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Wednesday April 16th 2014

Archives

May 2013 California Broker

May2013CoverLife Settlements – An Alternative Investment that Provides Certainty in Uncertain Times
by Ken Morris • Whether your client is an institution, family office, endowment, or an accredited/qualified investor, investing in this asset class will provide greater portfolio diversification with no correlation to market or interest rate fluctuations.
Health Savings Accounts – A Pivotal Year for HSAs
by Jennifer Dean • If you’re not recommending HSAs to your individual and employer clients, it’s time to take a good look at the bottom-line benefits of an HSA plan.
Prescription Drug Benefit – Fraud, Waste and Abuse of Prescription Benefits
A Pharmacy Benefit Manager’s Role in Detection and Prevention
by Maria Guarini, R.Ph • Every misspent prescription dollar could increase your clients’ drug spending and threaten the health of employees. You can help clients protect by working with a PBM that has the appropriate benefit design controls.
Disability – Could a Disability Disrupt Your Client’s Retirement Readiness?
by Mark R. Ameigh, CLU • Imagine that your clients’ progress in financial planning is stopped years short of retirement due to an extended period of illness or recovery from a serious injury. Is your client equipped to deal with that possibility?
Disability – How Voluntary Disability Benefits Can Address the Needs of Generation Y
by Paul D. Taylor • Offering employee benefits can play a vital role in strengthening the relationship between employers and employees. This is especially true for the Generation Y demographic. One reason is that Generation Y workers are in diverse life stages, and some have multiple family financial obligations.
Disability – Filling the Coverage Gap for Highly Compensated Employees
by Gary F. Terry • Many companies offer group-disability coverage that only provides 60% of base salary with no protection for bonus income. But there are supplemental disability insurance products available, which can be paid by the employer or offered on an employee-paid voluntary basis.
Voluntary Benefits – Voluntary Benefits: Better Than They Look On Paper?
Industry Aces View From the Top Reveal Tips That Will Make Your Sales Takeoff!
by Leila Morris • Our panel of experts offers a wellspring of insights to the biggest trends in voluntary benefits.
Accident Insurance – Why You Should Add Voluntary Accident Insurance to Your Portfolio
by Lisa Rehburg • There are countless reasons to add voluntary accident insurance to your portfolio of product solutions; there’s just no good reason to wait.
401(k) – Help Your Clients Fund a Business With a 401(k)
by David Nilssen • Plans like an IRA or 401(k)s can be used for much more, including making investments in real estate, tax liens, and private loans, or even starting your own business.
Life Insurance – How to Influence and Win a Case
Improving Your Life Underwriting Expertise Is What Life Selling Is All About
by Allan D. Gersten, CLU, CFP, ChFC • Having thorough knowledge of a case is what selling life insurance is all about. It’s the agent’s role to gather the necessary information while it’s the general agent’s or broker general agent’s role to analyze that data that becomes the basis for approval of the most appropriate solution.
Critical Illness – Protecting Your Family and Your Future With Critical Illness Insurance
by Jeffrey A. Spain • Medical bills and non-covered related expenses are one of the leading causes of bankruptcies in the United States. Fortunately, my wife and I had purchased a critical illness protection plan several years prior to her diagnosis, or we too could have been a bankruptcy statistic.
Enrollment – Getting a Jump on Open Enrollment
by Lydia Jilek • Two little words, “open enrollment,” can lead to a variety of reactions and questions. Brokers, employers, and employees have much to consider during this important and sometimes overwhelming period. With the health benefit landscape shifting under our feet, there is a lot to take in.

Life Settlements – An Alternative Investment that Provides Certainty in Uncertain Times

by Ken Morris

With interest rates at their lowest since right after World War II, life insurance companies face significant challenges over the next several years. They are trying to keep their products competitive while turning a profit. Low interest rates result in lower returns on annuity and life products, making it difficult for insurance companies to keep promises to policyholders.

Furthermore, agents and advisors are finding it even more difficult to sell these lower interest products to their clients.

Wall Street’s financial experts don’t expect this economic environment to improve any time soon. Some say that the economic recovery that’s being touted in Washington is nothing but smoke and mirrors and that the American public is in for a rude awakening over the next several years.

Sixty-eight percent of CFOs of North American life insurance companies expect a three- to five-year period of low interest rates, followed by a gradual increase, according to a recent survey by Towers Watson. A recipe for financial disaster is the constantly growing $16.4 trillion government debt coupled with 10,000 Baby Boomers turning 65 who will mostly depend on Social Security.

This may seem like pretty dismal news for those who are trying to sell insurance and investment products. But alternative investments offer a bright spot in these difficult times. California life agents are flocking to one particular alternative asset class – fractional life settlements.

A life settlement is a financial transaction in which a policy owner (65 or older) sells their policy to a single institutional/corporate investor for more than the cash-surrender value, but less than the face value.

A fractional life settlement is a financial transaction in which multiple qualified investors purchase a fractional share of an existing life insurance policy on an insured who is typically 80 or older with a life expectancy from two to eight years.

These products offer life and annuity clients double-digit fixed returns on their investment capital without the risks found in most traditional investments including stocks, bonds, mutual funds, annuities, bank CDs, or any interest rate sensitive investment product, for that matter.

Until just recently, life agents never had the opportunity to sell an alternative asset class that offered double-digit fixed returns. Their only options were to sell the life insurance policies or annuity products that their carrier offered.

Now, thanks to California law, every California life agent can present this alternative asset class to clients who qualify. The advantages are multiple. These products provide double-digit fixed returns. Also, the assets that clients are purchasing are from the very same financially sound insurance companies from which agents have been selling for their entire career.

Although it’s a relatively alternative asset class, the market is more than 100 years in the making. The life settlement market would not have originated without a number of events, judicial rulings, and key individuals.

The U.S. Supreme Court case of Grigsby v. Russell, 222 U.S. 149 (1911) established a life insurance policy as private property that may be assigned at the will of the owner. It was the opinion of Justice Oliver Wendell Holmes that life insurance possesses all the ordinary characteristics of property, and therefore represented an asset that a policy owner may transfer without limitation. This decision established a life insurance policy as transferable property that contains specific legal rights, including the right to do the following:
• Name the policy beneficiary
• Change the beneficiary designation (unless subject to restrictions)
• Assign the policy as collateral for a loan
• Borrow against the policy
• Sell the policy to another party

In 2000, Governor Gray Davis signed Senate Bill 1837 into law. Life settlements are now considered securities and are regulated by the Securities Division of the California Department of Corporations. The law exempts life settlements from registration requirements. It also exempts them from broker-dealer licensing requirements of the Corporate Securities law. When engaged in transactions, a licensed life agent is exempted under the new exemption for viatical or life settlement contracts or fractionalized or pooled interest therein.

In conclusion, whether your client is an institution, family office, endowment, or an accredited/qualified investor, investing in this asset class will provide greater portfolio diversification with no correlation to market or interest rate fluctuations.

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Ken Morris Reliant Life Shares director of Business Development. He can be reached at Reliant Life Shares at (818) 788-1904.

HSAs – A Pivotal Year for HSAs

by Jennifer Dean

California may favor health reimbursement accounts (HRAs), but the Golden State is making room for health savings accounts (HSAs). If you’re not recommending HSAs to your individual and employer clients, it’s time to take a good look at the bottom-line benefits of an HSA plan.

Since 2004, HSAs have appealed to employers and employees as well as individuals. You can create an affordable and sustainable health benefit by combining an HSA with a qualified high-deductible health plan (HDHP), defined as having a deductible of at least $1,250 for individual coverage or $2,500 for family coverage in 2013. An HSA plan encourages smarter healthcare decisions, often reduces health plan premiums, and lowers taxes for employers and employees.

If the ACA has you putting HSAs on the back burner, consider this: On November 20, 2012 the U.S. Department of Human Services (HHS) proposed regulations to several components of the Affordable Care Act, including some specifically addressing actuarial value rules. The new rules are highly favorable for the future of HSAs. The HHS has clearly indicated that a portion of HSA contributions made during the year will be counted in the calculation of actuarial value. As such, HSA plans will meet or exceed the Bronze level (60%) actuarial value requirement defined by the ACA. Based on this guidance, an individual HDHP could have an annual deductible of $6,250 with HSA contributions of $250 per plan year and still qualify as a Bronze plan.

Generally, HSA custodians -reported a record-setting enrollment for the 2013 plan year. Many expect similar results for 2014 as employer groups of all sizes position themselves for the full legal implementation of the ACA on January 1, 2014. More than 13.5 million people were enrolled in an HDHP with an HSA at the end of 2012 representing a $2.1 million increase from the previous year, according to America’s Health Insurance Plans.

Remember that consumer-driven health (CDH) pre-dates health care reform. The health insurance industry turned to CDH combining HDHPs with a healthcare savings account (i.e. HSA, HRA, and FSA) to provide affordable and quality care to Americans long before the ACA. Employers have embraced CDH as a way to offer an affordable health plan with quality coverage for employees and members long before the ACA.

The country’s healthcare expenses could decrease by $57 billion if 50% of Americans who are enrolled in employer-sponsored coverage had an HSA plan, according to a study by the Rand Corp. Also, 66% of businesses with at least 1,000 employees offered an CDHP in 2013. This rate is expected to rise to 80% in 2014, according to a recent survey by Towers Watson and the National Business Group on Health. Also, 60% of companies that are moving to full-replacement CDHP in 2014, plan to offer and fund an HSA while 32% plan to offer an HRA.

Employees like HSAs because they fully own the account and can benefit from tax advantages. For example, the amount that an employee contributes to their HSA through a payroll deduction is excluded from Federal and FICA taxes. Any after-tax contributions to the HSA from an employee or individual are tax deductible. HSA funds earn interest tax-free when used for eligible medical expenses, as defined by the IRS, are also free from tax.

While an HSA can be set up through an employer, once funds are deposited and the HSA is open, those funds are the account holders to keep – even if they terminate employment or retire. Unused funds and interest are carried over, without limit, from year-to-year.

