Consumer Driven Plans In Neutral or High Gear?
Do Health Savings Accounts Have a Bulls Eye on their Back?
by Roy RamthunIt is important to keep in mind the uncertainty that remains for HSAs after the employer and individual mandate requirements become effective in 2014.
Consumer Directed Healthcare: How Will It Be Defined and What Impact Will It Make in the New Era of Healthcare?
by Mark Reynolds, RHUAddressing the biggest issue driving healthcare reform discussions, which is the cost of healthcare.
Critical IlnessThe Insurance Industry’s Next Great Opportunity
by Jesse SlomeCritical illness insurance’s importance is about to change and, along with it, so will your good fortune.
Ethnic Marketing–How Cultural Differences Affect retirement Planning and Saving
by Fabian GonzalezBrokers looking for assistance with multicultural marketing may find support from insurers and a handful of carriers.
Prescription Drug Plans–Effectively Evaluating Pharmacy Benefit Managers
by Tim EmertIf you first understand the client and then understand the PBMs and their pricing models and methodologies, you will bring all parties together.
Medicare Prescription Drug Plans
by Harry P ThalBy servicing Medicare Prescription Drug Plans plans you are enhancing your worth in the community.
Individual HealthThe Value of Individual Health Getting Clients the Protection They Need
by Tim AhrensThe true value of individual health didn’t really hit home until it affected me on a very personal level.
401(k)–Help Your Clients Meet New 401(k) Reporting and Administration Requirements
by Daniel Vogelzang and John NegreteThe Department of Labor’s recently finalized Fee Disclosure rules that go into effect July 1, 2012 make make you want to reassess your business’ best practices.
Disability–Striking a Balance: Disability Protection for Businesses and Their Owners
by Mark R. Ameigh, CLUMaintaining personal income is likely to be top of mind for a business or practice owner who is facing a serious illness or injury. But the ongoing viability of the business will be of equal concern.
Disability Awareness Month: Don’t Disable Your Clients from Better Coverage
by Adams MichaelsWhen it comes to policy options, disability insurance can be a tough sell since many workers are in denial that they are personally at risk of facing disability in their lifetime.
Life Insurance – What Life Insurance Brokers Can Expect This Year
by Kenneth A. ShapiroProducer opportunities are enormous for the foreseeable future.  A growing segment of consumers now recognize an essential fact: they are responsible for their individual economic destiny.
Life Settlement News
by Leila MorrisCalifornia Department of Insurance is considering using financial instability as grounds for denying or revoking life settlement provider licenses.  Melville Capital, LLC has advised on the sale of Antietam Funding’s remaining life insurance portfolio.
Voluntary Benefits–The Evolution of Voluntary Benefits
by Dennis LyonsTen years ago, voluntary benefits were found mostly in larger companies. But, they have gained traction over the past decade even among smaller companies
Choice Rules: How Legal Plans Can Enhance Your Client’s Voluntary Benefit Package
by Dennis Healy  • In this world of choice, encourage your clients to offer more voluntary benefit options to employees. Recommending products, such as legal solutions, will position you as a true adviser to your clients, diversify your book of business, and differentiate you from your competitors.

Consumer Driven Plans In Neutral or High Gear?
What Will the Industry & Regulatory  Shifts Mean Down the Road?

In this issue we look closely at consumer-driven plans and the road ahead for these products in today’s market. Although they are more popular than ever, there is considerable concern how they will fare if the The Patient Protection and Affordable Care Act is passed. Read these stories to decide for yourself if there will be an economic engine to keep driving these plans.

Do Health Savings Accounts Have a Bullseye on their Back?

by Roy Ramthun 

When President George W. Bush won passage of the Medicare Modernization Act in 2003, some conservatives lamented the legislation’s expansion of Medicare spending through the new Part D drug benefit. Tucked inside that landmark bill, however, were many reforms that gave champions of a free-market in healthcare significant cause for optimism.

Among these were health savings accounts (HSAs) – individually owned, tax-advantaged accounts that could be used to pay for qualified medical expenses. In a February 2004 article for Commentary Magazine, “Is Bush a Conservative?” journalist Daniel Casse quoted veteran health reformer Grace-Marie Turner as saying that the law contained “seeds that can lead to transformative changes in the healthcare sector.” Supporters hoped that HSAs would revolutionize the way Americans paid for healthcare in much the same way IRAs revolutionized how Americans financed their retirement.

Those hopes are bearing fruit. The number of Americans covered by HSA-qualified health plans has risen from less than one million in 2004 to more than 11 million in 2011. A recent survey by Towers Watson reveals that nearly twice as many companies offer these plans than they did just five years ago. Sixty percent of larger companies are now offering consumer-driven plans and the number is expected to hit 70% next year. No other type of plan has been more successful at keeping employee health benefit costs in check, with single digit increases more closely aligned with inflation and even year-over-year decreases in cost trends observed in some cases.

Many conservatives naturally assumed that passage of the Patient Protection and Affordable Care Act (PPACA) in 2010 would be the death knell for HSAs. In fact, the text of the 2012 law contains little to suggest that HSAs, the one proven strategy for bending the cost curve of U.S. healthcare spending, are endangered in any way. But as part of the law’s implementation, the Department of Health and Human Services (HHS) has been subtly erecting barriers to the continued growth of these popular plans. Unless the Obama Administration changes its course soon, millions of individuals and small businesses  – almost half of the market for consumer driven plans could lose access to affordable, high-quality HSA plans.

President Obama and HHS Secretary Kathleen Sebelius have repeatedly dismissed concerns that PPACA would target HSAs. In a March 2, 2010 letter to Congressional leaders, President Obama wrote:

“I believe that high-deductible health plans could be offered in the exchange under my proposal, and I’m open to including language to ensure that is clear. This could help to encourage more people to take advantage of HSAs.”

Almost a year later, Secretary Sebelius wrote in a February 10, 2011 op-ed published in the Washington Post:

“The Affordable Care Act puts states in the driver’s seat because they often understand their health needs better than anyone else…States have discretion, for example, to offer a wide variety of plans through their exchanges, including those that feature health savings accounts.”

Bold promises have since given way to bureaucratic inflexibility. So far, HHS has interpreted PPACA insurance requirements very narrowly, denying consumer-driven plans and HSAs an opportunity to compete fairly in the marketplace. Current HHS standards will be extremely challenging for these plans to meet.

HHS has consistently tilted the playing field against consumer-driven plans. The first step was via final regulations implementing the ACA’s new minimum medical loss ratio (MLR) standards. As written, these regulations make it impossible for consumer driven plans to qualify as Bronze plans under the ACA’s new state insurance exchanges. If forthcoming final rules on “essential benefits” and “actuarial value” requirements are just as discriminatory, these affordable plans will vanish and insurance costs on state exchanges will skyrocket. Along the way, millions of Americans with policies that could qualify as Bronze plans today will be forced to change or drop their coverage.

A minimum MLR sounds like a good idea to ensure that consumers get good value from their insurance policies. But MLR standards (currently set at 80% for the individual and small group markets) act as price controls, limiting the cost of insurance by controlling the portion of the premium that is available to be spent on administrative expenses and profit (the remaining 15% or 20% of the premium collected).

