Designing a comprehensive employee benefits plan today can be like assembling a jigsaw puzzle. Though traditional health insurance products provide the major pieces, discount benefit plans can be a cost-effective way to complete the picture.
The past few years have seen steady growth for these plans, which historically have been defined more by what they are not than by what they are.
“I think most people who participate in health care discount plans know they are not insurance, but the challenge is to communicate what they actually are,” says Allen Erenbaum, president of Consumer Health Alliance, a national trade association in Dallas. “This is not because they are complicated, but because many people are not familiar with the concept. The plans are extremely simple.”
Discount benefit plans have been around for just over two decades. For a few dollars per month, per person, plan members get better prices — usually around 30 to 70 percent better — at in-network providers. Dental, vision, chiropractic, hearing, alternative care, veterinary care, legal, gym, identity theft help, roadside assistance, entertainment, travel and retail discount programs all exist, in various standalone or bundled combinations.
Discount plans are the right product at the right time, said Chuck Misasi, senior vice president, sales and marketing, for Careington, a provider in Frisco, Texas.
“When Medicare Part B started with a discount pharmacy card, the Aetnas and Cignas jumped in after seeing the writing on the wall. Discount plans offer high value and high utility, and members can use them as often as they want.”
Three key trends have emerged in recent years:
Tighter regulation of the industry
More employers offering discount plans as benefits; and
A larger role for brokers in marketing the plans.
Bar being raised
Although the industry is relatively new, the early days were somewhat like a frontier land rush, with a few companies looking to jump in and make a quick profit. That has changed, says Erenbaum, who has been with CHA since its founding in 2001.
“The primary change is that the industry has gone from one that was virtually unregulated to one that is heavily regulated,” he says. “This means the major national companies now have compliance departments that they didn't have 15 years ago. But the benefit is that the industry is more mature and settled, and its programs are more widely accepted.”
The biggest change, of course, has been the implementation of the Patient Protection and Affordable Care Act.
“PPACA requires plans to provide essential health care services, but they are not comprehensive,” Erenbaum says. “There are lots of unfilled needs for ancillary services. Our plans fit in quite well with PPACA. It has brought new people into the market for health insurance coverage, and while we are not insurance, that has brought people into the exchanges and other places who are looking at health care for the first time.”
Reid Rasmussen foresaw the openings PPACA would provide, which is why he cofounded freshbenies in Frisco, Texas.
“We started our business six months before PPACA passed,” says Rasmussen, now president of the company. “We believed it would push up the cost of medical insurance, so consumers would need other ways to save cash. Costs have gone up drastically. Since PPACA passed five years ago, the average out-of-pocket increase for a family of four is $2,900.
“But even if PPACA hadn’t passed, there would be inflation. That’s what drove us.”
Careington also is targeting services that fall through the cracks of mandated insurance coverage.
“PPACA definitely helped our business,” Misasi says. “With many employers opting for high-deductible plans and spending more on premiums, there may not be a lot of employer money left to fund other benefits. They are looking for value and price transparency.”
Discount plans can offer both.
“Consumers get a price list of what the plan will pay for by procedure,” he says. “Because they are a fraction of what an insured plan would cost, employers may come out way ahead with our plans. There is a tremendous amount of value and transparency.”
His colleague at Careington, Greg Rudisill, senior vice president of strategic partnerships, echoes his perspective.
“PPACA has helped increase the volume of discount products we are selling,” says Rudisill, who has been with the company since 1992. “In addition, it has opened more opportunities to the broker and consultant world. With many of them working longer hours now, selling discount plans is a great way to add revenue and provide more value to clients.”
Employers stepping up
The low-cost, high-value calculus of discount plans makes them attractive to employers, who can offer them as paid or voluntary benefits.
“To the extent that health insurance premiums or deductibles are increasing or benefits are less, it takes more money out of the employee's pocket,” Erenbaum says. “Discount plans help save money. For example, some companies may convert from dental insurance to a discount plan.”
Getting employees to buy in, however, requires a bit of education.
“One misconception is employees who say, `I already have insurance, so why would I need this?’,” Rudisill says. “They may not realize they can sign up for a gap in their insurance coverage, such as vision or dental, and they can use that benefit for all of their family members.
“Another misconception is that they already can get discounts by paying cash. The depths of discounts with a plan will far exceed what anyone can get on their own.”
Employers who seek out an informed broker and promote employee engagement will get the best return on their investment. Many brokers are either new to selling discount plans or fail to see them as complementary to insurance sales.
“The No. 1 thing is for the human resources person to ask their broker about discount products, because they don’t always present them,” Misasi says. “Many of them are still in the learning curve. Ask if they have ever placed a discount product with any clients. If a broker has never done this before, you may want to consider looking at a different source.”
Erenbaum suggests a few more questions to ask.
“Check to see if the provider is a member of our association and agrees to our consumer-oriented code of conduct,” he says. “In two dozen states, you can see if the provider is licensed with the department of insurance. When looking at a plan, check up on the provider before you sign up. Make sure you can cancel within 30 days and get your membership fee back. And make sure the plan states that it is not insurance.”
Perhaps the best way to engage employees is to show them the potential out-of-pocket savings.
“The way to get the most participation is to treat it like any other voluntary benefit,” Misasi says. “One path is the employer-paid route, which is available for a fraction of the cost of traditional insurance. If that’s not an option, it can be a voluntary benefit for employees. Have an enrollment meeting where employees can learn about the benefits.”
Brokers buying in
Although discount plans are an increasingly important component of the overall benefits package, brokers still focus on more lucrative insurance products, right?
“I would say that was accurate up until the last couple of years,” says Rudisill, who has been in the discount plan industry since 1978. “Brokers didn't have time to focus on discount product and offerings. But since implementation of PPACA, they are working harder and longer hours for less money, so they are looking for ways to build back lost income.”
That’s exactly the insight that led Rasmussen to start freshbenies.
“Positions are being cut, competition has increased, and as a result, brokers need to expand the lines of coverage and the number of services they sell,” he says. “Non-insurance services fly under the radar of the ACA. These services allow them to serve groups of people and populations that insurance plans don’t — and to expand their incomes.”
This need to increase income coincides with higher demand for affordable benefits.
“The difference today is that their customers' out-of-pocket expenses are drastically increasing,” Rasmussen says. “The broker’s job is to find problems and solve them. At one time, brokers said, `The commission is higher on health insurance, so discount plans are not worth my time.' That time has gone away. Their clients need ways to help hundreds or thousands of people save on health care costs through a bundle of benefits. Many employers have insurance plans that don’t cover what they used to.”
Simply put, successful brokers today sell solutions, not products.
“The use of brokers is increasingly common as they look to diversify the products they sell, even if they already are selling health insurance,” Erenbaum says. “Discount plans are a natural complement to insurance.
“One misconception is that health plans are trying to compete with health insurance. They are not.”
As long as consumers and businesses have to keep a close eye on costs, industry insiders are bullish on the future of discount benefits.
“Lots of things are happening now because of advances in technology,” Misasi says. “We believe using technology will add mobility, such as handheld devices, in the future. The product structure will include more hybrid products that combine discounts with insurance."
Rasmussen has a succinct message for brokers: Get on board, because the train is leaving the station.
“Discount plans will continue to adjust,” he says. “What I see is that bundles will become the best-selling ancillary products in the market.”