The Patient Protection and Affordable Care act is creating enormous opportunities for brokers to sell supplemental plans, not only to help cover increasing deductibles in employer-based and exchange-based plans, but also as a cheaper alternative to both.
The opportunities to sell supplemental health plans to cover out-of-pocket expenses when illness or accidents occur are coming from a variety of fronts, experts say. As more employers face mandates to provide major medical insurance to their employees, most will likely opt for plans with high deductibles to mitigate the additional costs — increasing the need for supplemental plans.
Some employers will transition full-time employees to part-time to avoid providing major medical insurance, and those employees will need supplemental plans because the exchange-based plans all carry high deductibles. Finally, there are opportunities for brokers to sell supplemental plans to people who choose not to buy exchange-based plans and self-insure instead. Supplemental plans will cover those people in worst-case scenarios.
In the end, it’s all about tackling skyrocketing health care costs no matter how they’re delivered — something the PPACA did not resolve, experts say.
“The plans required by the ACA still have affordability issues with increased deductibles, and brokers still help employees fill the gaps by selling gap plans and hospital indemnity plans, as well as accident and critical illness plans,” says Dan Johnson, vice president of sales and marketing for voluntary benefits at Trustmark Insurance in Lake Forest, Ill.
Whether or not employers are funding supplemental plans for their workers, employers are still saving dollars because they have lowered their base health care costs by choosing plans with higher deductibles, Johnson says.
“There is enormous opportunity for brokers and insurance agents who sell supplemental policies to do even more of that because of PPACA,” says Michael Zuna, chief marketing officer at Aflac Inc. in Columbus, Ga.
“A trend that is not changing is the rising costs associated with health care,” he says.
As previously uninsured workers either purchase medical insurance through their employer or an exchange, they will have to choose between three types of polices: gold, silver and bronze.
“All three policies are designed to cover the majority of medical expenses, but not all of them,” Zuna says. “All of them have out-of-pocket maximums — it’s just a matter of how fast you get there.”
Which might prove difficult for millions of workers: The Aflac Open Enrollment Survey, conducted last August, found that 83 percent of employees indicated they were only willing to spend $1,000 or less for deductibles each year, and nearly half of employees surveyed (46 percent) have less than $1,000 in disposable savings for medical expenses.
“Bringing major medical to the masses is not designed to cover all of the costs associated with getting coverage bought underneath the auspices of Obamacare,” Zuna says.
Making insurance policies cover more “essential benefits” is a good thing for employers, but they do have to pay out-of-pocket expenses for these rich benefits — which spells another opportunity for brokers to sell supplemental plans, he said.
While there has been a delay in the employer mandate for mid-sized employers with 100 or more employees until 2016, having a great benefit package is just “good business,” Zuna says. Employees are more productive when they believe their employer’s culture is all about well-being. Having good benefits increases job satisfaction, retention and productivity.
According to the 2013 Aflac Workforces Report, nearly 60 percent of workers would consider a job offer with lower compensation but a more robust benefits package.
“I would encourage employers not to wait until the government mandates that they provide health care insurance, as it’s smart business to provide employees with the best package that includes supplemental benefits to help pay for their out-of-pocket expenses,” Zuna says.
Jeff Culbertson, manager of products and market development at Unum Group in Chattanooga, Tenn., says the supplemental plan the company markets to large employer groups — mainly through brokers — has “definitely” increased this year, “but whether that is directly attributable to the ACA is still up in the air, particularly before the employer mandates kick in.”
Unum also sells its supplemental health plans on some private exchanges and continues to have discussions with other exchanges as they are developing, Culbertson says.
“We still need to protect our risk in the exchange environment, ensuring we get the spread of risk and that groups are large enough that we can hit our participation targets,” he says. “We’re working through the different exchanges to see what works out better for our business model. There’s a change in distribution that’s occurring with the addition of the private exchanges, so we want to be a part of those conversations — we want to be involved where it’s appropriate.”
Unum also has spent a lot of resources investing in simplified enrollment solutions for smaller employers, which are designed to make it easier for them to offer supplemental financial protection.
“Having a benefits counselor siting one-on-one with employees discussing all of the voluntary benefits options makes sense for larger employers, but when you get under the 100-employee market, that’s an expensive model,” Culbertson says.