However, it is much harder for HSA plans with high deductible to meet such high MLR standards when the plans are designed to pay only 60% or 70% of the cost of coverage. (Ironically, these standards are included in the PPACA and define the future Bronze or Silver plans available through state exchanges in 2014.) The whole point of a deductible is to delay the point at which the insurance plan must pay for covered benefits. But that is precisely what makes it difficult for these plans to meet the MLR standards: they can’t count any of the claims below the policy deductible because the insurance plan isn’t paying for anything yet. The threat to HSAs was validated by a recent analysis of the MLR rules by Milliman Inc. for the American Bankers Association.

Making matters worse, a guidance bulletin issued by HHS on the subject of actuarial value (the percentage of medical costs covered by insurance) says that HHS will not permit insurance carriers to include HSA contributions when determining the actuarial value of their plan designs (i.e., how generous the coverage is). To meet these new standards, HSAs will have to offer richer coverage  driving up insurance premiums. As a result, millions of Americans who will flock to the state insurance exchanges in 2014 looking for affordable coverage will be forced to pay a much higher premium for even the most basic coverage allowed under the law.

HHS does say that it is planning to include employer contributions for HSAs in the actuarial value of small employer plans; however the amounts will be “adjusted” (i.e. reduced) in some manner that has not yet been determined. Further, employee HSA contributions will not be counted at all, even if collected by the employer and forwarded to the financial institution managing the account. HHS says it will propose guidance for treatment of HSA contributions for larger employer-sponsored plans at a later date. But the message is clear: business as usual through the broken model of generous first-dollar coverage is bankrupting American employers and taxpayers.

The good news is that most of the growth in enrollment in high deductible plans is coming from the large employer market, which is largely self-insured and thus exempt from the MLR regulations.

The actuarial value regulations will apply, but most larger companies (that often contribute to employee HSAs) don’t expect a problem meeting the requirements. This will permit continued growth in this segment of the market, which accounts for more than half of all enrollees in HSA-qualified health plans.

Still, it means that individuals purchasing coverage on their own, small businesses, and some larger businesses will be the most effected by the new regulations.

While it is easy to take comfort in the tremendous growth opportunity for HSAs in the larger employer market, it is important to keep in mind the uncertainty that remains after the employer and individual mandate requirements become effective in 2014. A relatively low penalty ($2,000 or $3,000) for dropping employee coverage could encourage many employers to end self-funded coverage, creating a mass exodus of workers into the state insurance exchanges where fully insured plans are subject to onerous and expensive requirements.

For some, HSAs are being subjected to a slow death via bureaucratic rulemaking. And that’s not quite the same rosy picture for the future of HSAs painted by President Obama and Secretary Sebelius, is it?

Importantly, many conservatives now champion Part D as an example of free market reforms to government entitlement programs. To date, Part D has come in over 40% below original cost estimates, thanks to its emphasis on market competition and consumer choice.


Roy Ramthum, “Mr. HSA,” is a private consultant in Washington, DC and a former healthcare advisor to President George W. Bush.

How Will Consumer Directed Healthcare Be Defined and What Impact Will It Make in the New Era of Healthcare?


  by Mark Reynolds, RHU

Discussions in the health insurance industry are consumed, of course, with the Supreme Court decision concerning The Patient Protection and Affordable Care Act (PPACA) and how that decision will affect healthcare reform; employer’s plans and the cost of their employee’s benefits; and the medical-loss ratios (MLRs) that threaten to affect brokers and consultants. But, questions that are missing in these discussions about healthcare reform are, “What comes next?” and “What will we do about it? That is to say, what steps will we, as an industry, take to control cost, to improve benefits, and to remain engaged in an industry that needs to stay privatized while still being regulated by the government? This article is not really about healthcare reform. It is about what we can do to address the biggest issue driving these discussions, which is the cost of healthcare.

The solution to controlling healthcare costs has to involve the members. Our current insurance model is built to be a third-party payer without member involvement, so the solution to control healthcare costs must drive employers and their members to be engaged in their plans; more than ever. I know this sounds naive or idealistic, especially with the Supreme Court huddled up as I pen this article, but the fact remains that it is the so-called cost curve that has brought this crisis upon us. Getting consumers involved is the solution, so let’s do something about it.

First, let’s frame the discussion. Everyone remembers the past seven years in which brokers were delivering rate hikes of 20%, 30%, and 40% and more. Every broker remembers how fun it was to deliver a rate hike of 40%, but you can also remember thinking that these increases were not sustainable and would bring trouble.  In 2012, brokers are delivering rate increases in single digits or lower. These increases are much easier to deliver, but they are still problematic because they can trick us into thinking that the employer client will be satisfied that rates are increasing by such a small amount. We cannot trick ourselves into believing that employers are even close to being happy with their current cost or benefits. These smaller increases can also trick us into believing that the healthcare system has corrected itself and that everything is O.K. Let’s summarize the situation then: Rates have settled down a bit; carriers are making changes based on current PPACA law; the industry is awaiting the outcome of the hearings before the Supreme Court; brokers are standing by to react to whatever the next six months brings our industry; and employers are paying more and getting less.

It is a nail-biting time for everyone, but it is also a time to plan for the future because, in spite of the Supreme Court decision and carrier plan modifications, we should remember that employers cannot continue to provide their benefit plans in the same old fashioned way in which employees are not engaged. Our current model of healthcare financing has created the best healthcare in the world, but it has also created the most expensive. Isn’t it time to alter that trend?

So, How Do We Get the Employer and the Employees Engaged?

You have read, in many places, that some are questioning whether consumer directed or employer driven health plans (EDHPs) will survive healthcare reform. Many carriers are betting that they will not, but many other carriers are predicting that employer-driven health plans are the only way to control cost and provide benefits.  Let’s look at what it will take to help employers gain control of their plans. Have you ever heard the old saying, “Claims will be what claims will be?” It means that, as long as your plan pays for care, why not get the care? Carriers and TPAs deal with this scenario by setting up PPOs, requiring pre-authorization of services, utilization review, case management, and so forth. Very little is done to prevent the claim from occurring or to lessen the severity of the claim. With EDHPs, employers can build plans to get members involved and make them think about their benefits before the point of claim.

Let’s look at how EDHPs can do that.

EDHPs Must Be Designed With A Goal In Mind

Again, it’s easy to say, but the goal must be similar to a mission statement and be well defined for members to understand and hopefully embrace. The mission statement spells out what the employer wants the plan to accomplish for the business and its workers. The employer should spell out clearly for workers why the plan is in place, why it is set up the way it is, and how and when to use the plan. Employees have viewed the health plan benefits as an entitlement for far too long, which has been a huge driver in creating the dilemma we all face today. Creating a mission statement to guide an employer’s group health plan would be the roadmap all employees could see and follow.

EDHPs Must Provide Information 

Employers and employees need access to data and information if we want them to get involved. Plans must have Web access that includes the plan’s mission statement; benefit and claims information; a Q and A, outcome metrics; ideas and reminders; as well as a clearly stated goal for the employer’s plan.

This information should be available through the plan’s Web portal, but just putting the information there is not enough. Employers and members must be pulled there until a new habit is created. It is widely reported that 50% to 70% of any group does not use their plan in a given year, so the trick is getting these members engaged. The information must be clear, helpful, goal oriented, and entertaining, when possible.

EDHPs must include Telemedicine  

Up to 68% of doctor’s office visits are not necessary. This fact is driven by many factors including physician practice habits built over several generations, defensive medicine, and certainly some is revenue driven. The cost of the office visit can range anywhere from $70 or $80 up to hundreds of dollars, but that is only part of the employer’s cost since members generally leave work for two to three hours to see their doctor.