The amount that an employer contributes to their employees’ HSAs is excluded from the employer’s FICA, unemployment and Workers Compensation taxes. Plus, HSA reimbursements do not require claims substantiation, which is one less hassle for the benefits department.

An employer, employee, or third party can contribute to an HSA up to the annual maximum IRS limit for single or family coverage ($3,250/$6,450 in 2013). Unsued HSA dollars roll over year-to-year, earning interest tax-free. HSA dollars can also be invested tax-free in at risk, self-directed investment options including stocks, bonds, and mutual funds. If an employee or individual needs to use HSA dollars for eligible medical expenses, money can be transferred from an investment account to the HSA or withdrawn from the HSA on a tax-free basis.

Simply stated, HSAs are no longer the alternative to traditional plans. HSAs are mainstream offerings for employers of all sizes and industries. Many large employers are deciding to offer CDHPs; some are making it the only option. These plans create better healthcare consumers and tend to lower medical claims, especially when designed with an HSA.

When asked if 2014 will be a pivotal year for HSAs, the current administration assures us that HDHPs and HSAs will be included within the scope of the Affordable Care Act. Come what may, HSAs are expected to thrive. q

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Jennifer Dean is director of Sales Communication at HSA Bank and writes on the advantages of Health Savings Accounts (HSAs) and consumer-directed healthcare. Jennifer has been a business and health writer for more than 15 years. She has contributed to websites, newsletters, trade publications, and national magazines. Connect with Jennifer at jedean@hsabank.com.  For more information on HSAs in California, contact your Regional Vice President David Drzymkowski at (949) 374-2853 or ddrzymkowski@hsabank.com.

HSA Bank, a division of Webster Bank, N.A. (NYSE: WBS) Member FDIC, was one of the first financial institutions in the United States to offer HSAs. With origins dating back to 1913, HSA Bank now serves more than 500,000 accountholders and 25,000 employers across the country, managing over $1.8 billion dollars in HSA deposits & investments. Webster Financial Corporation is the holding company for Webster Bank, N.A. For more information about HSA Bank, visit www.hsabank.com.

Prescription Drugs – Fraud, Waste and Abuse of Prescription Benefits

A Pharmacy Benefit Manager’s Role in Detection and Prevention

by Maria Guarini, R.Ph

The FBI estimates that $70 billion to $234 billion is lost each year to fraud, waste, and abuse, which means that $84 million to $630 million is lost each day . With an increase in access to care through Medicaid expansion and the launch of the Health Insurance Marketplaces as part of the Affordable Care Act, fraud, waste, and abuse is expected to increase each year as more individuals have access to healthcare and associated pharmacy costs increase. It is essential that prescription fraud, waste, and abuse is proactively detected, prevented, and monitored because it directly affects every sector of healthcare in the United States.

Prescription drug fraud, waste, and abuse affect every sector of healthcare in the United States. Examples include a member not picking up a prescription, prescribed medications being used for non-medicinal purposes, or a pharmacy neglecting to fill a prescription with an equally effective generic alternative to a high-cost brand name drug.

Prescription fraud happens when prescription drugs are acquired illegally for personal use or profit. A member may try to get prescriptions under false pretenses, try to refill a prescription that’s no longer needed, or visit a doctor to get a prescription they don’t need. Fraud can also happen when providers write illegitimate prescriptions by accident or by design and pharmacies process phantom claims.

The client, the broker, and the pharmacy benefit manager (PBM) should partner to detect and prevent the fraudulent use of medications. A PBM can be a valuable partner in determining which strategies may work best for your clients to minimize fraud, waste, and abuse. Successful strategies include the following:

• Point-of-sale edit checks monitor doctor shopping, the use of excessive medications, duplicate therapies, and refills that are requested too soon (With edit checks, prescriptions are compared against previous prescriptions filled by the same pharmacy and by other pharmacies.)

• Lock-in programs are for members who are at risk for overuse or misuse of prescriptions. A member is limited to using one doctor and one pharmacy for restricted prescriptions. Otherwise, the prescription requests are rejected at the point-of-sale.

Pharmaceutical waste includes prescription drugs that are not -administered or taken as intended. This also includes prescriptions that a member never picks up from the pharmacy, does not use, or does not take in their entirety. Waste also includes prescriptions that are ineffective in treating the member’s condition or have a less expensive alternative.

The following programs are designed to target waste:

• Customized clinical programs, such as drug therapy management: This includes establishing trial periods for maintenance medications before filling longer-term prescriptions.

• Pharmacy benefit designs that don’t allow retail and/or mail order pharmacies to enroll members in auto-fill programs in which medications are sent to a member without their requesting the refill.

Prescription abuse is the use of a prescription medication in a way not intended by the prescribing doctor. More than 18,000 deaths in the United States were attributed to the non-medicinal use of narcotics in 2010. It marked the first time in history that deaths from prescription pain medicine surpassed deaths from the use of heroin and other street drugs. The following programs address prescription abuse:

• Prior authorization edit checks for high cost and high-risk medications — Providers must provide additional justification that a member needs the prescribed medication.

• Duplicate therapy restrictions and dose limitations prevent members from accessing a combination of high-risk fraudulent medications within a period.

• Lock in programs — A member who is suspected of abuse can only fill claims at a pharmacy approved by the client.

It is important for the client, the broker, and the PBM to be partners during benefit design and implementation and throughout the contract. At tradeshows and conferences, we hear a recurring theme from employers, health plans, as well as state and local government agencies — their PBM vendor isn’t proactive with claims information. By the time a plan sponsor approaches the vendor with a concern, the fraud, waste, or abuse has become a costly and ongoing issue that puts members’ health at risk.

Preventative strategies are essential, but monitoring a clients’ claims data is also vital. Brokers can partner with their clients and PBMs to keep the lines of communication open. Easy-to-understand reports that the PBM provides to the client and the broker can help identify and mitigate issues before they become full-blown cases of fraud, waste, and abuse.

Medical claims may take weeks to process. But pharmacy claims are processed in real-time, allowing for the earliest detection of potential fraud, waste, and abuse. In order to detect any potential fraud, waste, and abuse, your PBM should implement a wide range of real-time claims adjudication reviews including pharmacy point-of-sale messages.

It’s crucial for the PBM to have access to prescription utilization data. The PBM’s claims adjudication system can give pharmacists the tools they need to prevent fraud, waste, and abuse. Pharmacists are better able to detect inappropriate drug use when they have access to the member’s complete prescription profile along with pharmacy edit checks, warnings of early refills, and warning messages of controlled substances.

Throughout the plan year, a PBM may recommend alternate utilization strategies targeting additional medications or classes of medications. With highly sophisticated data analysis, a PBM can identify these opportunities as they arise; help formalize a strategy for each scenario; and implement the change at any time.

For your client to have a successful pharmacy benefit plan and maximize pharmacy dollars, it is essential to stay at the forefront of pharmacy benefit utilization. By understanding the member population, a PBM can identify the restrictions and benefit design changes that may be necessary to prevent fraud, waste, and abuse.

As many employers struggle to reduce inappropriate spending, the landscape for fraud, waste, and abuse has changed in recent years. With the already rising cost of healthcare, every misspent prescription dollar could significantly increase your clients’ drug spending and threaten the health of employees. You can help clients protect their bottom line while ensuring the safety of their employees by working with a PBM that has the appropriate benefit design controls to identify and mitigate fraud, waste and abuse.

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Maria Guarini, R.Ph is a pharmacist with 16 years of professional experience in the healthcare industry including patient adherence, drug interaction monitoring, and drug utilization review including duplicate therapy and generic utilization. Maria recently joined US Script as a Clinical Account Manager. US Script is a full-service Pharmacy Benefit Manager (PBM) that delivers a flexible, high-touch benefit supported by innovative clinical programs and analytics. For more information about fraud, waste and abuse or US Script, please contact us at media@usscript.com or at 1-800-413-7721.

How Voluntary Disability Benefits Can Address the Needs of Generation Y

by Paul D. Taylor
Offering employee benefits can play a vital role in strengthening the relationship between employers and employees. This is especially true for the Generation Y demographic. Generation Y workers are in diverse life stages, and some have multiple family financial obligations. Sixty-one percent are married or in a domestic partnership; 46% are parents of young children; and 13% provide care for an elderly parent or relative, according to MetLife’s 11th Annual Study of Employee Benefits Trends, Sixty-nine percent of surveyed Generation Y workers say they are concerned about their family’s financial security if the principle wage earner is unable to earn an income due to illness or injury. This makes it very attractive to have voluntary disability benefits with the option of buying coverage to supplement any core offering.

Benefits can be leveraged as an employee retention tool. Fifty-eight percent of Generation Y workers say that having access to benefits is an important reason why they continue to work for their current employer, according to the MetLife study. While one in three employees say they would like to work for a different employer in 2013, the percentage rises to about one in two for Generation Y workers.

You may have clients that underestimate the value that employees place on their non-medical benefits, including disability coverage. For instance, the study found that 52% of employees said that having benefits that are customized to their needs strongly influences loyalty to their employer. Seventy-one percent of employees who are very satisfied with their benefits feel very strong loyalty to their employer compared to 25% who are very dissatisfied with their benefits. Furthermore, while 62% of surveyed employees, overall, are interested in having a wider array of voluntary benefits, that percentage jumps to 70% for Generation Y. So it’s easy to see how voluntary benefits, such as disability coverage, can play a key role in helping both the employee and the employer.

Workplace Education Can Help

Even with a disability plan in place, it is important for employers to make sure that employees are aware that a plan is available and understand how it addresses their needs. Educational materials and effective communications are critical for maximizing the value of the plan for all stakeholders. It is important to help employees understand how to determine the amount of disability insurance they need. A basic rule of thumb is to cover 60% to 80% of after tax income, but Generation Y employees might need the higher limits. Employers that offer access to voluntary supplemental disability coverage give employees the opportunity to obtain those higher limits without affecting the company’s benefit budget.

