In 2002, we published a paper that predicted some major changes in the voluntary benefits industry by the year 2020. Some of these predictions involved benefit buyers and products while others were aimed at distribution systems and administrative platforms.
The objective was to share our opinions and to stimulate the reader about new and possible strategies based on these opinions. The purpose of this column is to look at how the industry is (or isn't) progressing and to see how close our predictions were.
In the 2020 paper, we predicted:
- Benefits decision-making will shift from employers to employees.
With increasing benefit costs (especially health coverage), employers will have moved fully to a defined contribution approach to benefits by the year 2020. Under this arrangement, employers will provide dollars to employees who will choose either to self-insure or use these dollars to purchase insurance; the employer does not choose benefits for the employees. Employees direct their own personalized benefits programs.
- Employers will focus on selecting intermediaries and advisors rather than specific benefits for specific employees.
Given the move towards defined contribution benefits, employers will focus on selecting an intermediary (e.g.: human, electronic, or direct with manufacturer) and benefit administrator, arranging for advisory services, and monitoring and managing the service provided by the intermediary and administrator.
- Products will become unbundled with separate risk and savings components.
Much of this will be driven by the rise in consumer-directed health care plan designs. The result will be three major accounts: retirement, savings and protection (insurance-based products).
- Brokers will sell all lines and be independent of carriers.
Rather than aligning with carriers, brokers and advisors will align with benefit administrators who can provide and/or support best-of-breed products from a wide variety of manufacturers (TPA functions). These advisors will be independent of any single manufacturer and be free to recommend products and services as they see fit. They may work independently in small agency groupings or may band together in professional groups.
- Enrollment will include advice to help employees sift through the myriad of benefit choices.
By the year 2020, employees will need to define and quantify their risks and then commit to managing these risks. This effort will require advice from a call center, Web site or advisor (once known as an enroller).
So how close were our predictions given that we're now nearly five years out? Here's a look at where we are in 2007 based on our published research over the past year.
- Almost all employers (except for the very small) offer voluntary benefits to allow employees to design a benefits package that meets their own unique needs. In fact, in a recent Eastbridge Consulting survey, about 70 percent of employers today offer at least one voluntary product to their employees.
- The move to defined contribution has been somewhat slower than anticipated, according to our study. Employers are reluctant to move all decision-making to employees as they fear that employees aren't well equipped to make informed decisions. Because of this, only about 10 percent to 15 percent (of the employers surveyed) are thinking about moving completely to a defined contribution approach while another 18 percent to 20 percent are thinking of introducing something like health savings accounts and high deductible health plans, which are a step toward defined contribution.
- Today's product unbundling is taking several forms. Overall it involves increasing choices for the employee, either coverage options or riders. For example, some carriers (and employers) are offering unique rider choices like unemployment protection. Others are offering HDHP-HSA plans, universal life plans and term life with a return of premium option, all of which are examples of unbundling the risk and savings components.
- The broker arena has perhaps seen the most progress toward our 2020 predictions. Almost all employee benefit brokers now sell both traditional and voluntary, and most voluntary brokers sell some traditional. Our studies have shown that today about 50 percent of worksite brokers also sell true group; another 20 percent also sell non-group benefits. And almost 20 employees of employee benefit brokers say they sell core and voluntary equally.
- Brokers in today's voluntary benefits world are becoming more and more independent of carriers. In fact, in our 2006 broker study, 54 percent of the brokers surveyed said they give their primary voluntary carrier less than 50 percent of their business. Sales from producers from the career worksite agent channel fell by almost 5 percent in 2005.
- Brokers are aligning with benefit administrators although there's no quantitative evidence that this is happening. Today, we see TPAs evolving and getting more involved in voluntary, and some traditional employee benefit TPAs are moving aggressively into voluntary. Additionally, we are seeing the intermediaries combining aggregators and TPAs into one package. Aggregation on the core side is already here, but aggregation on the voluntary side is now starting.
- Because employees are beginning to assume greater control and responsibility for their benefit choices, they better understand and appreciate the need for information, education, and most importantly, advice. Some carriers have responded by developing programs to enable enrollers to provide advice to employees.
Given this, what are your opinions on the future of the voluntary industry? Will you need to adjust your strategies based on these predictions and the actual results? Both are questions worth asking.