Telemedicine can make a significant impact on both of these costs without affecting the level of care. Telemedicine is not new, but it has not been widely embraced by payers as a means to lower cost. If 60% to 70% of office visits could be conducted by phone, the cost of the visit would be reduced by 40% to 80% and the employee would not miss work.

Members could call their telemedicine doctor from home and get a diagnosis and Rx ordered all while sitting at home watching Dancing with the Stars or American Idol.

Members surveyed, who access telemedicine, report extremely high levels of satisfaction with the experience, but there is one problem.

The problem is building a new habit. As industry representatives, we all need to promote smarter ways to get healthcare, but that includes promoting these new habits. Many carriers are beginning to include telemedicine on their plans, but members are not using the benefit. Brokers must get behind the promotion of telemedicine; include it in the EDHP; and promote it with any other important feature. We need to promote it like we promote the use of the seatbelt. A well-defined EDHP can build in telemedicine and promote it as a general part of the plan benefits.

EDHPs In Fully Insured and ERISA Plans

Fully insured plans need the EDHP model more than ever. Everyone agrees that costs cannot continue to rise, so how can fully insured plans change the cost curve without embracing the model?

Over the past 10 years, carriers have worked tirelessly building fantastic Web pages and Web portals to deliver information and ideas. Carrier-based fully insured plans have created nurse lines, help lines, and even 24/7 provider lines to give members access to care. The carriers have spent a huge amount of money on information access, but their models do not drive members to embrace better alternatives to traditional expensive healthcare. This is why carrier-based fully insured plans need the EDHP model so that, in partnership with brokers, new member habits can be developed.

ERISA based health plans have a built in advantage over fully insured plans because employers and members expect something new from them. Controlling costs and building unique benefit designs are inherent within ERISA-based plans, but they also provide an excellent platform for creating the new plans that the future will require. Employee Retirement Income Security Act (ERISA)-based plans can be built from the ground up to create a benefit mission statement; embrace telemedicine; provide access to information; and promote real wellness.

ERISA-based EDHPs can build escalating benefit designs that encourage members to make better choices, which could increase the member’s benefits over time. If desired, an employer could build two, three, four, or more levels of benefits; members increase their benefit level as benchmarks are achieved. This will certainly get members involved in their employer’s benefit plan.

So, will EDHPs and CDHPs be important in the future of healthcare financing? If we agree with the popular and often politicized opinion that healthcare costs are too high and cannot be allowed to go higher, then we all must look for alternatives to our current healthcare financing model. Our current model does deliver the best care members could desire, but it has come at a cost.

Carriers should be applauded for continually looking for new ways to deliver health plans within our current model. It is important to remember that our insurance carriers are required to operate under rules that no other business in the world is required to operate under and they do so while being continually vilified in the press. No other industry is required to provide what health insurance carriers are required to provide, so now is an opportunity for our industry to revolutionize our own business model by implementing EDHPs.

Getting employers and employees involved in their plans will be a huge step toward that goal. It will take a unified effort by carrier, TPA, broker, provider, and member, but with EDHPs, it is possible. We must change the direction of the healthcare costs curve, but brokers can take a step toward that goal with a well-planned and promoted EDHP plan.


Mark Reynolds is a member of the team at BEN-E-LECT. BEN-E-LECT’s trademarked Employer Driven Health Plan model provides MERPs, HRAs, and self-funded plans to thousands of employers throughout California and the Southwest United States. BEN-E-LECT’s ERISA-based health plans help employers, with two to 500 employees, lower and control the cost of their group health plans.  BEN-E-LECT’s employer driven health plan model has been lowering employer cost since 1996. BEN-E-LECT’s corporate office is located in Visalia, Calif. Mark can be reached directly at  559-250-2000 or

Critical Illness–The Insurance Industry’s Next Great Opportunity

by Jesse Slome

Did you miss out buying Apple or Google stock  years before both experienced explosive growth?

Are you wondering how some people have the insight to invest in these stocks or start companies at just the right time before demand takes off?

The answer is simple. Successful people understand market dynamics and find or create opportunities that capitalize on these dynamics. One of these opportunities is going on within the insurance world. The question you should ask yourself is, “Will I capitalize or will I miss the boat?”

The opportunity is critical illness insurance. Either you have never heard of critical illness insurance or you have been disappointed by efforts to market and sell this product. Let me address why I believe that this is about to change and, along with it, so will your good fortune.

For the uninitiated, critical illness insurance pays a lump-sum cash payment upon diagnosis of what we call “dread diseases,” such as cancer, heart attack, or stroke. It has a unique story in the fact that the product was actually conceived by a South African doctor, Dr. Marius Barnard, one of the two brothers who performed the first human-to-human heart transplant.

Critical illness insurance was first introduced in 1983 in South Africa and is now sold in 53 countries. In Canada, more individual critical illness insurance is sold than individual disability insurance. The product finally made it to the United States in 1997. While it has gained a pretty decent foothold in the voluntary, employer marketplace, sales to individuals have been lousy. Sorry, there is no way to sugar coat that fact.

I believe that there are two primary reasons for the product’s failure to gain a foothold in the individual market. The first is a complete lack of awareness by consumers. The second is an approach taken and advocated by many passionate folks who are responsible for recruiting, training, and educating consumers – an approach that misses the mass market for this product.

So how will it evolve into opportunities for you? First, the American Association for Critical Illness Insurance has just launched a national consumer awareness campaign supported by committed critical illness insurers – Assurity Life, Dearborn National, MetLife, Protective, Standard Life and Accident and Transamerica. Consumer awareness takes time to build, but it is like a snowball rolling down hill. It picks up steam, momentum, and size and this one has a great message and will assuredly grow.

The positive message will resonate with media pundits who will convey a positive story about this protection to consumers. That will build the foundation of understanding and awareness. That leads to receptivity when you come calling with information and a solution.

The second positive change involves the recent and ongoing entry of large insurers into the marketplace. Those responsible for launching these products will be measured by the success of their endeavor. As a result, they will dedicate the manpower and resources to put business on the books. This will result in a second snowball rolling down hill, building momentum, awareness, and interest.

Finally, and perhaps most important in the mix, is the fact that we are reaching the perfect storm of opportunity. Whether healthcare reform survives or disappears, one thing is certain – consumers are facing higher deductibles and greater cost sharing and are and taking on greater financial risk if they suffer one of the major health conditions covered by this important protection.

When the vast majority of U.S. bankruptcies are the result of medical and health costs and nearly three-fourths of these people had health insurance when the condition first occurred, you have a powerful story to tell.

Your Opportunity: Your Next Steps

Some new products or ideas take off quickly. Others build steam over time and critical illness insurance falls into that category. But, three years from now, I believe it will be more commonly sold than individual life insurance.

What would I recommend you do while awareness builds and the product category grows? Start learning more about the product. It is likely to be premature to market critical illness insurance on an individual basis because there is not yet enough consumer interest. However, I believe you should incorporate the fact that you offer critical illness insurance solutions as part of whatever marketing means you use – from Websites to printed material.

At the very least, you should begin to stake your claim to be the local critical illness insurance expert in your locality. That way, when the market is ready – and it will be – they will line up outside your office, if not literally, then figuratively. Momentum is a difficult force to stop. Because the time is right, critical illness insurance this is gaining momentum. q


Jesse Slome is executive director of the American Association for Critical Illness Insurance. For more information, cal 818-597-3227 or e-mail:

Ethnic Marketing–How Cultural Differences Affect Retirement Planning and Saving

by Fabian Gonzalez

California’s financial professionals know, perhaps better than anyone, that the emerging opportunity to serve multicultural markets is significant. Sixteen percent of the nation is of Hispanic/Latino origin, but that percentage is more than double in California (38%), according to 2010 Census data.

