Trends and Opportunities in Voluntary Benefits

One person’s nightmare is another’s windfall

by Leonard A. Cavallaro

On February 10, quietly and without fanfare, the Obama administration once again pushed back the start date of the Affordable Care Act’s “employer mandate” for employers with 50-99 lives. For employers with 100 or more workers, the 2015 requirement was scaled back: Now, to avoid paying a penalty, these employers need to prove coverage for only 70% of their workers instead of the 95% threshold originally mandated.

Here in the group benefits world, two questions were immediate: First, “What!?” Followed shortly thereafter by, “What does this mean to my clients – and by direct association, my business?” Overall, this is business as usual today. The broker marketplace is more than occupied trying to understand, process and evolve under ACA. The distribution model, particularly independent agents and brokers, is typically consumed with pursuing rules, markets and models that seem to change faster than American Idol judges.

Fortunately, one person’s nightmare is often another’s windfall. The immediate advantage of Voluntary benefits in the market today is the broker’s ability to compensate for medical plans, the ultimate elephant in the room. Traditionally, ancillary benefits have occupied a comparatively small share of mind in the broker channel – and Voluntary benefits only a fraction of that. That’s in part because historically, insurance carriers and employers alike haven’t paid enough attention to designing, implementing and communicating these programs with the employee in mind. Rather, Voluntary benefits have focused on the increasingly aching backs of cost-shifting employers, often leaving workers with ample choices but little information. All that is about to change. Here are some reasons why.

Voluntary vs. Worksite

In the beginning there was Worksite benefits. Giants like Aflac and Colonial built the industry one enrollment at a time, thousands a day. Somewhere along the line group insurance carriers got into the business and called it Voluntary. Everyone knows the overall differences: Worksite was individually underwritten, highly personalized, truly a one-on-one sale – and lucrative, albeit labor intensive, for the enroller, whether carrier, agent, broker or contracted enrollment firm. Voluntary, on the other hand, was stable, built to meet the group’s common denominator. Risk was spread, rates were low – but so was pressure on participation. Commissions were generally flat, built for tenure, rounding out a revenue stream that included medical and core employer paid ancillary benefits.

Over time Voluntary started to grow while Worksite strived to maintain, driven by the natural desire of the client to have their benefits broker manage their entire benefits portfolio. According to Eastbridge Consulting, benefits brokers in 2012 claimed the largest piece of the Worksite/Voluntary market, their high water mark, representing 56% of all Worksite/Voluntary sales. In response, traditional Worksite companies bought or aligned with group carriers to broaden their offerings to include group Voluntary products.

What’s behind the trend? One word: Easy. Group carriers and benefits brokers figured out how to make it easy for the most people to understand their needs and their options; and easy to access a baseline of coverage. In a world where people order food on a touch pad two feet from the human beings who prepare it, group platform Voluntary made sense.

That’s not to say that individual platform products will be disappearing from the landscape anytime soon. There is a growing demand by employees for gaining access to financial security products at the workplace. While benefit brokers look like they will remain the advisor of choice, they will increasingly be looking to provide an array of products that include both platforms. Carriers will also adapt, adding Worksite-style characteristics to their group products – and vice versa.

Exchanges

When people talk about Exchanges in the post ACA marketplace they struggle to come up with a solid working definition – with good reason. When it comes to exchanges, if you’ve seen one, you’ve seen one. Currently, public (government) exchanges deal only with medical and select dental coverages as dictated by ACA. The advantage: Individuals may be eligible for government subsidies when purchasing through this portal. The disadvantage: Public exchanges tend to fragment the benefits picture, making it even tougher for employees to feel like they have a coordinated approach to providing for their financial security.

Unlike their government counterparts, private exchanges create an easy (there’s that word again), holistic, individual centered shopping experience that includes benefits offerings beyond purely medical and dental. In fact, as private exchanges begin to mature you’ll notice they aren’t dramatically different from the enrollment and benefits administration platforms that have gained traction before and since the ACA. Notice the people friendly interface, seamless one-stop experience, consolidated billing….As an industry we weren’t forced in this direction, we were ahead of the curve! As a broker, you should recognize and endorse the firms that are making the most of a good idea in a new market environment. Theirs is a glimpse of the new world.

Who chooses vs. Who pays

For too long insurance companies have focused on who pays the benefit premium. Is it employer paid? Contributory? 100% employee paid? Actuarial models require that consideration to spit out rates but consumer buying behaviors work independent of it. As a result our sales priorities and distribution strategies have to evolve in order to remain successful.

Voluntary benefits have grown over the years in part because employers were forced to cost shift to deal with extraordinary hikes in health care costs. This phenomenon, paired with the momentum of group platform voluntary products, muddied the water, creating products that looked a lot like legacy employer paid benefits but were priced differently based on the payment being deducted from a paycheck instead of a balance sheet. In truth, we tried to keep things easy, but not for the employees! Group Voluntary programs were evolutionary, and designed to be an easy leap for the carriers, brokers and employers to make.

In the new world there are new options to deal with the financial pressure – to spread cost along with risk. While it won’t happen overnight, watch for employers to use the next generation private exchanges to fuel a defined contribution model of health and welfare benefits delivery. Every day on Amazon tens of thousands of people look for options, read reviews, consider costs and select their goodies. Tomorrow the same will be true for benefits.

The employee will have the ability to view benefits options, learn about them, read third party feedback, use calculators and manage his account (whether funded by his employer, his disposable income or, most likely, both) wholly on his own with one simple objective in mind: the health and well being of his family.

The battle for share of mind and wallet

So the primary issue in the coming battle for share of mind and wallet is going to be engagement and assistance at the individual level, a degree of consumerism that has not yet been deployed in this segment of the market. Regardless of the enrollment medium, can you as the broker:

• Make benefits relevant to the employee’s (and family’s) needs, not just the menu of offerings?
• Make advice, decision support and guidance organic and common sense?
• Demonstrate actual and comparative value alongside product choices?
• Advocate for the overall financial health and security of the person making the benefits election?
• Speak clearly, plainly and without an obvious agenda, other than meeting the needs of the individual?

If you answered “yes” to all or most of the above, you’re likely to be among the brokers (and carriers for that matter) who will be successful in the marathon.

I don’t believe there is a product-based “magic bullet” in existence or even in development. Rather, today’s market contains plenty of product to meet the needs of the population. The trick, as suggested above, is to represent available products and services within a context that is meaningful to the individual making the election. Employee research has shown repeatedly a desire for – but lack of – common sense advice, education and communication to help them determine an appropriate benefits strategy and investment.

Going forward, regardless of how ACA plays out, I suggest starting by focusing on the basics. Consider three overall “buckets” of non medical benefits:

• Life insurance
• Income protection
• “Gap” products, insurance lines that will help alleviate the burden or bridge obvious financial exposure left by medical or other plans. An example of this would be a group accident or limited benefit medical plan that helps employees moderate the out-of-pocket risk of a high deductible health plan.

You now have the basis of a conversation, whatever that looks like or wherever it takes place, with an employee interested in protecting his family, his paycheck and his lifestyle. Where and how you evolve this conversation, and how far you are willing to go to meet people on their terms, according to their schedule and preference, is probably a pretty good indicator of how successful you will be.

I wish you luck. And in all likelihood I will see you somewhere along the long, winding road.