types of benefits, along with a lot of other flexible options to make them more custom-tailored," she explains. "We're seeing the same kind of thing happen with accident plans, cancer or critical illness plans, and hospital indemnity plans."

Another trend she's noticed is increased activity in group products versus individual. "Part of that comes from the increasing number of group medical brokers getting into the voluntary business," Hayes says. "They're comfortable with products written on a group chassis." In addition, she says, group products are easier to enroll and underwriting is simpler.

The prospects of health care reform are raising questions for worksite benefits providers. "There is still some uncertainty over if and how PPACA might affect any of the products in the voluntary market," she says. "Some products may need to be tweaked a bit as we move into 2014. However, there will be a huge market for any product that fills a gap, that supplements high-deductible medical. And really, that's what voluntary benefits are designed to do."

Not all voluntary benefits focus on health and wellness. "Proactive identity theft protection services continue to gain traction as a high-demand voluntary benefit," explains Nick Rockwell, director, benefits solutions at LifeLock. "In fact, it's has become the most important non-health/wellness benefit for employees." A recent survey by his firm shows that 39% of employees were "extremely likely" or "likely" to sign up for identity theft protection if offered as an employee benefit through payroll deduction.

Rockwell says interest in the benefit is strong among employees in companies of all sizes. "Protection from identity theft is a universally relevant benefit that spans all employee demographics," he explains. "Everyone has an identity to protect." He cites a 2011 Unisys study that says 70% of Americans worry about identity theft.

"As competition between group and voluntary brokers continues to intensify, progressive brokers are seeking out new benefits that strengthen their competitive position and revenues," Rockwell notes. "In addition, more employers are now seeking low-cost voluntary benefits, like identity theft protection, to enrich their benefits portfolio."

Meeting the needs

According to Robertson, worksite health and wellness benefits offer a number of advantages to employees, and that translates into opportunities for agents and brokers. "Generally, the products are guaranteed issue, with little to no underwriting required," he notes. "Also, the employer has already identified the benefits the employees will most likely need and the carriers that can offer them."

In addition, he says, the buying power of large numbers means lower premiums. "Also, the benefits are comparable, and co-workers educate each other on their use," Robertson notes. "But the biggest reason employees value worksite benefits is that payroll deduction is, for many people, the easiest way to buy insurance."

Hayes says agents interested in getting involved in voluntary benefits might want to partner with someone already in the market. "You can use your connections to open the doors," she explains. "If you find someone who is already proficient in selling and enrolling voluntary benefits, let them do what they do. That's one of the easiest ways to put your toes in the water."

She encourages agents and brokers to research carriers. "All carriers aren't alike," Hayes notes. "There's a huge difference in how easy carriers can be to work with." She says the first place to look is enrollment. "You can quickly find out how easy enrollment is," she explains. "And the biggest hurdle for most voluntary carriers is the billing process."

Hayes points out that carriers have reputations, just as people do. "You can learn a lot by talking to other agents—asking them what carriers they work with and how satisfied they are," she says.

Reisenwitz says agents should stay on top of changes coming about with health care reform, but not be constrained by them. "Regardless of which direction health care reform goes and regardless of what states do individually, the need for life insurance, income protection and related coverages is still there," he explains.

"Don't get lost in all of the new information employees are getting about their health care program," he adds. "They still need access to certain coverages. Agents and brokers should remember what they are good at doing and keep doing it."

Robertson encourages agents and brokers to focus on part-time employees. "Major medical coverage will leave out-of-pocket expenses that can wreak havoc on a part-timer's budget," he explains. "Voluntary benefits can provide cash to cover those expenses and pay in addition to other coverage someone might have.

"Serving part-timers is quite different than serving full-time employees," Robertson adds. "Sometimes you need a different mechanism to determine eligibility and collect missed premiums. For instance, restaurant employees may need an online premium payment option because most of their income is in tips and often their paycheck won't cover their insurance payment."

He adds, "Administering part-timers requires payroll cycle-based billing, so employers don't have to adjudicate bills. Also, participants need a live call center and online access for enrollment and administration. The employees we serve want to be able to access information electronically, so it's imperative that agents and brokers understand how to communicate with them."

Reisenwitz says agents and brokers should learn about and work with decision tools that can help their clients. "Use these to help clients make better decisions," he advises. "Find out where the gaps are, what the demographics of the employee population are, what geographic issues exist."

He says such tools, which generally come from carriers and vendors, help with education and modeling. "It helps individuals look at their current situation," he says. "For instance, a single college graduate in her first career-based job has different needs than a 35-year-old single parent of two or a 45-year-old with a family of four or five. Coverage needs change with lifestyle changes."

Rockwell says agents and brokers should recognize—and capitalize on—the fit between identify theft protection and other benefits. "Millions of consumers already have some form of identity theft protection, yet many agents and brokers have yet to recognize this opportunity as a voluntary benefit," he explains. "Employers already are 'trusted sources' for other benefits; identity theft protection naturally complements the financial protection these other benefits offer."

He points out that just a few years ago identity theft protection was not on the list of frequently sold ancillary benefits. "Today, it is essential in our digital society," Rockwell says. "Brokers just need to turn information into action. To do that, they simply need to contact leading voluntary product providers to see what is available."

In the end, Reisenwitz notes, voluntary benefits are all about filling needs. "People are becoming more knowledgeable about what their needs are," he explains. "There is so much access to insurance coverage out there and so many great products that people just don't like thinking about. But they need to think about it, because bad things happen.

"It's better to have protection up front," he adds. "The more agents and brokers can do to help employees understand their needs and how to address them, the better off the general public will be overall. And the insurance business will be stronger for it."

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