Similarly, about 4.8% of the nation is identified as Asian. The challenge for California brokers is to serve these and other multicultural groups with the appropriate sensitivity, responsive approaches, and attractive products and services.

While there’s no single solution, a recent study may illuminate some of the nuances that brokers must navigate to serve the needs of multicultural groups. The comprehensive study, commissioned by the ING Retirement Research Institute, looks at the behaviors, attitudes, and readiness of various ethnic groups including Hispanics, Asians, and African-Americans regarding their future retirement.

The survey, titled “Retirement Revealed,” reaffirms what any financial professional already knows: Americans aren’t planning enough, saving enough, or getting enough professional advice to prepare for retirement regardless of their background or cultural heritage. The study also points to some important differences among ethnic groups, which may call for brokers to use some distinct strategies. Here are some highlights of the ING study:

Hispanics Feel Less Prepared

Hispanics feel the least prepared for retirement among the groups surveyed, with 54% saying that they feel “not very” or “not at all” prepared. But other groups are not far behind. That figure is about 50% of African-Americans, 48% of whites, and 44% of Asians.

Plan Balances Reflect Sense of Preparedness

Hispanic respondents also report the lowest average balances ($54,000) in their employer-sponsored retirement plans, which is in line with their feeling of not being prepared. This is considerably less than the average balance across all groups ($69,000). Furthermore, Asian respondents report having the highest average plan balances ($81,000) in their workplace plans, aligning with their better-than-average sense of how well they are prepared for retirement.

Barriers to Saving Are Not All the Same

About 73% of survey respondents say they have encountered barriers to saving, but the barriers are different among the groups. The biggest barrier to saving, for nearly all groups, is not having enough income. Hispanics and Asians are more likely than whites and African-Americans to say they need to know more about their savings options while African-Americans are more likely to say that debt is their biggest barrier.

Self-Education Is More Common 

Non-white respondents are more likely to get investment guidance or information from the media or Internet. Hispanics (50%), Asians (53%), and African-Americans (54%) say their primary source of information is the Internet or the media compared to 45% of white respondents. Thirty-one percent of whites say they are working with a financial professional. This is significantly more than Hispanics (19%), African Americans (20%) or Asians (22%). Yet, all segments of respondents rank face-to-face communication with a financial professional as offering the highest value in providing information about their retirement plan and other employee benefits.

Estate Planning And Life Insurance Differences

Estate planning is another area of opportunity for financial professionals who are working with multicultural audiences. While Asians have the strongest savings, they are the least likely to have a last will and testament (26%) compared to 31% of Hispanics and 37% of whites. Life insurance ownership is much stronger among African Americans, with more than 95% owning some life insurance and 23% having life insurance coverage that equals four to five times their salary, which is higher than the total population of respondents (18%). African-Americans are also more likely to leave life insurance proceeds to their heirs. About 70% of African-Americans plan to leave life insurance proceeds compared to 51% of whites, 55% of Hispanics and 44% of Asians.

The study has important implications for financial professionals, particularly those in California. The first is that many Hispanics, Asians, and African-Americans who are not planning, saving, or preparing enough for retirement can be helped significantly by getting advice from financial professionals. The second implication is that brokers must take active steps to formulate culturally competent marketing strategies to engage and serve these diverse groups and their families.

Leveraging Carrier Expertise

Few brokers have the resources to launch a multifaceted campaign to serve multicultural groups. Even if they do, the stakes are high for making such an investment and the risks are daunting. Missteps can include everything from mistranslating text to using brochure photos of Hawaiians to sell to Chinese, which can alienate the very audiences they’re trying to engage.

For this reason, brokers are looking to carriers for guidance and assistance with multicultural marketing. Due to their economies of scale and national or even global experience, insurers may provide in-culture and in-language customer service support as well. A handful of carriers also can give financial professionals the strategies and online resources to help them make multicultural marketing an integral part of their business plans.

With such integrated strategies and the cultural knowledge to make them work, California brokers will be prepared to transform the rising multicultural tide into strong momentum for growth in the years to come. q


Fabian Gonzalez is vice president of Multicultural Sales for ING U.S. Insurance Sales Support, where he creates multicultural sales opportunities within ING’s individual life insurance, annuity, and employee benefits businesses. Gonzalez has more than 20 years of insurance experience in the U.S. and South America. You can contact him at For more information about the ING Retirement Research Institute, go to

Prescription Drug–Effectively Evaluating Pharmacy Benefit Managers

by Tim Emert 

The landscape for pharmacy benefit management (PBM) has seen dramatic changes over the past few years, culminating with the recent FTC-approved merger of two of the three largest competitors. With market consolidation, there are fewer PBMs to choose from and the differences are more apparent among the remaining competitors.

Understanding the differences will be beneficial to clients that are looking for vendors to offer specific value propositions. But there will be additional complications for brokers and consultants who are responsible for measuring and evaluating PBM proposals. Some variables have always been hard to measure when evaluating PBM proposals, but in today’s marketplace, it is increasingly difficult to compare even the most quantitative measurements.

While you could spend your entire career becoming a true PBM industry expert, this article is intended to provide you with a few key points to consider when going out to bid for pharmacy benefits. When spreadsheeting PBM pricing, the first and most obvious point you must evaluate is the PBM’s proposed discounts for brand and generic drugs. This should be a straightforward comparison, but it has become much more complicated because PBMs are re-defining what constitutes a brand name drug versus a generic drug when calculating and proposing discount guarantees.

To get an equitable comparison, you need to define how brand and generic drugs are classified during the request for proposal (RFP) process. Several recent RFPs that I have seen require that the re-pricing maintain the brand/generic indicator that is listed in the incumbent’s claims file. I have also seen some recent RFPs that mandate that the brand/generic classification must be the indicator given by a third-party resource (Medi-Span, First Databank, etc.). Even other RFPs leave the brand/generic classification up to the respondent to define or the RFP provides no instruction at all. It is important for you to provide clear guidelines to the PBM because allowing the PBM decide how to classify brand/generics makes a true comparison nearly impossible.

This statistic may vary from claim set to claim set. But, in general, there is a 2% to 3% variance in the overall generic discount or generic effective rate (GER).

[Note: The generic effective rate is the average percent discount off the Average Wholesale Price (AWP) for all generic drugs. The AWP has become an important prescription drug pricing benchmark for payers throughout the healthcare industry. Payments are typically based on AWP minus some percentage.]

This depends not on actual cost, but on the way claims are classified. So a GER of AWP-75%, which classifies generics that are not on the Maximum Allowable Cost (MAC) list, as brands instead of as generics, could actually be equivalent to a GER of AWP-72% from an overall cost perspective.

You can make the pricing evaluation more equitable and bring value to the client by requiring PBMs to agree to brand/generic definitions and re-price and classify claims in the same way. However, it is important to note that re-pricing results only matter if they follow through to contracting. PBMs that include single source generics (SSGs) and other non-MAC listed generics in the brand classification for re-pricing, underwriting, and guarantee management typically insist on this brand/generic language in a contract.

While the broker or consultant can certainly push back on this issue during contracting, it is easier to provide definitions and require PBMs to agree to them at the RFP stage than have to explain to your client why they aren’t getting the discount they expected. Once you evaluate the brand and generic discounts in the proposals, you must account for ancillary costs and determine how these charges and services will affect your client’s bottom line.

