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

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

Increasingly, dental and vision benefits are being carved out ofpackaged health care plans, as both employers and carriers arefinding ways to make health care packages less costly after thepassage of the Patient Protection and Affordable Care Act, saysMark Roberts, an agent for insurance products and discount healthplans in Frisco, Texas.

He serves as manager of national accounts at CareingtonInternational Corp. Part of the reason for streamlined plans isbecause of the establishment of a “minimum loss ratio,” in that 80percent to 85 percent of the total premiums for health insurancepackages have to cover the cost of care, Roberts says.

As such, broker commissions are reduced, and so carriers arecarving out dental and vision — along with other ancillary benefitssuch as pharmaceutical coverage — so brokers can sell them asvoluntary 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 ofAmerica, those benefits are sold more and more on a voluntarybasis.”

Cross-selling comes into effect depending on the type ofcoverage, the richness of the benefits, and the total overall costsfor the employer and employees, he says.

The employer might pay for something nominal, such as a free eyeexam or preventive dental services like an annual cleaning andX-ray, but everything else is out-of-pocket.

“This makes sense in cases where the employer is reluctant orcannot afford to pay for these ancillary benefits,” Robertssays.

However, if employers offer health savings accounts, flexiblespending 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 employeeto chose which service they want and designated expenses as definedby the employee,” Roberts says. “It could be for dental only orvision only, it could be for discount care including ancillaryhealth and wellness services.”

All about choice

John Kelly, director of strategic partnerships for CeridianCorp.’s human resource and payroll businesses, says when employersare offering dental and vision mainly as voluntary benefits, itmakes sense for brokers to offer both jointly.

“You drive more business that way,” says Kelly, who is based inMiami. “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 offeringboth brokers could be forcing the employer to pay more thannecessary, he says.

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

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

“There’s a tax advantage for both the employer and employee, andthe employee can’t elect in or out anytime of the year,” hesays.

“This may get you better underwriting because employees have tostay in the plan for an entire year and can’t opt out after gettingservices.” It is possible a vendor will give employers better ratesif their employees can’t elect out during the plan year, Kellysays.

For example, an employee might pick up dental for a month andbecause it’s on an after-tax basis drop coverage. Alternatively,they might pick up eyeglasses, drop the plan and then premiumscan’t be collected from them.

Julie Stone, a senior consultant at Towers Watson in Parsippany,N.J., says she first analyzes clients’ medical benefits todetermine if that vendor bundles dental services, and then she willrecommend a stand-alone vision product as an add-on. But someemployers prefer certain stand-alone dental products and in thosecases, Stone will recommend medical vendors who will bundlevision.

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

Cost factor

Rina Tikia, president of Tikia Consulting in Metairie, La., sayscross-selling both dental and vision is contingent upon employers’demographics, industry, budget constraints and economicchallenges.

“If an employer is strictly price shopping, it may behoove himto bundle vision and dental with their medical insurance because ofvolume discounts and financial savings on the medical,” Tikiasays.

Bundling the products also eases the administrative burden forthe employer, she adds. Moreover, utilization rates on vision istypically low, about 30 percent to 35 percent on average, simplydue to plan structure, frequency and network restrictions.

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

“White-collar workers are more savvy and can afford dentalinsurance,” she says. “Appearance and grooming is important forthem, and they typically visit their dentist regularly since theyunderstand the link between oral infections and otherdiseases.”

On the other hand, blue-collar industries are appealing tocarriers since profit margins can be relatively higher, Tikiasays.

The downside

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

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

Some carriers might also provide discounts the first year, butat renewal, hit employers with increases to cover the carrier’slosses for the first year, she says.

Since the employer’s focus is primarily on medical, persistencyon the dental and vision block of business is “carrierfavorable.”

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

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

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

When to cross-sell

However the average insurance consumer doesn’t realize howexpensive these types of plans can be mainly because thepolicyholders are more likely to utilize it, Benoit says. “They donot need to die nor become disabled to see benefits—they only haveto get eye-glasses or a teeth cleaning for an anticipated claim tobe paid,” he says.

“But it is understated that the cost-per-service benefits are amuch higher ratio and therefore are much more expensive for thebenefits received.”

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

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

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

“The biggest problem for employers if they are not paying fordisability, is that they still have key employees who might needsick leave, so they work it,” he says. “Sometimes when these peopleleave, they’ve accumulated so much sick leave, the employer has tostill pay the person for another year.

That’s where a voluntary disability policy comes as anadvantage.

It doesn’t cost the employer and it gives us the cross-marketingtools to sell dental or vision.”

Of course, cross-selling both dental and vision together alsodepends on whether clients are insisting upon it, Tikia says.

But even in those cases, brokers should carefully lay out boththe advantages of disadvantageous of offering both products at thesame time.

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