It stands to reason that people who understand their benefits are more likely to value them and appreciate that their employer has made them available. Don’t neglect to explain the basic facts in easy-to-understand language. Even those who have disability insurance are often unaware or mistaken about the amount of time that their insurance lasts. For example, a MetLife Disability Literacy study found that 46% of workers with short-term disability benefits are not sure how long their benefits would be paid, or they assume that benefits would be paid for a year or more. Additionally, 36% are unsure of the duration that long-term disability benefits would be paid or they believe that these benefits would be paid out for the remainder of their life.

Generation Y Wants Advice

The good news about disability insurance is that Generation Y seems open and willing to accept help when it comes to income protection. This doesn’t mean that they are only seeking advice from financial professionals; they may be asking friends and family as well. It does suggest that Generation Y may be more receptive than other generations to using workplace financial education programs, online tools, and other resources to get the correct amount of protection.
Using disability insurance along with other voluntary benefits can help create and strengthen Generation Y’s personal financial safety net. Generation Y is looking for resources to help improve their personal finances. And providing help does not have to cost employers very much. Using inexpensive tools on the company Website, as well as providing financial education, are economical ways to provide assistance. Without adding to the employer’s bottom line, voluntary disability benefits can add real value to a generation whose ability to earn an income is likely their most valuable asset.
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Paul D. Taylor is vice president, Group Disability, for MetLife. Metropolitan Life Insurance Company (MetLife) is a subsidiary of MetLife, Inc., a leading global provider of insurance, annuities and employee benefit programs, serving 90 million customers. Through its subsidiaries and affiliates, MetLife holds leading market positions in the United States, Japan, Latin America, Asia, Europe and the Middle East. For more information, visit www.metlife.com.

Could a Disability Disrupt Your Client’s Retirement Readiness?

by Mark R. Ameigh, CLU

Many things can punch holes in your clients’ retirement plans. With most employer-sponsored plans, employees, who are not financial planning experts, are responsible for accumulating enough savings to provide adequate retirement income. Throughout their careers, they must negotiate difficult investment decisions regarding market volatility and interest-rate fluctuations. Life events can also get in the way, such as major out-of-pocket medical expenses, uninsured property losses, or divorce.

Now imagine that your clients’ progress is stopped years short of retirement due to an extended period of illness or recovery from a serious injury. Is your client equipped to deal with that possibility? Fortunately, there are a variety of approaches to disability insurance (DI) that can help your client manage this risk. This article will explore two of these approaches: retirement protection disability insurance and the lump sum disability benefit rider. Products in the retirement protection DI category are designed to cover the contributions that your clients make to a qualified defined contribution (DC) plans. These offerings include the following features:

•Contributions for the policy owner’s DC plan are covered under a separate DI policy or rider.
•Benefits are paid to a special trust account in the event of a total disability.
•A trustee invests the benefits at the direction of the policy owner (subject to their suitability).
•The trust is dissolved, and accumulated assets are distributed to the policy owner at age 65.
•A designated beneficiary may receive trust assets if the policy owner dies before 65.

Once the trust assets are distributed, the money can be used in any way the recipient deems appropriate, such as creating supplemental retirement benefits. What’s more, benefits are paid into the trust on a tax-free basis if the policy owner pays for coverage with after-tax dollars. With qualified DC retirement plans, taxes on asset gains are deferred until benefits are received. Retirement protection DI programs don’t allow for tax deferral. However, the policy owner can make withdrawals from the retirement protection DI trust to pay taxes that are due while the trust is in existence.

So, who are the best prospects for a retirement protection disability offering? Assuming the client participates in a DC plan, advisors should look for these three essential attributes:

1. They earn at least $100,000 a year.
2.They contribute at least 10% of their annual earnings or close to their DC plan maximum.
3.They are fully insured for regular disability benefits through LTD and/or individual DI coverage.

These attributes should be viewed as the minimum standard for retirement protection DI suitability. Ideally, advisors will be able to target high-income professionals who make maximum contributions to DC plans that allow contributions of more than $50,000 per year.

An alternative to the retirement protection DI approach has emerged in recent years: the lump sum disability benefit rider. This rider is attached to a DI policy. It can provide a benefit after age 65, which can be used to create supplemental retirement benefits. Unlike the retirement protection DI concept, the lump sum disability benefit rider is not tied directly to retirement contributions and may pay a benefit based on periods of residual disability.

Any total or residual disability benefits contribute toward the lump sum benefit over the lifetime of the policy. To receive a lump sum disability benefit, contributions over the life of the policy must at least 12 times the policy’s original monthly benefit. The lump sum disability benefit will be 35% of cumulative benefits for total and/or residual disability before age 65 (or policy expiry, if longer).

The lump sum disability benefit rider takes into account that the client may lose financial opportunities during a period of disability beyond contributions to a retirement plan, which sets it apart from other retirement protection programs.

In other words, it can protect retirement funding strategies that occur outside of a qualified DC plan. For instance, in lieu of a qualified retirement plan, a small business owner can invest in the growth of the business and its ultimate sale to provide retirement income. The lump sum disability benefit rider may help make up for business growth lost during a disability.

It’s important to remember that in order for the lump sum disability benefit rider benefit to be payable, it must be attached to a DI policy that is in force on the normal expiry date. Depending on the policy, that could be age 65 or 67. However, as with the retirement protection disability insurance offering, the policy owner doesn’t have to still be disabled to receive these benefits. It can even apply to an illness or injury that occurred decades earlier.

Some people prefer a product that generates potential benefits in more claim scenarios, such as a total and/or residual disability. This rider is not tied to actual contributions to DC retirement benefits or other benefit programs. This brings us to the obvious question: Who are the best prospects for the lump sum disability benefit rider? It applies to a lot of people since an unanticipated illness or injury can create lost financial opportunities beyond lost wages.

You need to determine how important insurance protection for retirement funding is to your client’s retirement readiness. Consider a worst-case scenario in which Social Security is your client’s sole source of income after a disability disrupts their retirement savings. You don’t want your client to be in this position. Many experts believe that Social Security will require significant changes to remain viable. Keep in mind that new threats can appear any time after retirement. Your client may have excessive out-of-pocket medical expenses or simply outlive a lifetime of savings. Regardless of cause, inadequate retirement savings can lead to extremely difficult decisions.

Disabilities are disruptive by their very nature. Experiencing a serious illness or injury is unsettling enough, but being forced to delay retirement or scale back long-term plans because of something that happened years earlier can be as stressful as the original trauma. Fortunately, you client can protect against the consequences of lost savings due to disability with DI products, such as retirement protection DI and the lump sum disability benefit rider. As with anything related to income and savings, there may be tax considerations with either approach, so any client who is considering such products should be advised to consult with a tax advisor to determine what makes sense for their situation.

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Mark R. Ameigh, CLU, is senior competition analyst with Berkshire Life Insurance Company of America, the Guardian company that issues its individual DI policy. He has worked in the DI industry for more than 30 years. He can be reached at mark_ameigh@glic.com.

 

Filling the Coverage Gap for Highly Compensated Employees

by Gary F. Terry

When it comes to discussing disability insurance for highly compensated employees, it’s clear that many people don’t understand the mechanics of the coverage. Whether it’s an office worker or an executive, almost everyone says, “I didn’t realize that.”

Corporate executives, business owners, money managers, lawyers and others are firmly convinced that, if they become disabled, they will receive 60% of their annual compensation.

Recently I asked the head of the human resources department from a large public company, “How much disability insurance does the company provide for employees?”

He replied, “We offer 60% income replacement to a maximum of $20,000 per month of benefit so, our employees earning up to $400,000 are fully protected.”

I asked, “So, if I earn $250,000 of base salary and $150,000 in bonuses for a combined total of $400,000 I would be protected at 60%. Correct?”

He said, “No, actually, only base salary is covered under our group-disability plan.”

His response further solidified what I’ve discovered after talking with a number of companies — the disturbing fact that many companies offer group-disability coverage that only provides 60% of base salary with no protection for bonus income. So an employee may have significantly less coverage than they think because they are receiving only 60% of their base salary, not their total income (including bonuses).

Let’s look at a hypothetical example. The vice president of sales for a consumer products company makes $400,000 per year, which includes a base salary of $250,000 and a bonus of $150,000. When he is suddenly hospitalized for complications from diabetes, he goes out on long-term disability. He assumes that his monthly disability income will be $20,000 per month ($400,000 x 60% divided by 12 months). But think of his surprise when a monthly check shows up in the amount of $12,500 ($250,000 x 60% divided by 12).

The key question that employees need to get answered is, “60% of what?”

•Is it 60 % of base salary?
•Is it 60% of base salary, plus the annual bonus?
•Is it 60% of base salary, plus annual bonus and long-term bonus?
•Are the benefits taxable or tax-free?
•What is the monthly benefit cap? Is it $15,000, $20,000, $25,000, or $30,000?

Benefits are calculated in many different ways. Some employees are covered at 60% of compensation while others are actually covered for as little as 20% to 30% of their net take-home pay after taxes.

Let’s look at another scenario. Bob is the vice-president of development for a software company, earning a $250,000 annual salary and $150,000 bonus. He suffers a stroke. The company’s group plan provides 60% of annual salary, and the benefit is taxable. His original pre-disability, after-tax take home pay was $21,667 per month or $260,000 ($250,000 + $150,000 minus 35% tax). Now his disability after tax benefit is $8,125 ($12,500 minus 35% tax) or $97,500 annually. Bob must now live on 37.5% of his pre-disability take home pay. Fortunately, there are supplemental disability insurance products available, which can be paid by the employer or offered on an employee-paid voluntary basis.

Law firms, consulting firms, and investment firms have other issues to face. It’s not uncommon for partners to earn well in excess of one million per year, with most benefits already structured as tax-free. The biggest problem for these companies is the benefit cap, which is usually $25,000 to $40,000 per month. This is group only or a combination with traditional individual supplemental coverage.