Some PBMs offer deeper discounts for brand name and generic drugs, but include many hidden fees. Other PBMs have started to distinguish themselves in the market by choosing not to nickel and dime their clients for every ancillary service. Many ancillary charges can be built into PBM proposals, but we will look at the three most commonly included programs that affect your client’s drug plan spending: prior authorizations, clinical programs, and reporting packages.

If quantifying these savings makes sense, you may be asking yourself why it gets overlooked when calculating PBM pricing and potential savings. These costs and savings are overlooked because the traditional evaluation approach ranks the value of PBMs solely on brand and generic discounts. A well-designed prior authorization program ensures that members get the most appropriate and cost effective treatment for their conditions and that processed claims adhere to the client’s benefit design.

To compare the cost of prior authorizations effectively, you must take into account the number of prior authorizations the client expects in a given plan year. Shockingly, the number of prior authorizations tends to increase with the cost of each prior authorization to the plan.

The PBM must provide concise definitions of clinical and administrative prior authorizations as well as the cost of each one. And the broker or consultant must require this information. There must also be an efficient way to audit these additional costs. While increasing prior authorizations should help control plan costs, it can also be a revenue generator to the PBM when used injudiciously.

You must be able to weigh the cost and benefits for your clients before and after the client’s go-live date. In recent years, PBMs have developed several pricing mechanisms for clinical programs. Since most resist direct comparison, it’s hard to measure the actual cost of these programs in order to conduct a true apples-to-apples comparison. You and your client must weigh the actual cost of the program against the expected results, the anticipated level of member/client commitment, and guaranteed savings offered by the PBM. However, looking at proposed savings is only the first part of an effective evaluation of the clinical program.

Understandably, PBMs insist that clients enforce the tightest restrictions on their clinical programs in order to guarantee proposed savings. While this makes sense and is necessary for PBM underwriting, you must be able to determine the less tangible cost of disrupting members by implementing more restrictive programs. This is where you must truly know your client and be able to identify the programs or suites of programs that are best suited to their needs. Some PBMs require the client to implement their full suite of programs with the strictest restrictions in order to receive deeper discounts. But the landscape is changing. Small and mid-size PBMs have developed clinical programs that can be customized for specific clients. These PBMs have demonstrated that this approach enhances the client’s experience, minimizes member disruption, improves member outcomes, and adds to everyone’s bottom line. Comparing costs of reporting is easier, but it may be more subjective. This becomes critical when clients have specific or complicated reporting needs that don’t fit easily into a PBM’s standard report offering. This is another key area in which your knowledge of the client and their expectations can guide the PBM to propose a client-specific reporting package.

Many, if not all, PBMs have standard reporting packages and offer client access to some online data for no- to low-cost. When you compare reporting packages you need to ask the same question you ask when buying a car, “Which features are standard and which are options?” Enhanced and ad-hoc reporting is a necessary service. It puts clients in control of their own data, but the costs of these customized reports must be accounted for and valued correctly.

The cost of ad hoc and non-standard reporting is incredibly important to clients that want an in-depth look at their pharmacy spending. Some PBMs use this reporting as a revenue source by driving up the client’s costs one report or one hour at a time. These costs rarely, if ever, show up in the client’s savings reports.

Regardless of which business model or pricing methodology you believe is best, it is important to create a level playing field to compare PBM proposals fairly. Without clear and concise guidance from you, PBMs will continue to price their program offerings in ways that resist true comparison and the client is the one that loses. If you first understand the client and then understand the PBMs and their pricing models and methodologies, you will be in a unique position to bring all parties together to make sure that the client get the services they need for the best value.


Tim Emert, director of US Script’s PharmaHealth Analytics Group, has spent more than 10 years in the pharmacy benefit industry and more than 15 in data management and analysis. Today, focusing on the integration of disparate data sources and using data to make complex decisions, Tim has become a leader in enterprise healthcare analytics. He can be reached at


Prescription Drug– Medicare Prescription Drug Plans

by Harry P Thal

When I met Richard and Sylvia we discussed their Medicare Part D Prescription Drug Plans (PDP), I suspected an issue immediately when they told me that they both had a PDP as well as Medicare Supplements with the same company.

It is very unlikely that any one individual is getting the very best PDP plan from the identical carrier as their health plan and even more unlikely that a couple is. For most of these situations, I assume that the agent is only appointed and certified with one or two carriers, and puts all clients into the same box.

To do the job correctly and honestly and to be a service to the client, the agent must make all plans available. The pallet available in California contains 33 stand-alone PDP plans. The responsible agent must assist the client in selecting the best plan for their circumstance, not the one they have an appointment with. Commissions are irrelevant.

To begin with, the agent needs to do a little fact finding. I require my clients to provide me with a list of medications they are taking. This list contains the name of the medication, its strength, and the quantity consumed in 30 days. I advise them that, if a generic equivalent drug is available, I will be substituting it unless they specify brand only.

Next, I determine what pharmacy they use. Are you married to this pharmacy or are you willing and able to change if it will lower your costs?

Now, I assert that I can research for the best plan for your individual situation. I turn to, which will assist me in selecting the best plan for the drugs I list. After inputting the drug list, which will accommodate up to 25 prescriptions, I print out all of the plans available and the cost of the plans. Cost is identified on an annual (January to December) basis as well as for the remainder of the calendar year. The first plan is the least expensive, totaling not only the monthly premium, but also for the co-pays at the pharmacy.

Some of the plans use preferred pharmacies and participating pharmacies and the cost difference may be significant, hence we need to know which pharmacies are available to the client. If they prefer mail order, this may also be a significant factor, as all plans do not offer this feature.

With the list from Medicare, the agent now looks at the details of the first, least expensive plan to see the hidden costs. The software makes an assumption that, even though the medication has restrictions, it must be okay. But, it rarely is okay. If your client is using a greater amount of medication that the quantity limits dictate or the medication has a restriction of prior authorization or step therapy, there might be a problem. The software bases its price ranking assuming that there would be no problem getting authorization, or that step therapy will be approved. Typically, you are inviting problems. I look to the next PDP plan on the list.

The next plan may have an overall greater cost, but if the restrictions on the medication were not approved, the client would be paying full (negotiated) retail and the entire exercise is lost.

When discussing this procedure with agents, the typical response is that they are not appointed with all the plans; nor am I. Many of the plans don’t use the services of agents, but there is no reason not to assist the client with a recommendation, a phone number, or a Web address. All are available on the print out. The best plan for them is the best plan for you. Your getting paid the nominal commission available will not affect your bottom line. I find that providing this service actually increases my income, as word of mouth referrals enhance my client base. Most of the people seeking PDP plans have a Medicare supplement, and in California, the Birthday Rule gives me the opportunity to move a client to the best-priced Plan F in their area. If they are already on that plan, they may remain. If they request a broker of record change, that’s even finer.

Prescription Drug plans change annually. The premiums may change; the co-pay structure may change as well as the costs and the formularies. Even restrictions change. So, the agent must review their clients PDP plan on an annual basis even if their consumption of medication hasn’t changed. To facilitate the efficient processing of these updates/reviews in the compressed time of the annual enrollment period (October 15 to December 7), generates a password. I record all of this in the client’s file, so I can recall their drug list annually. We make modifications when needed and a new recommendation for the New Year. It’s strange, but sometimes I am appointed with the best plan in the coming year and the change becomes commissionable. If not, there is always next year, and more referrals in between.