Unum provides brokers an enrollment solution in which they can enroll employees the same way they would enroll a traditional group product, but with simplified choices of coverage options. For example, the company can offer a high benefit of $10,000 and a low of $5,000 for critical illness, whereas Unum’s typical options come in $100 increments, with a total of 46 choices. Employers can also choose to offer benefits through a self-service platform or through a third-party solution with the same levels of simplification.
Colonial Life is a unit of Unum based in Columbia, S.C., that focuses more on smaller employers with few as five employees, working directly with them as well as through brokers. Randy Finn, Colonial Life’s assistant vice president, product development, sees a number of ways that the PPACA has increased opportunities for the firm to sell supplemental health plans.
Even if employers maintain their employee health care plans and don’t eliminate any workers, costs are still rising, and more employers are continuing to shift responsibilities to their employees by offering plans with higher deductibles, Finn says. But news coverage of the implementation of PPACA also is increasing awareness of the need for supplemental health products. Half of all households say they couldn’t raise $2,000 within a month if needed.
“Health care reform, higher-deductible health plans, and a workforce that’s more financially fragile have created a perfect storm for voluntary benefits,” Finn says. “If you can be in front of employers talking about how voluntary benefits help address issues like these, you have an even greater opportunity to sell voluntary products.”
Moreover, whether or not employers continue to provide major medical coverage to their employees, they can still offer voluntary plans to attract and retain employees— and distinguish themselves from their competition, Finn says.
“And, better yet, because voluntary plans are paid for by employees, they create a stronger benefits package with no added cost to the company’s bottom line,” he says. “Because we meet individually with employees, we can help them understand how voluntary benefits work with their medical coverage, regardless of where their health insurance was purchased.”
Zach Zinser, account manager at Zinser Benefit Service Inc. in Louisville, Ken., doesn’t think a lot of employers are going to drop medical coverage for their employees, because benefits are still an important part of retaining employees.
“I know this white-collar professional making six figures whose company cut its contribution to his health care benefit, and based contribution on the amount of income their employees made,” Zinser says. “He was upset enough to start looking for another job.”
Then there are brokers capitalizing on many people’s resistance to being forced to buy health care insurance — or at least their anger over sticker shock at the higher prices of some of the exchange plans due to the mandated inclusion of “essential benefits” such as maternity care, even for post-menopausal women.
The growth of self-insuring
Bill Brann and Mike Tracy are founders of Obamacare Alternatives, an insurance agency based in Corpus Christi, Texas, that sells critical illness plans and other products to employees of small businesses, including those whose employers do not offer health insurance and who choose to not buy plans on the exchanges. Sales have doubled from last year.
“Our sales exploded after October, when the exchanges opened and people saw how much those policies would cost them,” Brann says. “We see a lot of individuals self-insuring and not going onto the exchanges. They are not afraid of the penalty, because the IRS can’t go after you.”
While the IRS can deduct the PPACA penalty from an individual’s tax refund, the agency doesn’t have the usual levers to force people to pay the penalty if they aren’t due a refund — the IRS can’t file public liens on property or charge interest on the penalties.
Most of Brann and Tracy’s clients, such as restaurant owners, give brokers access to their workers, Brann says. The employers may not be able to provide major medical insurance for their workers, but they want their employees to have access to supplemental plans.
“If we tell employees that for $50 a month, they can get $50,000 in cash if they get cancer or have a heart attack, that is a lot more meaningful to them than an exchange-based plan,” he says. “They can always enroll in an exchange-based plan next year, so they are not eliminating any options by buying a supplemental plan now.”
Another issue brokers discuss with workers is the exchange-based plans’ prohibition of out-of-network coverage, Tracy says. If policyholders on those plans get cancer they have limited options, but with supplemental plans that pay cash, they can go to the doctor of their choice.
“While exchange-based plans have included ‘essential benefits’ such as maternity care, they have added nothing for cancer to the policies,” he says. “They stripped the most expensive part out of the plans that would pay for cancer specialists, as well as heart attack specialists. But critical illness health plans that pay $100,000 in cash would enable people to get specialized care.”
The brokers also sell a large-sum critical illness plan that sits on a $250,000 life insurance chassis. Brann and Tracy also refer workers to nearby for-profit clinics that give discounts if people pay in cash.
“The plans we sell are all about good consumerism,” Tracy says. “If you got sick and you got $100,000 in cash, then you’re going to want an explanation of every dollar spent for your treatment. Some hospitals charge $70 for a water bottle, but with insurance, nobody cares. When it’s your own money, you’re not going to allow that.”