Let’s look at another scenario. As the partner of a law firm, John earns $1.2 million a year. He has Multiple Sclerosis and goes out on disability indefinitely. He has $35,000 per month of coverage (group LTD $25,000 and supplemental coverage of $10,000). This means that his original pre-disability, after tax take home pay of $780,000 ($1.2 million — 35% tax) is now $420,000 ($35,000 per month). Now that he is disabled, he must live on 46% less after tax income. Again, it’s not a pleasant situation once you’ve established a certain lifestyle. But there are ways to avoid this happening.

With multi-life supplemental disability insurance, highly compensated individuals can get additional coverage to protect their income. John could receive an additional $25,000 per month for a total combined benefit of $60,000 per month ($720,000 per year). There are several different products, some of which are dramatically more comprehensive.

Employers understand the limitations of their current disability programs, as well as the supplemental products and strategies that are available to fill the gaps in coverage. It is important to work with a firm that has the knowledge to obtain coverage with the structure and definitions of disability that best meets the client’s needs.

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Gary Terry is executive vice president and managing director of The Westport group and has more than 30 years of corporate planning expertise associated with executive benefits. He is one of the developers of the Executive Income Assurance Plan, a proprietary disability income plan designed with Lloyd’s of London to protect highly compensated executives, both domestic and foreign. 

Voluntary Benefits: Better Than They Look On Paper?
View From the Top: Industry Aces Reveal Tips That Will  Make Your Sales Takeoff!

by Leila Morris

Health reform has ushered in the golden age of voluntary benefits. Brokers are trying to diversify revenue sources; employers are trying to control benefit costs; and employees are trying to cover out-of-pocket health expenses. That’s where voluntary benefits come in. Fifty-eight percent of employers, surveyed by MetLife, called voluntary benefits a significant benefit strategy in 2012 up from 32% in 2010. Industry experts told us that the fastest growing voluntary products are critical illness and accident insurance. When coupled with high deductible health plans, these voluntary benefits offer affordable alternatives to what could be significant risk.

These are just a few observations from our panel of experts. They offered a wellspring of insights in response to all of our questions. We could not include the full text of all of their responses. But we hope that this article covers the major trends in the market.

How has health reform affected the market for voluntary benefits?

Larry Hazzard, vice president, Product Strategy, The Guardian life Insurance Company of America: It has certainly highlighted the importance of having a strong voluntary benefits market. Observers are anticipating a streamlining of core offerings and are looking to voluntary offerings to supplement them. We are hearing from some of our wholesalers that a few employers are putting decisions on hold to see what January 2014 will bring. There’s a great deal of uncertainty out there, so the broker who becomes informed and who can help the employer navigate these changes as they unfold will be seen as a valuable partner.

Toney Chimienti president of Chimienti & Associates Inc.: This is one of the most exciting opportunities for our industry. It is generally accepted that people with Medicare plans need Medicare supplements. In the same vein, people are beginning to recognize that many consumers will need voluntary benefits to mitigate the financial risk exposures of health plans offered under the Patient Protection and Accountable Care Act (PPACA). In some cases these exposures will be covered partially by employer-paid supplemental benefits like medical gap and or catastrophic illness coverages.

Drew Niziak, senior vice president of Broker Sales and Aflac Benefits Solutions: Health care reform has made people more aware of their total benefit costs, and voluntary insurance brings great value at a very reasonable price. In that vein, supplementary benefits will become all the more important because they invoke customer choice. We believe that there will be a shift from defined benefit plans to defined contribution plans in the market generally.

Tim Arnold, senior vice president, Sales & Marketing, Colonial Life & Accident Insurance Company: As health care reform progresses, many working Americans will face increasing responsibility for their health care coverage. There will still be out-of-pocket costs related to coverage and treatment. Employees will still need a way to pay the bills if they’re recovering from an illness or injury. We’re seeing more brokers enter the voluntary benefits market to diversify their offerings and supplement income they may be losing as a result of health care reform mandates.

Tim Knott, senior vice president – Strategic Markets and Product Management, Assurant Employee Benefits: Brokers’ interest in voluntary benefits has increased dramatically over the past two or three years. Many have decided that offering voluntary benefits can increase revenues and add value to their customers. Healthcare reform has caused brokers to reevaluate their business strategies to differentiate themselves in the market.

Secondly, with benefit cost increasing, employers are looking for ways to offer a package of benefits to their employees, but on a voluntary basis rather than on an employer-funded basis.

Finally, as we enter into the exchange world, consumers will have increased responsibility for determining what health benefits to purchase. They will need benefit communication and education tools to help in the process. Also, as they gain confidence and knowledge, they will quickly become more comfortable in choosing the voluntary benefits that best fit their individual situations.

Shawn Smith, territory vice president Western US at Transamerica Employee Benefits: We have seen increased sales due to the basic fear of lost revenue from the brokers’ medical insurance clients.

Heather Lavallee, president of ING U.S. Employee Benefits Distribution: Health care reform presents tremendous opportunity for voluntary benefits. There is growing awareness of health costs both by employers and employees. We are also seeing more interest in voluntary strategies to manage these costs.

Robert Risk, senior vice president, Sales and Distribution: Group Protection – Lincoln Financial Group: Health care reform is having a very positive effect on the market for voluntary benefits as it moves the industry towards more of a retail model with increased employee choice. And we already see employees asking more questions about their benefit options because of this.

Previously, voluntary benefits were used primarily by large employers, but now we see all sizes of groups offering voluntary benefits. There is also a re-classification of full-time and part-time employees by employers, which increases voluntary opportunity.

With health care reform, you may see the younger, healthier demographic opting for high deductible options, leaving them exposed if a catastrophic incident occurs. This is where critical illness becomes attractive.

Which voluntary benefits are becoming more or less popular? 

Lorrinda Lattimore regional practice leader – Voluntary Benefits with AIG Benefit Solutions: Insurance that only covers specific scenarios, such as intensive care or cancer, seem to be fading as more comprehensive plans grow. Otherwise, all other voluntary benefits are increasing in popularity.

Shawn Smith of Transamerica: In the past few years, critical illness and accident insurance have been the fastest growing voluntary products. Of course, life and disability insurance remain the most popular voluntary products. As many group LTC carriers exited the group market, hybrid permanent or term life insurance with an LTC rider have become more popular. It is an inexpensive means of purchasing LTC even though the LTC is a rider to a life insurance contract. Also, combining life, critical illness, and LTC (rider) insurance into one product has created a more popular and affordable method of purchasing these three essential products.

Robert Risk of Lincoln Financial Group: We find that critical illness and accident plans are popular due to high deductible health plans. We are also seeing a renewed interest in permanent life products.

Toney Chimienti of Chimienti & Associates: Our own experiences mirrors the research results provided to us by Eastbridge Consulting Group. In a recent presentation of Eastbridge’s 2011 voluntary benefits survey (the largest and most comprehensive of its kind), Gil Lowerre provided us graphics illustrating that most employees have the most interest in term life insurance, disability protection, and medical supplements, such as medical gap insurance and hospital indemnity plans followed closely by critical illness and other catastrophic illness coverage. Of course, voluntary dental and vision plans are always high on the list of employee wants.

Heather Lavallee of ING: Certainly, critical illness, hospital indemnity, and accident limited benefit policies are increasing in popularity with the shifts in health care. Accident coverage has seen a jump in popularity in recent years, particularly with the booming Gen Y population. A 2012 ING U.S. study found that 47% of consumers are familiar with accident insurance; 32% are familiar with critical illness insurance; and 23% are familiar with hospital indemnity plans. With the changes underway in health care, employees are likely to become increasingly familiar with these products.

Ninety-three percent of employees would buy their voluntary insurance again and 92% would recommend the coverage to a friend or family member, according to a 2011 ING U.S. claims study. We are also seeing more interest in voluntary whole life insurance on a self-service platform that provides an easy way to pick the benefit offerings.

Tim Arnold of Colonial Life: Voluntary accident, cancer, critical illness, and hospital confinement coverage have emerged to help fill gaps in major medical insurance. With health care costs increasing, many employers are moving to plans with higher deductibles and co-pays, leaving employees with greater financial exposure. We’ve seen an increase in group voluntary products during the past few years, for several reasons. They’re typically simpler to enroll and administer, and they can sometimes be more affordable because of the group rate. Since insurers can make more underwriting concessions for group products, such as guaranteed issue, all employees can take advantage of the offering, regardless of their health condition.

Drew Niziak of Aflac: We’re seeing terrific growth in lines like critical illness and cancer where the market is seeing great traction as well as lines like disability where the market has been quite a bit more stagnant. Hospital plans are understandably seeing great demand as well.

Tim Knott of Assurant: The voluntary benefits market is growing at a much faster rate than the employer-funded benefits market. Critical illness, cancer, and gap medical are becoming more popular in terms of new sales. Voluntary dental and vision also appear to be very popular.

How can you tell whether a particular voluntary ben-efit product will provide real value to your clients?

Heather Lavallee of ING: Look at an employer’s medical experience and claims to pinpoint high incidences of cancer and other illnesses or accidents. Look at demographics. An older employee population may find a critical illness benefit more compelling while younger employees, especially those with active families, may lean more towards accident coverage. Hospitals, retailers, and manufacturing tend to see great value from voluntary benefits.

The employer’s philosophy and level of involvement can help determine which direction to go with voluntary benefits. Are they paternalistic or are they more hands-off? Do they want to be a part of the communications about voluntary benefits? Do they want to drive employees to a Website for a self-service approach? What is their long-term benefit strategy? Carriers that accommodate different approaches help drive greater value.

Robert Risk of Lincoln Financial Group: The voluntary benefits you offer should complement the benefits already in place and help close coverage gaps in the risk-protection plan. Keep in mind that employees need to be educated on the specifics of the coverage in order to make an informed decision.

Shawn Smith of Transamerica: Think of how the product would fit with the client’s benefit strategy. It should complement core and ancillary products currently available. Or consider creating a new voluntary benefit strategy based on the client’s demographics, logistics, and benefit objectives along with consumerism and wellness education.