We are in the customer service business. Medicare Prescription Drug plans are confusing to the average consumer. By offering this service, you are enhancing your worth in the community. q


Harry P Thal is an independent agent who has specialized in the sales and service to Medicare clients for over 30 years. He provides continuing education classes through the California Association of Health Underwriters to local chapters. He serves on the NAHU Senior Medicare Advisory Group as well as writing a weekly column in his hometown newspaper on health insurance matters . ( He may be reached at


The Value of Individual Health–Help Your Clients Get the Protection They Need

by Tim Ahrens

I’ve been teaching new agents how to sell individual health insurance for many years, but the true value of being protected didn’t really hit home for me until it affected me on a very personal level.

Last summer, my 9-year-old daughter Bridget started complaining about a stomach ache a few hours after we enjoyed a family picnic. My wife and I didn’t think it was anything serious, but just to be sure we took her to the pediatrician the next morning. The doctor ran a few tests and, much to our surprise, diagnosed our daughter with acute appendicitis and immediately admitted her to the hospital.

The timing couldn’t have been more critical because within a minute of removing the appendix, it literally exploded as soon as they placed it on the surgical tray. The doctor was shocked and said that he had never seen anything like it.

If surgery had been delayed by even five minutes, the toxins would have been released in my daughter’s body and her condition would have become much more serious. Even with the doctor removing it just in time, Bridget still had to spend three- and-a-half days in the hospital for recovery and observation.

The costs for all the bills associated with my daughter’s surgery totaled $72,000. Fortunately, we had healthcare coverage and my total out-of-pocket maximum was only $4,500. Although that is still a considerable amount of money, it was manageable. I can’t imagine how we would have paid for the surgery without health insurance.

Protection Brings Peace Of Mind

I prefer to refer to insurance as a form of protection. As my personal experience illustrates, insurance can help offset the exorbitant cost of unexpected medical bills, even after paying applicable deductibles or coinsurance. It’s probably no surprise to learn that the number one reason for bankruptcy in America is medical bills.

The average cost of a hospital stay would be devastating for the average family without health insurance. Consider that, in California, the average hospital stay lasts 4.5 days and costs around $52,611, according to Agency of Healthcare Research and Quality’s 2009 expense report. Also consider that the median income for a family of four in California is $47,200.

When I think about our daily responsibility as agents, it strikes me how important and challenging our work really is. Clients rely on our guidance and expertise to help them select a health insurance plan to protect their health and financial future.

People may already feel overwhelmed with the responsibility and costs involved in buying car insurance, homeowners insurance, earthquake insurance. When it comes to health insurance, people may think they can go without it because they’ve always been healthy.

Here is the challenge. Even when a health insurance plan offers good value, it can still represent a significant portion of a person’s take-home pay. Many people can’t help but think of other ways they would rather spend those premium dollars. They may not realize that health insurance can cost a lot, but going without it can cost much more.

Insurance can serve as protection against the high cost of unexpected medical bills. It also gives people peace of mind knowing that they’re covered if they get sick; have an accident; or  they need surgery or emergency care.

Waiting Can Leave Clients Wanting For A Better Deal

Healthcare Reform mandates that everyone must have individual coverage in 2014. In April 2011, The Wall Street Journal reported that some economists estimate 39 million uninsured people will be getting heath coverage. But I say, why wait?

For now, health insurance is kind of like car insurance in that you don’t want to wait until you get into an accident to purchase it. If you wait until you need it, you will probably have to pay much more or you may not even get approved for coverage.

When shopping for a plan, it’s important for people to really evaluate which plan will best suit their needs and not just select a plan with the lowest monthly premium. They need to look beyond the office visit copay and deductible amounts and really consider if the plan benefits will give them what they need and the cost sharing amounts will be manageable for them.

One Important Consideration: Out-Of-Pocket Maximums 

Some people focus solely on an individual plan’s deductible, coinsurance, or copay when deciding on their benefits. They may not fully understand the importance of the out-of-pocket maximum amount or even consider that when selecting a plan. Yet, in the event of a serious illness or catastrophic injury, that’s the feature that will provide value because it will help limit exposure to exorbitant medical bills.

With health insurance, as long as your client continues to pay their premiums, their coverage cannot be cancelled due to their need for healthcare services or high usage. Also, members no longer have to fear that they will completely exhaust their coverage if they receive costly treatment because all healthcare plans no longer have lifetime maximums.

You show genuine concern for your clients when you don’t let them nickel and dime themselves into a plan that won’t truly serve their needs, not just for now but as their needs may change. Don’t let your clients purchase a plan based on just one or two aspects. You want to be sure your clients are looking at the big picture.  If a more comprehensive plan is available to them for a little more money, your clients should strongly consider the more expensive option. Once somebody gets sick, they usually do not have the option of moving to a new plan with richer benefits.

Value In Pro-Active Healthcare

As a nation, we now understand that having preventive care and early detection of diseases not only makes people healthier, but it also makes healthcare less expensive. This is a major step forward for our industry and for consumers in general. New individual plans feature 100% coverage for all nationally recommended preventive services. These include well-child checkups, immunizations, PSA screenings, Pap tests, mammograms and more.

When people have health insurance, they’re more likely to seek treatment when they’re sick and go to their doctor for checkups. Checkups can lead to early detection of conditions and diseases while they’re still treatable – before they become more serious or develop into chronic illnesses

Conversely, studies have shown that people without health insurance are more likely to postpone or forego care. They are less likely to get preventive care and tests that could detect diseases in early stages while they are still treatable. This often leads to hospitalizations for health problems that could have been avoided.

Health insurance plans may also support health and wellness by providing members with discounts on fitness club memberships and weight loss programs. Educational materials and programs are also available to manage chronic conditions and promote a healthy lifestyle.

It’s our responsibility, as brokers, to be sure our clients understand the true value of health insurance and to help them select a plan that meets their needs by protecting their health and financial future.


Tim Ahrens is a regional sales representative who has worked for Anthem Blue Cross for 20 years. Tim is responsible for continuing education efforts and for training new agents to sell Anthem products in California.

401(k)s–Help Your Clients Meet New 401(k) Reporting and Administration Requirements

by Daniel Vogelzang and John Negrete

You may have heard of the Department of Labor’s recently finalized Fee Disclosure rules by that go into effect July 1, 2012. If you haven’t, you may want to reassess your business’ best practices. If you have and you haven’t done anything about it, you might want to consider a career change.

Your role, responsibilities, liability, and compensation are about to change dramatically with the new regulations bearing down on our industry. Suppose you are a registered representative (broker) whose core business is not 401(k), but you engage in it to accommodate clients. You rely heavily on record keepers and third party administrators (TPAs) to serve the client. This applies to you.

Suppose you are a registered representative (broker) who works full time on qualified retirement plans and you have taken the time to educate yourself and your clients on industry changes, but you can only provide a limited range of allowable services as mandated by your broker-dealer. This also applies to you.

If you’re a fee-based registered investment advisor who acts as a plan consultant specializing in 401(k) plans and you get compensated in direct proportion to services provided, including fiduciary guidance, then you are most likely well prepared.

The goal here is not to interpret the new guidelines or explain 408(b)(2) and 404(a)(5); you can do that by going straight to the DOL website at Instead, our goal is to provide practical steps to those who are serious about their business and are willing to serve their clients and protect their practices. Those who can’t or won’t will be playing Russian Roulette with the Department of Labor (DOL) and increasing their risk of failure and liability, eventually forcing themselves out of the business.

