The business of cross-selling

When to do it and when not to

Every broker knows that cross-selling additional employee benefits can be lucrative. But sometimes it makes more business sense—for both the client and the broker—if certain benefits are sometimes sold separately.

A good case in point is dental and vision benefits. Typically the two products are paired together, but there are instances where it’s much more prudent to offer one or the other, brokers say.

Dental and vision benefits are increasingly being carved out of packaged health care plans, as both employers and carriers are finding ways to make healthcare packages less costly after the passage of the Patient Protection and Affordable Care Act, says Mark Roberts, an agent for insurance products and discount health plans in Frisco, Texas. He serves as manager of national accounts at Careington International Corp.

Part of the reason for streamlined plans because of the establishment of a “minimum loss ratio,” in that 80 percent to 85 percent of the total premiums for health insurance packages have to cover the cost of care, Roberts says. As such, commissions to brokers are reduced, and so carriers are carving out dental and vision, along with other ancillary benefits such as wellness and pharmaceutical coverage, so brokers can sell them as voluntary benefits—which also can save employers money.

“Those products are typically sold as an add-on or supplement, so that’s where cross-selling makes perfect sense,” Roberts says. “In most cases, except for mega-employers like McDonalds or Bank of America, those benefits are sold more and more on a voluntary basis.”

Cross-selling comes into effect depending on the type of coverage, the richness of the benefits, and the total overall costs for the employer and employees, he says. The employer might pay for something nominal, such as a free eye exam or preventive dental services like an annual cleaning and X-ray, but everything else is out-of-pocket for the employee.

“This makes sense in cases where the employer is reluctant or cannot afford to pay for these ancillary benefits,” Roberts says.

However, if employers offer health savings accounts, flexible spending accounts or health reimbursement arrangements, cross-selling both dental and vision benefits isn’t as necessary, he says.

“Instead of having a dental or vision package, or even bundled, the employer offers a set amount of money a year for the employee to chose which service they want and designated expenses as defined by the employee,” Roberts says. “It could be for dental only or vision only, it could be for discount care including ancillary health and wellness services.”

All about choice

John Kelly, director of strategic partnerships for Ceridian Corp.’s human resource and payroll businesses, says when employers are offering dental and vision mainly as voluntary benefits, it makes sense for brokers to offer both jointly.

“You drive more business that way,” says Kelly, who is based in Miami. “It gives more opportunities for employees to chose A or B. Choice is always better.”

But if the employer is subsidizing the benefit, then by offering both brokers could be forcing the employer to pay more than necessary, he says.

“It comes down to understanding the difference in terms of any employer contributions,” Kelly says. “That’s really what will determine how you present it—as a bundle or separately.”

When offering both vision and dental on a voluntary basis, Kelly recommends that employers put in place premium-only plans.

“There’s a tax advantage for both the employer and employee and the employee can’t elect in or out anytime of the year,” he says. “This may get you better underwriting because employees have to stay in the plan for an entire year and can’t opt out after getting services.”

It is possible that a vendor will give employers better rates if their employees can’t elect out during the plan year, Kelly says. For example, an employee might pick up dental for a month and because it’s on an after-tax basis drop coverage. Alternatively, they may pick up eyeglasses, drop the plan and then premiums can’t be collected from them.

Julie Stone, a senior consultant at Towers Watson in Parsippany, N.J., says she first analyzes clients’ medical benefits to determine if that vendor bundles dental services, and then she will recommend a stand-alone vision product as an add-on. But some employers prefer certain stand-alone dental products and in those cases, Stone will recommend medical vendors who will bundle vision.

“It really depends on the vendor’s strategy,” she says.

Cost factor

Rina Tikia, president of Tikia Consulting in Metairie, La., says that cross-selling both dental and vision is contingent upon employers’ demographics, industry, budget constraints and economic challenges.

[Read "Cost (out of) control"]

“If an employer is strictly price shopping, it may behoove him to bundle vision and dental with their medical insurance because of volume discounts and financial savings on the medical,” Tikia says.

Bundling the products also eases the administrative burden for the employer, she adds. Moreover, utilization rates on vision is typically low, about 30 percent to 35 percent on average, simply due to plan structure, frequency and network restrictions.

Dental utilization varies based on blue-collar or white-collar employee populations and can result in loss ratios as low as 35 percent, or as high as over 100 percent, Tikia says.

“White-collar workers are more savvy and can afford dental insurance,” she says. “Appearance and grooming is important for them, and they typically visit their dentist regularly since they understand the link between oral infections and other diseases.”

On the other hand, blue-collar industries are appealing to carriers since profit margins can be relatively higher, Tikia says.

The downside

There are drawbacks to bundling both dental and vision in plans, including potential impacts to the quality of the plans, she says.

“Carriers not specializing in the product may be subcontracting the processing to an outside vendor, which could result in inefficiencies,” Tikia says. “Employers also have to be careful, since carriers could increase the price of dental to offset the discount on medical when the policies are bundled.”

Some carriers might also provide discounts the first year, but at renewal, hit employers with increases to cover the carrier’s losses for the first year, she says. Since the employer’s focus is primarily on medical, persistency on the dental and vision block of business is “carrier favorable.”

There are also potential pitfalls and costs to unbundle, Tikia says. The employer can experience problems with one of the plans which may result in hidden costs for a replacement plan, or they might lose the discounts on the bundled plan if a change is made, or even result in variations in benefits and costs with a carrier change.

Moreover, unbundling may increase participation in one plan, but vice versa, decrease participation in another, resulting in adverse selection, she says.

“If price is the main objective, I would recommend bundling vision and dental with medical—the spread of risk and increased enrollment results in a comprehensive solid package long term,” Tikia says. “My advice is to understand the employer’s needs and objectives before moving forward.”

When to cross-sell

Warren Benoit, president of Benoit and Associates in Kenner, La., says that a good time to sell both vision and dental is when the client requests both products, because they see the immediate need for their employees to use these coverages.

However the average insurance consumer doesn’t realize how expensive these types of plans can be mainly because the policyholders are more likely to utilize it, Benoit says.

“They do not need to die nor become disable to see benefits—they only have to get eye-glasses or a teeth cleaning for an anticipated claim to be paid,” he says. “But it is understated that the cost-per-service benefits are a much higher ratio and therefore are much more expensive for the benefits received."

As such, Benoit prefers to cross-sell either dental or vision with other voluntary benefit products, such disability and life insurance, mainly to fund the enrollment as a broker. Commissions on dental average about 10 percent, whereas commission on the higher-end policies tend to be 50 percent to 75 percent.”

“If the employer does not stipulate to only sell dental and or vision, I would still lead in with dental and or vision to open the door to sell other voluntary products with better commission to fund the enrollment and attempt to educate the employer on the feasibility of these plans by evaluating them against what benefits the employees already have available,” he says.

Offering voluntary disability and life insurance benefits also helps employers, Benoit says. It gives them a better sense of security, or else employees will need additional sick leave or a loan to help pay expenses if they become disabled.

“The biggest problem for employers if they are not paying for disability, is that they still have key employees who might need sick leave, so they work it,” he says. “Sometimes when these people leave, they’ve accumulated so much sick leave, the employer has to still pay the person for another year. That’s where a voluntary disability policy comes as an advantage. It doesn’t cost the employer and it gives us the cross-marketing tools to sell dental or vision.”

Of course, cross-selling both dental and vision together also depends on whether clients are insisting upon it, Tikia says. But even in those cases, brokers should carefully lay out both the advantages of disadvantageous of offering both products at the same time.

“I highly recommend walking through the pros and cons with the client so they can make prudent decisions regarding their employee benefits program,” she says.

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