Lorrinda Lattimore of AIG: It is important to provide benefits that are relevant to the insured and complement the biggest line-item expense — medical. The entire benefit offering needs to be considered, as well as group demographics.

Drew Niziak of Aflac: When a benefit is the right fit, employee retention goes up and employees credit the employer for offering the voluntary benefit. More importantly, the right match makes a difference in claimants’ lives. For example, that cash benefit can make the difference between an employee going under or staying afloat. The right benefit can give the policyholder peace of mind in a time when it was most needed, which is why we exist.

Toney Chimienti of Chimienti & Associates: Most employees have what I affectionately call the “put and take savings account.” They put it in one month and take it out the next, when the washer or dryer is on the fritz). Consequently, most employees cannot afford high-ticket financial risks, such losing income for more than a few weeks or paying for their family’s deductible and coinsurance expenses for outpatient surgery or hospitalization.

Do certain types of voluntary benefits go well with different types of employer groups, such as blue collar versus white collar?

Drew Niziak, of Aflac Benefits Solutions: Some employer groups might share typical characteristics, but we aim to let the discovery dictate direction, not our predispositions. Our broker partners have tended to prefer this approach.

Toney Chimienti of Chimienti & Associates: Everyone has the same basic needs regardless of whether they are blue collar or white collar. However, benefit plan designs and specific risks can be a driving factor in the type of products that work best for certain industries. For instance, a medical gap plan pays providers based on the insured’s actual out-of-pocket expenses for deductible and coinsurance while indemnity benefits may not offset the employee’s actual financial responsibilities. An accident plan might be of great value if it included benefits for common family risk from accidents, such as coverage for children while they are participating in organized sporting events at school or when they are on their own time riding ATVs or playing soccer.

Robert Risk of Lincoln Financial Group: It depends on a variety of factors including demographics, which employer-paid benefits are currently being offered, and what solutions are needed to supplement those benefits. With that said, we find that accident coverage typically goes well with the blue-collar profile because that population may not have the funds available for an emergency room visit. Short-term disability may be more appropriate for the gray/blue market because the lack of short-term funds. Critical illness can be beneficial coverage for all demographics. Maybe even more important in the choice of voluntary products is the life stage of the employees. Offering several of these products allows the employee to tailor benefits to their needs. A younger single has different needs than does someone who is married with young children.

When you are presenting voluntary products, do some types of coverage just naturally sell well together?

Heather Lavallee of ING: Critical illness and accident products are often paired in a suite of health-focused coverage. Permanent life insurance, compared to term life, is most often an anchor product for brokers to get a foot in the door. It can lead to the introduction of other products in following years, particularly disability and then accident. Permanent life insurance is often part of the life planning suite of employee benefits alongside retirement, employee wellness, accidental death and dismemberment (AD&D), and even pet insurance.

Tim Knott of Assurant: With the growth of high deductible health plans, critical illness and accident indemnity plans have proven to work well together. Both products have affordable price points, so they work well as a tandem offering.

Tim Arnold of Colonial Life: We pair life and short-term disability insurance as a financial foundation package for employees to protect their income and their families’ well being. We’ve also found the combination of accident and critical illness insurance can serve as a health foundation package.

Lorrinda Lattimore of AIG: An underutilized strategy is to sell permanent life and group voluntary term life together. Why would an employer that offers permanent life insurance also offer group voluntary term life? Employees should have the chance to get the appropriate amount of term insurance during their working years and the chance to secure a permanent plan that will remain affordable through their post-working years.

Toney Chimienti of Chimienti & Associates: We usually find the best fit with medical supplement plans, disability plans, portable voluntary term life, and catastrophic illness plans. However, you must give careful consideration to the existing benefit programs to prevent duplication of coverage.

Robert Risk of Lincoln Financial Group: Critical illness and accident plans are becoming more and more popular when coupled with high deductible health plans. These coverages serve as affordable alternatives to what could be significant risk. Permanent life and term life products also fit well together.

Shawn Smith of Transamerica: Gap, critical illness, and accident insurance naturally go well together since they can provide important first-dollar benefits for out-of-pocket medical expenses. Life, LTC, and critical illness provide living benefits and meet significant family needs. Once again, life and disability are the foundation of voluntary benefits.

How do you present voluntary benefits in a way that doesn’t overwhelm employees with confusing options?

Larry Hazzard of The Guardian: First, you need to set a foundation of understanding what they currently have. Then you need to present their options in a way that is easy to comprehend. You can’t just throw a bunch of facts at them. You need to show examples of people just like them and discuss the reasons behind the choices they made, good and bad, in order to help them make a decision that they can feel good about.

Lorrinda Lattimore of AIG: Voluntary benefits need to be part of the medical planning strategy and be positioned as supplemental medical solutions. The typical order of renewal or new client discussions is to mention medical, dental, vision, and then the rest, depending on the client need and broker specialization. However, no on wins when choosing voluntary benefits is a last-minute decision.

Tim Arnold of Colonial Life: It’s important for employees to understand the value of the benefits. Pre-enrollment communications, group meetings, and one-to-one benefit counseling sessions help employees fully understand their benefit options, where they’re covered, and where they may have some financial risk.

Shawn Smith of Transamerica: It is vital to provide a long-term voluntary benefit strategy with the client’s initial product offering. “Keep it simple” may be an overused phrase, but it makes sense when employees are already overwhelmed with trying to understand their benefits during open enrollment. Here are five important facts to remember:

1.Use a maximum of three products during initial enrollment, but typically only two voluntary products works best.

2.The two or three new voluntary product options should not be similar so they don’t compete directly for the same premium dollars. Offering fewer products will improve employee participation.

3.Product plan designs should fill holes in core benefit, so employees understand why the employer is offering these products. Also, limit the number of options for each product to reduce the number of decisions employees have to make.

4.Adding a new voluntary benefit year-to-year may allow new access to employees and increase participation for all voluntary benefits including re-educating employees each year on existing products.

5.It is imperative to have advanced written communication, short employee group meetings, followed by short individual meetings.

Toney Chimienti of Chimienti & Associates: This can be a challenging issue because many carrier plans have wide varieties of benefit structures. Allowing lots of options in their plan designs can confuse employees and make it difficult for HR professionals to explain and manage claims. When there are too many options in each plan, employees may receive different benefits for the same claim circumstances, based on the decision they made at the time they enrolled.

It can be daunting for the HR administrators to answer employee questions about their benefits — even simple employee questions like what is covered and what will it pay. It is best to make decisions on the exact plan designs that will be offered to all employees.

For employers with locations in multiple states, it’s best to use group plans that standardize rates, benefit structures, and premiums for use in all states (based on the company’s situs state). Many voluntary plans are individual products so the carrier must file plan designs, applications, and rate structures with each state’s department of insurance. All these filings may vary based on each state’s insurance requirements. As you can imagine, this can make it downright challenging for the HR staff to enroll, communicate, and administer the employee’s benefits.

Robert Risk of Lincoln Financial Group: When building an enrollment solution with the carrier, consider the -employees’ preferred mode of communication. For example employees in tech firms are typically receptive to online communication. Also, limit the voluntary benefit options, allowing employees to focus on one or two additional choices each year. Finally, take a solutions-based approach.

Drew Niziak of Aflac: There are three simple tenets to educate employees through their preferred channels:

1.Find out what employees already know; they often have misconceptions about voluntary benefit products that need to be dispelled.

2.Meet the employee population at its point of need with decision-support tools and benefit communications online, face-to-face, and through printed materials, among other options.

3.Simplify the offerings so that the choice is simple and complementary to existing benefits and helps the employer and broker be seen as championing products of great value.

Tim Knott of Assurant: The key is to keep plan choices limited. It is generally much easier on the enrollee to be presented with one or two benefit amount options. Let’s say that the employer has a high deductible health plan with a $3,000 deductible and additional coinsurance. A $5,000 or $10,000 critical illness benefit option may work well in this situation. The same is true with accident indemnity plans. Employees are sometimes presented plans that have three or four tiers with each tier having richer benefits, which is a lot of information for an employee to take in at enrollment. It is often better to simply have a high/low option.

How do you choose a carrier?

Larry Hazzard of The Guardian: Financial strength and reputation are, of course, critical and can be easily researched and verified. Equally important, but harder to qualify, is finding a carrier that will partner with you to ensure that employees truly understand the value of the benefits being offered. The carrier should also be able to offer appropriate solutions for different levels of employees.

Lorrinda Lattimore of AIG: This is probably a pretty long list, but at the top, I would say that the carrier needs to have extensive experience in this specific segment.

Robert Risk of Lincoln Financial Group: Consider the following when selecting a benefit provider:

• Financial strength and stability.
• Reputation.
• Breadth of products and solutions.
• Service and claims capabilities.
• Responsiveness.
• Ability to support effective decision making by the employee population.

Toney Chimienti of Chimienti & Associates: Plan design and rate structure are important, but we gravitate to carriers that are easy to do business with and are just as committed to excellence in billing and claims administration as they are to sales. They must support our broker partner needs for guarantee issue plans. They must also be employee self-serve, Internet, and call center enrollment compatible.

Shawn Smith of Transamerica: Many carrier spreadsheets for worksite products include side-by-side comparisons of product features. This format makes it difficult for brokers to stay abreast of product information. Consistent product enhancements and new product offerings could test the validity of the spreadsheet. Important ingredients of choosing the right carrier are company ratings, product portfolio, features, marketing materials, electronic product delivery systems, claims, billing, commissions, customer service and carrier representatives. More importantly, products and services that provide a strategic needs-based benefit solution may help many employers that are searching for ways to cut benefits and benefit costs. For most employers, the number two operating expense is their employee benefits. If a voluntary benefits carrier can provide a better overall benefit solution for the employer and employees, plus lower or minimize the employer’s overall benefits cost, they would probably be the best carrier choice for that employer.