To help you avoid this worst-case scenario we’ve outlined five key steps to transition your clients into compliance with 408(b)(2) and 404(a)(5):

Step 1: Confirm – Are You and Your Service Providers Ready?

The 408(b)(2) guidelines put the burden of reporting on covered service providers. The DOL defines a covered service provider as a person who enters into a contract or arrangement with a plan and who reasonably expects to receive $1,000 or more in direct or indirect compensation in connection with providing service to a plan. This means that a covered service provider must have a service agreement with the plan sponsor (the client) and report any direct or indirect compensation paid out of plan assets to them. Here is a list of to-dos to determine who is ready:

• Reach out to the involved parties. This includes broker-dealers, registered investment advisors, record keepers, and TPAs. Find out who is ahead of the curve and who is still trying to catch up. If a covered service provider cannot show you an example of what they have prepared to comply, you have only a few months to find a solution.

• Create a checklist for your clients to answer the following:

1. Determine who are covered service providers under 408(b)(2)

2. Establish procedures to track the receipt of disclosures and evaluate the completeness of the information. For example, does the plan sponsor have enough information to meet its reporting obligations for the Form 5500, Schedule C and participant-level disclosures?

• Establish processes to request additional information if necessary.

• Develop and/or utilize methods for evaluating and benchmarking the disclosed fees vis a vis the services provided.

• File documentation relied upon as evidence of process for evaluation.

• Coordinate the delivery of data to Form 5500 preparer and participant disclosures.

Step 2: Coordinate – What If Your Service Providers Are Not Ready?

Surprisingly, not all covered service providers are ready. If certain deemed covered service providers do not provide the required disclosures by July 1, 2012, then the plan sponsor must request, in writing, that they provide the information. It is important to notify covered service providers within 30 days of 7/1/2012. If they still do not provide the required disclosures after 90 days, the plan sponsor must notify the DOL and terminate the contract as soon as possible in case they enter into a Prohibitive Transaction.

Be sure to coordinate with the covered service providers to deliver the required disclosures (using information contained in 408(b)(2) disclosures).

Step 3: Collaborate – Can You and Your Service Providers Help One Another?

Instead of reinventing the wheel, look to your record keepers for their processes and procedures to send disclosures to the plan sponsor and participants. It should be possible for you and the TPA to report your fees and compensation so that the monthly and quarterly statements sent out by the record keeper fulfill your disclosure requirements to the plan sponsor. It will be critical to partner with record keepers who are prepared to deliver the required disclosures in the required format.

Step 4: Communicate – Have Your Clients and participants Been Educated and Informed?

The other half of fee disclosure is found in 404(a)(5), which puts the responsibility of disclosure to participants directly on the plan sponsor. How many of your clients know that the burden lies on them to provide this information to the employees? Probably, very few. To help them and add value to the service you provide, ask about the following:

• Fiduciary Education: Do plan fiduciaries understand their responsibilities and liabilities?

• Committee Structure: Are plan committee roles and duties allocated appropriately among the staff?

• Policies and Procedures: Are there procedures in place that address the following three basic fiduciary responsibilities of the plan committee:

• Investment selection and monitoring

• Service provider selection and monitoring

• Administration and Reporting

• Risk Management: Does the plan sponsor have a documented process for educating participants on plan fees and resolving inquiries?

• Does the fiduciary file contain sufficient documentation to support the decisions made by plan fiduciaries?

Document Participant Interaction

• Prepare for and document participant inquiries.

• Identify relevant, commonly requested documents.

• Implement procedures to provide requested information and escalate participant inquiries as necessary.

• Include fee-specific information in employee education.

• Document unresolved participant inquiries.

• Assist in gathering materials for response.

• Deliver requested information and document receipt.

• Document resolution or escalate per procedures until resolved.

Step 5: Correct and Convert –   Do the Numbers Reconcile And All Disclosures Make Sense?

Big names and deep pockets don’t mean mistakes won’t be made. Check your covered service provider’s proposed disclosures before they go out and make sure you understand the numbers and their accuracy. If you find that anything is missing or disclosures are unclear and somebody complains, your client will look to you for answers. Be proactive and take the role of quarterback to make sure the team is working in concert. If you find yourself working with an uncooperative or incapable party, help your client identify and recruit a new player that will help them through this new era of fee disclosure.

The new 408(b)(2) and 404(a)(5) rules and regulations are all encompassing and far reaching in scope and implication to all of us involved in the qualified retirement plan business. If you find yourself unprepared or unwilling to reconfigure your service model to keep up with these changes, consider partnering with someone who is. This could help you preserve your business and your paycheck. To quote John Carl, president of Retirement Learning Center, “For a broker/dealer to allow accidental advisors who are not steeped in ERISA, to do qualified retirement Plans is essentialy suicide particularly under the new scrutiny coming out of the Department of Labor and the regs coming out of Washington.”


J. Daniel Vogelzang, is president at M Advisory Group and John Negrete is an Account Executive of Retirement Plan Services at M Advisory Group. ( Both authors are broker partners of Dickerson Employee Benefits.

Striking a Balance–Efficient Disability Protection for Businesses and Their Owners

by Mark R. Ameigh, CLU

Maintaining personal income is likely to be top of mind for a business or practice owner who is facing a serious illness or injury. But the ongoing viability of the business will be of equal concern.

To keep the doors open, expenses, such as employee payroll, rent, and utilities must be paid. The bills for last month’s expenses may be due and unpaid just when an unexpected disability strikes.

Financial issues aside, the business must meet the needs of customers, clients, or patients in a timely fashion to maintain credibility in a competitive marketplace. The consequences of not having adequate protection can be swift and severe. In the example illustrated below, a small business owner suffers a period of total disability, followed by a period of residual disability. For six months, gross revenues fall and then begin a slow recovery after she returns to work. The business remains open and normal business expenses are incurred during her absence and gradual return. Since a business owner’s compensation often comes from profits, personal income from the business drops off completely by the end of the fourth month. At this point, the owner’s personal assets may need to be liquidated to cover business expenses.

This is a worst-case scenario. But, if it were your client and you’d already sold them an individual disability insurance policy, you are to be commended, for the effects would be far less drastic. Nevertheless, disability insurance is designed to cover personal income, not business expenses.

When the owner’s expertise generates most of the revenue, a disability can lead to an immediate decline of the business. Profits generated by other employees may not be enough to cover all business expenses. Accounts receivable may provide a bit of cushion for a time, but not forever. Even with individual disability insurance coverage in place, the practice owner may be forced to draw on personal assets to cover certain business expenses and any personal income shortfall.

As the rest of this article will demonstrate, overhead expense disability insurance offers the most appropriate solution to cover business expenses during a period of disability. Furthermore, having a combination of disability insurance and overhead expense may be the best way to cover the full spectrum of a business owner’s financial needs as they recover from a disabling illness or injury. Finally, it is important that you, as the advisor, consider the most efficient way to integrate the two forms of coverage to balance the cash-flow imperatives of the individual versus the business.

How Overhead Expense Works

An overhead expense contract protects a business owner – whose services are a primary source of revenue for a business or practice – by reimbursing certain qualifying monthly expenses during a period of disability. The typical overhead expense contract includes very specific definitions for terms like “current revenue,” “prior revenue,” and “loss of revenue.” Covered overhead expenses, which are clearly defined in the policy, most often include the following:

• Rent or lease payments for the business location and vehicles used in the business.

• Employee salaries and employer-paid benefits.

