In my last two articles, we covered two of the larger shifts that will be occurring in the worksite marketplace in the next few years.

The shift from employer-bill to zero-bill: Taking the employer out of the payroll deduction billing process through a premium direct deposit or EFT model
The move from a pre-tax to post-tax model: Mostly due to the potential tax liabilities now associated with pre-taxing fixed indemnity VB plans

But doesn't everything come in threes? The shift to a zero-bill, post-tax environment opens the door for the last major coming change: from scheduled benefit plan design to lump-sum design.

Traditionally, when it comes to voluntary benefits, most plans have been a scheduled benefit design model. These are plans that have upwards of 30 different procedures that could trigger a claim payment. For example, cancer insurance has claim benefits for diagnosis, radiation/chemotherapy, surgery, hospital stays, ambulance, prosthetic, and the list goes on. Same with other lines of VB, such as hospital and accident plans. These plans, while valuable, are certainly more difficult for employees to understand and more complicated at claim time than their simpler cousin, the lump-sum plan.

So why have scheduled benefit plans dominated the landscape so far? Because of the reliance on cafeteria plans and tax savings illustrations to entice the business owner to get to yes. Once you sell the business or public sector client on pre-tax savings in order to close the deal, you are now limited to offering scheduled benefit plans. Since lump-sum plan payments are taxable if the premium is pre-taxed, they are “off the table” when pre-tax is the primary sales incentive tool. Who wants to pay the tax on a $20,000 lump-sum cancer payment, right?

But with the shift to a post-tax model, agents and brokers are no longer pigeon-holed into offering scheduled benefit VB plans when it comes to cancer, CI, accident, and hospital plans. As for the client, you now have the opportunity to simplify their offerings by switching their scheduled plans to easier to understand, easier to use products.

Dennis Hartin, President of Hartin Dynamics, says, “I continue to see more and more of my clients desiring simplicity in design for their voluntary enhanced benefits package. By shifting to a lump-sum strategy, we are able to meet that client demand and still provide the protection their employees need.”

So where are lump-sum plans already prevalent? You don't' really think about it but in the VB world, short-term disability is a lump-sum product, not a scheduled benefit design (just paying a monthly lump-sum). Even today, it is offered post-tax, even with clients that have a cafeteria plan in place. And let's not forget about the granddaddy of all lump-sum plans: life insurance. Again, always post-tax because it is lump-sum in design.

So to the carriers, get your lump-sum product suite refreshed and ready to go as more companies shed their payroll deduction employer bill and move to a post-tax model. Some carriers are further along the curve, even combining multiple lines into one product. One carrier has cancer, critical illness, and Alzheimer's lump-sum coverage, plus hospital and accident coverage as well; all under one policy. So the ability to streamline your VB offerings from eight to three product offerings is attainable. This is a true voluntary supplement to your major medical plan.

There is another product on the market that offers lump-sum cancer, critical illness and long-term care, plus includes a matching death benefit. So for example, you can choose a $15,000 lump-sum plan and it will pay you $15,000 in the event of cancer/CI/LTC, plus another $15,000 upon death. And if you do not incur a claim during the life of the policy, your death benefit is doubled to $30,000! This product covers what I call the “triangle of needs.” Ultimately you need coverage for dying too soon (death benefit), living too long (LTC), and something going wrong between those two possible events (cancer/CI).

If I was a betting man, I would suggest lump-sum plans will emerge as the preferred plan design moving forward, as the industry shifts to a post-tax environment. They are easier for employees to understand, easier for the client to offer, and easier for the carrier to process the claims.

“With the shifts away from traditional payroll deduction and to a post-tax model, it is only natural to increase the prevalence of lump-sum products to our clients”, says Eric Silverman, president of Voluntary Disruption. “We are able to provide better customer service and ease-of-use at time of enrollment and at time of claim; two traditional pain points with offering enhanced benefits.”

One added bonus of the shift to lump-sum design is the adaptability to technology and enrollment. As more sales transactions move to smartphone screens, you can efficiently overview and enroll a lump-sum product via smartphone. You cannot adequately cover a scheduled benefit plan on a screen that size. So these plan design are much more enrollment technology friendly.

And brokers, you should evaluate your VB strategy to address each of the coming shifts on these three pain points outlined in my BenefitsPRO articles. If you talked to a potential client and said, “If I can eliminate your employer list-billing and reconciliation process, remove your tax liabilities associated with your pre-tax benefit offerings, and simplify your product designs so your employees don't need HR assistance to file a claim”, what do you think the response would be? And to your existing clients, providing the same value proposition builds a moat around your current book of business, which is a nice thing to have when 58 percent of VB sales are now takeover sales.

So get ahead of the curve as the product design model shifts in the near future. What are you waiting for?

William L. “Tripp” Amos III joined Piedmont as Chairman in 2018. He is a member of Aflac's founding family, and has been in the voluntary/worksite business for over 25 years.The author can be reached at tamos@piedmontpays.com if you would like more information on the content in the article series.

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The shift to lump-sum design

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