Tim Arnold of Colonial Life: Look for a company with a track record in the voluntary benefits industry. Many new players are entering the market because they see the growth potential of voluntary benefits. However, very few of them can offer proven end-to-end benefit services.

Next, seek product options that meet the diverse needs of your clients. Consider the services and strategies the carrier can provide to enhance the service you give your clients. What does the carrier offer that can help differentiate you from your competition? What can they offer you and your clients that can make a considerable positive impact on your business and your clients’ bottom line?

Look for a carrier that measures its effectiveness and customer service internally and through external, unbiased research. Companies that continually scrutinize themselves are the ones that continually improve. And those are the ones that you want to be with for the long haul and not just for a single enrollment.

Drew Niziak of Aflac: Brokers should assess claims payment time and process, experience in the voluntary space, financial stability, enrollment options, brand recognition, and the ability to maximize worksite participation, and, perhaps most importantly, the ease of doing business, as well as company values and intentions to follow through on each policy’s customer promise.

Heather Lavallee of ING: Look at the strength of product offerings, the administration process, service levels, and enrollment flexibility. A carrier needs to offer a breadth of product offerings including health, disability, and life solutions in order to be a one-stop shop for employers. For your self-insured employer clients, look at the carrier’s ability to provide competitive stop loss coverage. Also look at whether a carrier supports both a face-to-face enrollment process and self-service option. A carrier should be able to work with a variety of platforms and partners to meet an employer’s needs.

In terms of administration, consider the plan implementation and ongoing billing process. If they offer self-administered billing that looks and feels like other ancillary products, such as dental, you can benefit from a far simpler process than traditional voluntary billing.

Tim Knott of Assurant: Since employee benefit plans are not one-size-fits-all, a key factor is having a broad suite of products that allow a broker to fully complement the underlying core plans. Of course, it is also important to work with a carrier that is committed to providing service for the employer and employee client. We also see a strong need for high quality voluntary and core enrollment support. It is critical to have an experienced sales force to work with brokers, especially since a growing number of benefit brokers are becoming interested in voluntary plans, but don’t have as much experience as they do with their core plans.

What’s a compelling argument for employees to have extra money taken out of their paychecks for voluntary benefits when they’re cutting back on all kinds of small expenditures in a tough economy?

Larry Hazzard, of Guardian Life: Actually, there are a number of compelling arguments for employees. For one thing, their employer has taken care of all the research to find a reputable carrier with a strong offering. They can now get high-quality protection at discounted group rates. Simplified underwriting makes voluntary offering accessible to consumers who don’t qualify for such coverage in the open market. Employees who work at smaller companies can have access to a much more diversified offering of benefits, which the employer might not have been able to provide without the voluntary component. Finally, many voluntary benefits are portable.

Shawn Smith of Transamerica: The majority of employees can’t afford not to own supplemental benefits because they don’t have cash to pay for unpredictable and expensive medical claims. Consumer driven health plans (CDHPs) have left most employees and families in a financial void, paying $1,000 or more out-of-pocket in medical expenses is simply unaffordable. Voluntary life, disability, critical illness, accident, and gap products can provide strong financial benefits at affordable group rates with pre-tax savings through payroll deduction.

Toney Chimienti of Chimienti & Associates Inc.: Regardless of the economy, employees will always need to provide financial security to themselves and their families should they become sick, injured, or disabled for an extended period. Employers already face many financial challenges today. Managing their employee benefits under PPACA will add even more financial risks, with tax fines, and penalties.

Lorrinda Lattimore of AIG: A critical illness can reduce a family’s income by more than $12,000 in the first year alone. The average cost of voluntary benefits is equivalent to one meal out per week for a family or one to two hours of work per week. Disability insurance is only part of the equation, albeit the most important voluntary benefit. Increasing deductibles, co-pays, and coinsurance create a need for coverage like critical illness and accident plans that provide benefits for these exposures.

Robert Risk of Lincoln Financial Group: Voluntary benefits offer employees a wider range of useful benefits that might not otherwise be available, allowing them to choose the benefits that best meet their need at a level of coverage and price they can afford. Voluntary benefits can also complement other benefits as we see with critical illness plans helping to pay for non-covered expenses of a high-deductible plan, or even providing the opportunity to buy-up on long-term disability coverage. Finally, payroll deduction often provides premium discounts and underwriting concessions that may not be available to an individual who shops for coverage outside of the workplace.

Tim Arnold of Colonial Life: Premiums are typically deducted from an employee’s paycheck, and are often paid on a pre-tax basis, which makes voluntary benefits affordable. Many voluntary benefits can be purchased for as little as 1.5 hours of an employee’s pay. Unlike major medical insurance, voluntary benefits pay directly to policyholders so they can use the money wherever it’s most needed. We are seeing that the number of customers keeping their coverage for multiple years is at an all-time high. This tells me that many employees see greater risk in not having financial protection in such a tough economy, and they’re willing to have a few dollars deducted from their paychecks to get financial protection.

Drew Niziak of Aflac: Having coverage for out-of-pocket expenses is all the more critical with more and more employees living paycheck-to-paycheck. Twenty-six percent of American consumers have less than $500 in savings for an emergency expense, according to the 2013 Aflac WorkForces Report. Voluntary benefits can be a great antidote for employers that need to enhance their benefit packages.

Heather Lavallee of ING: The workplace is the most popular setting to obtain insurance coverage. An ING U.S. 2012 consumer study found that 81% of individuals with life insurance have workplace coverage while half of individuals look to their employer as the only source for coverage.

Employees also look to their employers for guidance about supplemental health products. More and more employers are moving towards high-deductible health plans. As a result, employees are facing increased deductibles and other out-of-pocket expenses. These are only likely to rise as Patient Protection and Affordable Care Act (PPACA) requirements are implemented.

Voluntary limited benefit policies, particularly accident, hospital indemnity, and critical illness coverage, can help with non-medical expenses. They can also provide cash to cover deductibles or anything else the employee chooses. Voluntary coverage can even help protect employees’ retirement savings.

Lastly, many voluntary benefits are health savings account (HSA) compatible. This means that employees can have permitted coverage and still make contributions to their HSA. Permitted coverage can include limited benefit policies providing benefits for accidents, critical illnesses/specified diseases, and hospitalization.

Tim Knot of Assurant: It really becomes a matter of priority, and helping employees understand the risks and benefits.  Over the last few years, we have all seen examples of how fragile personal finances can be.  Therehave been periods of unemployment and stock market declines, which can impact incomes and invested assets, such as 401k balances. It is therefore important to protect income and financial assets against risks of disability, death or extraordinary expenses associated with an accident or medical condition.  In addition, many times, employees are surprised to learn how affordable the voluntary products are that can help protect against these risks. You often hear the comparisons of the cost of an accident or critical illness benefit being equivalent to giving up your favorite name brand coffee a few times a week.

Considering that brokers generally make less commission on voluntary benefits, how can they offer these benefits to clients in an efficient way that provides a good return on investment for the broker’s efforts?

Larry Hazzard of The Guardian: Actually, the lower commission on voluntary benefits is a reflection of the incredible efficiency of this model because it gives them access to a large pool of qualified prospects in a single geographic location, where the employer has already done some spadework to create enthusiasm. Obviously, participation is key to maximize the broker’s return on the investment of time and effort, so it’s important to work closely with the employer on this front. Finally, most carriers of voluntary benefits have production level bonuses, so the ultimate compensation can be quite lucrative.

Drew Niziak of Aflac: Brokers who work extensively in voluntary benefits see the value on multiple fronts, including greater client engagement, higher commissions, and stronger client and product retention. Brokers who are still adopting voluntary don’t need to be experts; they just need to understand the client’s needs and partner with a voluntary carrier that can complement their capabilities, be it with administration, enrollment platforms, marketing might, or sales approach. In our experience brokers see added commissions, happier clients, and greater retention on other product offerings.

Shawn Smith of Transamerica: Lower broker commissions for voluntary products were prevalent in the past, but the broker’s voluntary benefit HCR landscape has changed the delivery of voluntary products considerably. In the past, most voluntary worksite products were passed from the broker to the ABC carrier rep to enroll and service the client. The broker’s commission split was much less than the ABC carrier rep — usually 25% of the total commission or roughly 10% to 15% of annualized premium for the first year only, with broker renewals of around 2%. Today, primarily for the small to mid-size group broker, there are many options to retain 100% of the voluntary commissions. They are usually 20% to 90% for first year commissions. Renewal commissions average around 10%. A good example is that many former voluntary-only products are now employer paid and used with major medical plans to encompass an overall employer benefit strategy. Products such as gap, critical illness, and accident insurance are being used extensively as employer paid products providing brokers with 100% of the commission. It is no longer necessary for the broker to split commissions unless outsourcing to provide face-to-face or call center enrollment capabilities. The broker enrollment is simply using a spreadsheet similar to the major medical enrollment without requiring wet signatures from employees.

Robert Risk of Lincoln Financial Group: An effective enrollment and communication strategy can result in higher participation and more premium per employee. A broker can choose to have level commissions or a high/low commission schedule with a few companies.

Toney Chimienti of Chimienti & Associates: The key is to work with experts who can design and assist with implementation of voluntary benefits. Web-based enrollment platforms may provide eligibility management and other administrative services that can minimize the workload for the broker and the employers while saving the company time and money. Additionally, they provide tools to support ongoing enrollment for new hires and reconcile the employee’s payroll deduction with their voluntary benefit elections. They also allow for qualified employee changes in coverages in automated processes via the Web. The voluntary benefits can add revenue to the benefit consultant’s income, which could be used to cover the cost of an eligibility management system for their agency and their client’s needs for administration.

Voluntary benefits can become a key component of the core enrollment. Offering supplemental benefits, like gap insurance, critical illness insurance, and disability insurance, can round out an employees’ benefit program while securing coverage that will protect the employee from high-risk expenses and the loss of income while out on a disability due to accident or illness. These plans may be implemented through Web-based enrollment systems.

