The evolution of voluntary benefits claims

Let's consider why this happens, and what employers need to do to mitigate the problem. The story of VB claims reporting is a subset of the evolution of employee benefit plans, the distribution and marketing of these plans, and of the technology that supports their administration.

Historically, employers offered "core" benefits. These plans were purchased by employers for the benefit of their employees. They were marketed through employee benefit brokers. Brokers focused their attention on core benefits, most notably medical plans (because that is the area of greatest expense to employers and their employees). Brokers and their employer-customers carefully tracked value through analyzing the loss ratio of the plans (see attached box for definitions).

Meanwhile, astute insurers and marketers identified gaps in these core benefit plans, and convinced employers to support products that filled the gaps by permitting the convenience of enrollment at work and premium payment via payroll deduction. These came to be known as voluntary or worksite benefits. In general, these VB plans were quite profitable. However, not all employers were tracking the value as they did for core benefit plans.

Thus, for many years, core and voluntary benefits were managed through different insurance companies and benefit consultants. During those years, traditional Voluntary or Worksite carriers would share employee participation, consumer demographics, and policy retention but typically withheld claims information.  

As a result, benefit utilization was largely unmonitored, and voluntary plans were profitable for insurers, but perhaps not such a great value for employees and their employers. Carriers would experience profit margins from high single digits to low double-digits on their voluntary lines of coverage. There was little incentive for the insurers to report claims experience.

Then, emerging technology inspired change. Employee benefit administration and human capital management systems began handling the enrollment and administration of all types of plans on behalf of employers. No longer were VB plans managed separately. At the same time, group insurers and employee benefit brokers and consultants became aware that they could efficiently offer voluntary employee-paid plans as part of their overall strategy for an employer's benefit package.

The strategic approach to employee benefits resulted in the expectation that all plans, including VB plans, would be supported by comprehensive claims reporting. Both employers and advisors understand the value of good claims reporting to the overall health of a benefits portfolio. The reported experience tells them whether the selected products meet the value test, or whether the plan design or selected carrier needs to be changed.

When employee benefit brokers and group carriers entered the voluntary marketplace, they brought increased competition, enhanced benefit utilization, and greater transparency.  The target loss ratios increased from low double digits to 2 or 3 times the historical utilization.  However, some legacy insurance companies have used methodologies that may overstate claims utilization or obscure underlying product value. Common erroneous practices include improperly including administrative fees as claims, inconsistent timing and underreporting of earned premiums, and inflated reserve adjustments.

As a result of competitive pressure, the voluntary benefits landscape has undergone significant transformation, moving away from low benefit utilization and opaque claims processes to a more responsive marketplace.Many VB carriers are leveraging their existing offerings and developing a comprehensive client claims reporting structure. The employer and claimant experience has been greatly improved by creating loss ratio reports consistent with core medical, life, disability, absence management, and stop loss. All parties have an expectation of a trustworthy, seamless digital claims experience with enhanced utilization.

Beyond reporting, modernizing the VB claims process improves speed of claims adjudication, coordination of claims processes among core and VB plans, appropriate levels of benefit utilization, simplified plan administration, and integrated claims communications for employers, employees, and benefit advisors. The provision for claims loss ratio reporting builds trusted relationships between all parties and ensures compliance with regulatory (e.g. Minimum Loss Ratio) standards.

In this new era, employers should work with their benefit strategy advisors to make sure their VB plans meet these current market standards. All benefit products should be reviewed with a focus on recommending providers that use meaningful claims processing and appropriate loss ratio standards. This will assure that the employer's VB plans will provide the expected value to all parties.