Tim Knott of Assurant Employee Benefits: I’m not so sure that, with health care reform and pressure on medical commissions, brokers necessarily make a lot less on voluntary benefits. It’s true that the premium level of voluntary products is much lower than it is for medical, but the commission levels can be very attractive for voluntary products. Moreover, a full-service enrollment and benefit communication process removes the cost and time responsibility from the broker so that the net compensation is very attractive.

Tim Arnold of Colonial Life: The best and simplest way for brokers to maximize their revenue from voluntary benefits is to partner with a trustworthy carrier that can handle all the work and overhead, but doesn’t charge for those services. For example, enrollments can quickly put a considerable dent in a broker’s commissions. But if the carrier can handle all elements of the enrollment for the broker, that money will stay in the broker’s pocket. When a broker selects the right partner, the financial risk is virtually eliminated.

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Leila Morris is senior editor of California Broker Magazine.

Help Your Clients Fund a Business With a 401(k)

by David Nilssen 

Retirement plans represent untapped opportunities most insurance professionals fail to take advantage of. In general, retirement funds are inaccessible until retirement age. But, in fact, plans like an IRA or 401(k)s can be used for much more, including making investments in real estate, tax liens, and private loans, or even starting your own business.

With a pseudo jobless recovery, coupled with a credit crisis, more individuals are buying small business and franchise opportunities. You’ll be interested to hear that with new business comes an opportunity to do more work for your existing clients, differentiate yourself from your competitors, and write bigger insurance policies more often. A sampling of insurance policies a new business owner may need includes key man insurance, directors & officers liability, errors and omissions, commercial liability, health, short and long-term disability, workers compensation and even professional liability. Do I have your interest yet?

In 2009, Mark Schottland of Nashville opened a Dogtopia franchise, a dog daycare and boarding business, leaving a decade-long career in finance to begin a new path for himself and his family. Starting from scratch, he has grown his business to 15 employees. Mark’s insurance broker established a policy to protect the Dogtopia business. Mark took on several full-time employee health insurance policies as well.

A growing number of companies are using rollovers for business startups (ROBS) to buy a business. In order to start a business using a ROBS, a corporation is established that serves as a business or operating entity, and a new 401(k) account is created for that new business. Existing retirement assets are rolled into the new 401(k) plan, and invested directly into the business. Accordingly, the 401(k) becomes a shareholder. In a way, it’s similar to buying stock in a public company. Money is invested into a business and shares are held as collateral per se for that investment. Because it’s an investment, there is no debt to service. Also, there is an ongoing employee benefit (the 401k), which does not exist in most small businesses today. To support the entrepreneur, the turnkey service acts as a third party administrator (TPA).

This process also creates a unique opportunity for insurance professionals. You might get inquiries about starting a new business or you know someone who is unemployed or simply looking to start a business. By introducing your clients, prospects, and relationships to this opportunity, you help them take more control over their investments, employment, and future. In addition, several opportunities for insurance brokers arise from this structure. These include the need for a new policy when your existing clients utilize ROBS. In addition, new employees will also need support. Finally, you can present new products and services to those new employees and new customers as the business grows. As insurance brokers know, every small business should have key man insurance, also known as “key employee insurance,” which will protect a company in the case of an untimely death or disability of a top salesperson, executive, or business owner.

I have come across many financial professionals who are unfamiliar with the process of using retirement funds to start a business. Individuals who start businesses using their 401(k)s require even greater assistance from their accountants and financial planners in this important phase of their professional development. It’s in the best interest of financial professionals to familiarize themselves with the process, and work together to support America’s entrepreneurs.

It is very gratifying that on average, 80% of our clients are still in business after four years while in the U.S. per Dun & Bradstreet, only 39% of companies are still in business. We believe this is due to the fact that ROBS clients are capitalizing their business with equity — not debt.  There are no penalties for making the investment and no debt to service (or interest to pay). The initial income generated can be reinvested into the business instead of being sent off to a bank in the form of interest payments.

Due to the economic turbulence over the past few years, small businesses have struggled to secure traditional capital, such as small business loans. And, now, with the recently announced $92 million sequestration cuts to the U.S. Small Business Administration (SBA), including a $24 million cut to business loans directly, the challenge for entrepreneurs is even greater. Fortunately, options such as 401(k) rollovers have opened the doors for those who would otherwise not have been able to realize their entrepreneurial dreams.

To sum it up, when the American economy flourishes, we all flourish. The success of small businesses leads to job creation, which results in more traffic for the insurance industry.

Small businesses are the engine of our economy representing 99.7% of all employer firms, per the SBA and that represents a whole world of opportunity for insurance brokers.

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David Nilssen is cofounder and CEO of Guidant Financial

A serial entrepreneur, David has launched a number of companies over the past 15 years within financing, real estate development, landscaping, and property management. In 2003, David co-founded Guidant Financial, and has been a featured speaker around the world covering topics from entrepreneurship to small business financing. David released a book called “Making the Jump into Small Business Ownership.”

Guidant is at the forefront of non-traditional financing options for small businesses such as self-directed IRAs and rollovers as business startups (ROBS), which allow entrepreneurs to purchase businesses and franchises with retirement funds – without distribution or tax penalties. Since its inception in 2003, Guidant has helped over 8,000 entrepreneurs invest over $3 billion in retirement funds to start small businesses throughout the U.S., resulting in over 54,000 jobs thus far. For more information, visit www.guidantfinancial.com or call 888-472-4455

How to Influence and Win a Case – Improving Your Life Underwriting Expertise Is What Life Selling Is All About

by Allan D. Gersten, CLU, CFP, ChFC

Having thorough knowledge of a case is what selling life insurance is all about. It’s the agent’s role to gather the necessary information while it’s the general agent’s (GA) or broker general agent’s (BGA) role to analyze that data that becomes the basis for approval of the most appropriate solution. Success depends on the continuing interaction between the agent and GA/BGA throughout the case. At times, it involves gathering additional information during the development and underwriting phases.

To make the commitment to purchase life insurance, the client must understand and embrace the insurance solution. The skilled agent answers the many client questions as early as possible. Difficulties can arise when clients object to the price, changes in initial price projections, or medical and financial underwriting delays. There are always unanticipated issues from the client or insurance company, which is when the process lingers. It can be helpful to remind the client of the conversations that led up to the decision to purchase life insurance.

The case size dictates what financial underwriting is needed. Companies have different paperwork requirements, ranging from including a notation of personal income and net worth on an application to third-party documents verifying and detailing a client’s various assets and considerations involved in the request for insurance.

Medical underwriting requires knowledge of a client’s personal and family medical history. The more specific information that is provided to the GA/BGA, the greater the chances there will be for having an efficient and successful process. Successful advisors recognize that the fate of a case often depends on how they perform at this early point.

Then, there is the role of life insurance companies in underwriting. Any one of dozens of companies can handle basic risks. However, only two or three may be appropriate for a more challenging or sophisticated case involving medical issues, financial underwriting concerns, or pricing questions. In these situations, it is critical to know what may work, what will not work, and what resources are available to solve the problem at hand.

When it comes to resolving problems and performing underwriting, companies have their own approaches and pricing. It’s important to be familiar with these approaches to get a sense of what may be needed for approvals. While this information is readily available, the question still needs to be asked.

Some companies retain maximum coverage for each risk based on their financial strength. Others reinsure portions of the risk, which makes them responsible to the reinsurer. A reinsurance relationship can cause a company to be more conservative. When it comes to retention, this can range from zero to $40 million for a company.

Each insurance company has it’s own underwriting niches, special capabilities, and perspectives. A company can offer preferential treatment of risks or offer an underwriting program with credits for various lifestyle factors.

Some companies have special experience with various types of risks such as heart or coronary artery disease, certain cancers, diabetes, sleep apnea, tobacco use, alcohol abuse, and moral history, among others. There are also table shaving and upgrade programs, which apply to specific products. The point is that underwriting criteria and requirements should form the basic components in making company selections.

Managing Three Critical Relationships

Perhaps the most significant task in life insurance selling is managing three essential relationships: Advisor and GA/BGA, advisor and client, and BGA and company underwriting:

•BGA/GA with advisor — The core of this relationship is having open and frank discussions and presenting all appropriate alternatives to find the best plan for the client.

•Advisor with client — Clients must want to help their advisor from the start because they are confident that the advisor can help them make appropriate decisions and expedite the case.

•BGA/GA with company underwriter  — Having mutual respect and a genuine appreciation for the role each performs is necessary for a successful relationship.

Presenting the Case To Underwriting

Presenting a case to the underwriter is an important step in the process. It’s time to compare company feedback and how the marketplace sees the case once the relationships are aligned and the information is collected and analyzed, including attending physician reports. At this point, the advisor will have an estimate of what is possible and determine whether it’s necessary to make a mid-course correction with pricing expectations.

There are several initial ways to engage the company. A confidential quote (one that protects the client’s anonymity) is obtained by sending a carefully crafted summary of the client’s medical picture to selected companies.

Responses from the summary usually give the GA/BGA a direction about which one or two companies are the best choices to pursue further for an offer. If there seems to be a clear indication of a company offer, a trial application or informal application is submitted with the entire file.

There are times when the GA/BGA discusses the chances and the handling of a case with insurance company officials. It can be useful to let the company know that this is an important case that should be discussed with them. The best strategy is to have a plan that’s flexible and fully communicated to all parties involved while having back up plans ready.

Winning the Case

Making the sale depends on everyone maintaining an open mind and a vision that encompasses one or more courses of action. There are many ebbs and flows in the course of a case. If they are seen in the best light and dealt with properly, they create a winning result for a very satisfied client who offers many years of repeat business and referrals. In the final analysis, we all want to deal with professionals who have a reputation for knowing what they are doing and acting with integrity.

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Allan Gersten, CLU, CFP, ChFC, is chairman of First American Insurance Underwriters Inc., an insurance brokerage firm. For much of his career, he was a highly successful producer, having developed underwriting expertise, particularly for impaired risk cases. He is the senior in-house underwriter and assists advisors in preparing their cases for market. Gersten can be reached at 800-444-8715 or agersten@faiu.com.

Critical Illness – Protecting Your Family and Your Future With Critical Illness Insurance

by Jeffrey A. Spain

Three years ago my wife, Jorja (pronounced Georgia), was diagnosed with an aggressive form of breast cancer termed “triple negative.” As with many cancer victims, we immediately searched for the best care and treatment options. Through doctors’ referrals and Internet research, we felt the best care for Jorja would be at the Mayo Clinic in Rochester, Minn.

We did not hesitate about our decision; over the next year we traveled in excess of 30,000 miles back and forth to Rochester. The 1,000-mile round-trip included more than 50 nights in hotel rooms and countless sleepless nights worrying over diagnostic tests, surgeries, and chemotherapy treatments.

Jorja suffered through a full year of chemotherapy; many times we felt the cure was far worse than the disease. Her drive, mental toughness, love, and faith carried me through her illness. Jorja has been and is a great inspiration to me. The good news is that today my wife is doing very well, regaining her energy and getting her life back to normal.

The bad news is, as you can imagine, the 30,000 miles, hotels, and hotel food, deductibles (treatment carried over into the next year, hence two deductibles), prescription drug co-pays (five or six drugs each month), non-covered medications (trial drugs and certain medications have limits), and non-covered tests all added up to thousands and thousands of dollars of out-of-pocket expenses.

As you may be aware, medical bills and non-covered related expenses are one of the leading causes of bankruptcies in the United States. The majority of these bankruptcies occur even though medical insurance is in force. It’s the out-of-pocket expenses that lead to medical-related bankruptcies. Fortunately, my wife and I had purchased a critical illness protection plan several years prior to her diagnosis, or we too could have been a bankruptcy statistic.

I could not imagine having to tell my wife we could not afford to take her to the Mayo Clinic. I am sure you, like me, would have begged, borrowed, and stolen to get the funds to provide the one you love the care they need. With the critical illness plan, I didn’t have to beg, borrow or steal. We had no additional credit card debt, no second home mortgage and very little depletion from our retirement accounts. We had chosen five years earlier to pre-fund such a disaster for less than $3 per day with a critical illness insurance plan. The critical illness policy has actually turned out to be one of our best financial decisions.

I have been told that the financial worries of a critical illness can actually hinder the patient’s recovery; I truly believe this. The stress from the disease is overwhelming; I couldn’t imagine adding financial stress to the equation. Thanks to the critical illness policy, we only had to worry about getting Jorja healthy; that was our only focus, our only prayer.

Several fellow agents and clients have asked me why I purchased critical illness insurance and why at that particular time. Jorja was in her early 40s, in great health, exercised regularly, didn’t drink or smoke, had healthy parents, and a healthy sister, so why buy a CI plan? I chose to buy after a marketing rep approached me to sell their product. I read through the product information features and benefits and thought, wow, what a great idea. I had a high-deductible health plan, so it made sense to supplement that, and for the cost it was as cheap as insuring my motorcycles.

Another aspect that really stood out was learning about Dr. Marius Barnard, the heart surgeon who is considered the inventor of CI. He stated he could cure a person physically, but only an insurer can repair the person’s finances. I was just starting to save and build our retirement, so this was a prudent solution to not only protect us but also protect our savings.

The American Heart Association says the average out-of-pocket expense for a heart attack or stroke is over $20,000, depending on your age, other health factors, medical insurance, etc. That amount of CI coverage would cost on average about the same as a daily cup of coffee; anyone can afford that. Calculating the exact amount you and your spouse may need will vary from family to family. I took into account the costs of child care, home maintenance house, and even my time away from work (I worked on commission!). Others factors to consider include having travel costs, facing lost wages of both spouses or for a private business owner, having to hire someone to do your work if you are gone, and don’t forget double deductibles and co-pays.

Prospecting for CI is simple. Utilize your current client base and ask them these four questions:

1.Do you know of anyone who has ever suffered from cancer, heart attack or stroke?
2.Were they planning on becoming ill?
3.Did they suffer financially from having the disease?
4.Would having cash available have helped?

These four basic questions open the conversation, allow the client to see and understand the frequency of critical illness, the impact illnesses can have on a family, and the choices made available thanks to a critical illness insurance policy.

Critical illness coverage is growing in popularity, so call them before your competition does. Feel free to tell them Jorja’s story; show them the video of Assurity associate Christy Magorian describing her experience with CI (see “Christy’s Story” on the Assurity Life YouTube channel). Ask them what they would tell their spouse if they couldn’t afford care; and finally, view CI as a vehicle for financial security rather than an expense. Would you rather finance a few dollars per day, or take the risk and suffer through a second mortgage, credit card debt or be a medical bankruptcy statistic?

Thanks to technology, early detection and advanced medical care, today more people are surviving heart attack, cancer and stroke. Living benefits like critical illness insurance protect you, your family and your future. Everyone should have critical illness protection. q

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Jeffrey A. Spain is vice president, Individual Sales for Assurity Life Insurance Company. For more information, call 800-276-7619.

Getting a Jump on Open Enrollment

by Lydia Jilek

As the weeks speed by, it’s time to plan ahead for a successful open enrollment. Two little words, “open enrollment,” can lead to a variety of reactions and questions. Brokers, employers, and employees have much to consider during this important and sometimes overwhelming period. With the health benefit landscape shifting under our feet, there is a lot to take in.

Human resources professionals wonder how they will communicate so employees pay attention. CFOs are concerned about what the benefit program is going to mean to their bottom line. Managers are wary about how much time and productivity they may lose as employees explore and weigh their benefit options and make selections. And employees are worried about how their benefits may be changing and what it means to their paycheck and their ability to see and afford their doctor.

Brokers are weighing how to design plans that are right for employers and employees from a coverage and cost standpoint. They are also considering how to help to make sure that people understand the plan and their options.

These are all valid concerns, given the changes afoot in health benefits. Because of natural medical trends, healthcare reform and increased financial pressure, medical plans are evolving. In fact, 58% of employers are offering consumer directed health plans (CDHPs) compared to 38% that are offering HMOs, according to the Aon Hewitt 2012 Health Care Survey. For the time being, CDHPs are still trailing PPOs, which  are offered by 79% of employers. Given health care trends, more employers are offering CDHPs while shifting costs and control to the employee. A CDHP typically gives employees more choice and more financial responsibility for their health. It is frequently tied to a high deductible plan (HDHP), but not always.

Without education, employees may have a hard time understanding these new health plans and may perceive them as a step down from existing benefits when they are not, in many cases. Fortunately, there are tools and benefit programs to help brokers communication with their groups. There are also innovative ways to create flexibility in benefit choices.

Group Meetings

Group meetings can educate many people at one time and provide a forum for employees to ask questions and hear the questions of others. Group meetings allow employees to express concerns about plan changes. Also, human resources and brokers can explain the reasons for changes and alleviate worry. Human resources professionals and brokers need to plan for questions. They can even ask key employees to ask common questions to -facilitate productive dialogue. When done properly, these meetings can create significant buy-in and support within the organization.

E-mail Campaigns

Employees often need time to process information about their options. Conducting e-mail campaigns can allow employees to process the information over time and discuss options with a spouse or even parents, and friends.

Educational Videos

Educational videos can be very helpful when introducing a new plan design or less familiar products. Many employees need to review communications several times to understand CDHPs or other medical choices. They also need education about less familiar types of plans, such as critical illness or accident insurance. In fact, only 32% of employees are familiar with critical illness coverage and 47% with accident coverage, according to a 2012 study by ING U.S. Videos that can be accessed from home computers can help increase understanding and participation. Employees can review the videos on their own time, at their own speed. These videos help employees understand and value the plan and products. They can also encourage employees to continue their existing coverage.

Printed Materials

Printed materials are still relevant in our mobile world. More than ever, they can be tailored to the employer’s plan design. Employees can bring the packet home; spread it out on the kitchen table; and discuss the options in detail with their spouse and family.

Self Service Platforms

Not surprisingly, more employees are Internet savvy and they’re comfortable making complex purchasing decisions online. We are seeing an increase in the use of self-service platforms for benefit enrollment. Self service lets employees see the full gamut of benefit choices in a single location throughout the year. These platforms can be effective when used with other tools such as videos, e-mail campaigns, printed materials, call centers, or online support.

Call Centers

More employers are using call centers to educate employees about benefit enrollment. These call centers are generally staffed with benefit counselors. Licensed insurance producers can help guide employees through the enrollment process from beginning to end. Navigators can help employees with logistical questions associated with the enrollment process. Both models can significantly increase employee engagement and understanding of the benefit options.

Face-to-Face Enrollments

Having face-to-face meetings can be the most effective way to educate employees about benefit options. To help make the meetings shorter and more efficient, you can provide printed materials, videos, or e-mail campaigns ahead of time. This can help lessen the managers’ resistance to having employees leave their work to participate in meetings.
Offering voluntary benefits is a popular way for employers to meet the needs of a diverse workforce. They are increasingly being introduced during open enrollments rather than off cycle. This is driven by changes in medical coverage, new technology, and changes in voluntary benefits. More flexible products let employers include or exclude benefit groupings to target a level of coverage or price point. For example, employers can include or exclude emergency or accidental death & dismemberment (AD&D) coverage options in accident plans, choose which conditions to cover, or even choose a critical illness plan design.
When combined with education, new choices and new flexibility in voluntary benefits can help employees find the health benefit package that fits their lifestyle and their budget.
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Lydia Jilek is the head of voluntary products and strategy for ING U.S. Employee Benefits, a member of the ING family of companies. ING U.S. Employee Benefits launched new accident and critical illness voluntary products in recent months. With more than 60 years of experience in the voluntary benefit business, ING U.S. Employee Benefits, through its insurers, offers accident insurance, critical illness insurance, whole and universal life insurance, and disability income insurance. Products are issued by ReliaStar Life Insurance Company and ReliaStar Life Insurance Company of New York. Lydia can be reached at lydia.jilek@us.ing.com.