• Utilities and janitorial/maintenance services.

• Salary of a professional replacement (often by rider).

• Licensing fees and association dues.

• Certain installment payments and/or depreciation.

Covered overhead expenses are reimbursed after the elimination period has been met and proof has been provided that the expenses were incurred and paid. Benefits may be payable during a period of total and/or partial disability. Some policies require that a rider be added to cover partial disabilities.

The overhead expense definition of total disability is often the same as that in an individual disability insurance contract. But partial disability is defined very differently. In most cases, a loss of business revenue is required, rather than a loss of personal income. Depending on the carrier, a time or duties loss may also apply.

Most overhead expense contracts reimburse 100% of eligible expenses during a period of total disability, even if revenue continues that would normally cover such expenses. However, during a period of partial disability, only expenses in excess of current revenue are reimbursable. (Some contracts may pay a minimum benefit for a stated period of time.)

Finally, it’s important to remember that the premiums for overhead expense coverage are considered a tax-deductible business expense. As a result, overhead expense benefits are taxable. However, the net tax effect is a wash since the business expenses that are reimbursed through an overhead expense policy are tax deductible.

Sooner is Better for Business Owners 

Market research conducted by The Guardian Life Insurance Company of America reveals that business and practice owners have a strong desire to receive overhead expense benefits as soon as possible, even before individual disability insurance benefits. Survey respondents said they prefer a 30-day elimination period to a 90-day elimination period even if it means paying a bit more premium upfront. It is frequently sold in the overhead expense market.

Benefits would not be payable until 30 days after the end of the elimination period for either plan. Waiting 120 days for benefits is not a viable option for many small business owners.

Consider the example of a dental practice run by a sole practitioner who employs two hygienists, an office manager, and a receptionist. Gross monthly revenues average $40,000 while expenses average $25,000. The dentist typically draws $15,000 in monthly compensation. The dentist gets in a serious accident, requiring surgery and rehabilitation and leaving her totally disabled.

On the day the accident, up to $25,000 of expenses, which were incurred during the prior month, are already due. Accounts receivable may cover some initial costs as well as an ever-dwindling portion of future expenses for the next month or two. The two hygienists may generate some additional net income. Nevertheless, up to $75,000 of new expenses may be incurred over the next 90 days. With $25,000 of expenses due on the first day of the dentist’s disability and an additional $75,000 incurred over the next 90 days, it may even become necessary to cover business expenses from personal assets if the practice is to survive.

Keep in mind that, with a 90-day elimination period, only expenses incurred after the 90th day are covered. Since overhead expense policies are reimbursement contracts, the insured must pay the covered expenses in order to receive benefits. What does that mean for the dentist? Remember that the prior month’s expenses were due the day she became disabled and her practice incurred an additional three months’ worth of expenses during the 90-day elimination period. Under a reimbursement-style contract like overhead expense, her dental practice must incur and pay one more month of expenses before benefits are payable even once her elimination period has been satisfied. In effect, she has to find a way to cover up to five months of expenses before benefits from the 90-day elimination period plan are available.

It should be clear why business and practice owners strongly prefer the 30-day elimination period. Normal cash flow may be choked off without the owner’s revenue-generating activities. As weeks or months go by, desperation may lead employees to seek out other opportunities, which would hinder the owner’s ability to focus on recovering and returning to work. It’s easy to see how a seemingly insignificant difference between a 30- and 90-day elimination period can have long-term financial effects, both personal and professional.

The Optimal Combination: Protecting the Personal and Professional

To address the disability related cash-flow needs of a business and its owner, you will need to work closely with your client to combine individual disability insurance and overhead expense protection. In many cases, it comes down to the elimination periods for each type of policy. Depending on your client’s total financial picture, it may make sense to underwrite the overhead expense policy with a shorter elimination period than the individual disability insurance one. Since the industry default appears to be a 90-day elimination period for each, this strategy may not be top of mind for most advisors.

When an overhead expense policy with a 90-day elimination period is combined with an individual disability insurance policy with the same elimination period, there is a 17-week lag before benefits are available to cover personal or business expense needs. A practice owner in this situation may need to make a hard choice while excess revenue is being generated, “Do I pay myself or do I reserve any excess revenues to pay future business expenses?” Recovering from a work-interrupting disability is stressful enough without having to consider such weighty questions.

As a trusted professional, you owe it to your clients to help them at least consider the advantages of combining an overhead expense policy with a 30-day elimination period and a disability insurance policy with a 90-day elimination period. It enables the insured to get income from the business until the disability insurance policy begins to pay benefits, lessening the likelihood of having to draw on personal assets to keep the business afloat.


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

Disability Awareness Month: Don’t Disable Your Clients from Better Coverage

by Adam Michaels

When it comes to policy options, disability insurance can be a tough sell – and not because consumers aren’t in need. While they may know that they should be prepared, many workers are in denial that they are personally at risk of facing disability in their lifetime.

The 2012 Aflac WorkForces Report found six out of 10 workers think it’s unlikely that they or a family member will be diagnosed with a serious illness like cancer and more than half said they didn’t expect to be diagnosed with a chronic illness such as heart disease or diabetes.

Yet, according to the American Cancer Society, one in two men and one in three women will be diagnosed with cancer at some point in their lives, and the National Safety Council says that more than 25 million people in the United States suffered accident-related disabling injuries in 2008.

These statistics point to an ongoing challenge faced by agents and brokers: how to educate consumers about the need for disability insurance and then translate this knowledge into action.

Where to begin?

May is Disability Awareness Month and it’s a great opportunity to advise current and potential clients about how voluntary disability insurance can provide their employees with income protection if an unforeseen disabling illness or injury occurs.

Many consumers believe “it won’t happen to me,” so it’s critical that brokers and agents communicate the extent of potential costs associated with disability, from transportation and hospital stays, to missed work days and prescriptions. While disability may seem unlikely now, consumers need to be aware of the risks of being without insurance should they have to face the unexpected.

The U.S. Census Bureau found over 36 million Americans are classified as disabled, with more than 50% of those disabled Americans in their working years, from ages 18 to 64. Yet, the 2012 Aflac WorkForces Report found that even those approaching middle age think they are unlikely to face disability. Eighty percent of workers ages 32 to 47 said they felt it was unlikely that they would become disabled. These survey results clearly show the disconnect between Americans’ expectations about their health and their actual risk of being disabled.

Voluntary short-term disability insurance is available as a no direct cost solution for employers that want to maintain disability coverage options and thus, financial protection for their employees.

When Is Disability Insurance Needed?

Conditions including pregnancy; accidents and physical injury; and extended periods of illness often have a ripple effect of costs that major medical insurance won’t cover. Anyone who wants to safeguard their standard of living should consider the benefits of short-term disability insurance.

The following are the most common reasons for consumers to claim disability:

• Muscle and bone disorders, such as back problems, joint pain, and muscle pain make up more than one-fourth of income-interrupting disabilities. Pain can be a result of injury or diseases like arthritis or fibromyalgia.

• Cancer is the second leading cause of new disability claims, representing 15 percent of all claims.

• Cardiovascular or circulatory problems have increased slightly and are now the third leading cause of new and existing disability claims.

Disability Policies Are Easier To Offer

Employees aren’t always aware that disability insurance once provided by their employer may now be considered supplemental. With a slow economic recovery and uncertainty about healthcare reform, many businesses are reducing disability insurance coverage or eliminating those policies entirely. These changes can leave workers with inadequate coverage and without income replacement.

And although the State of California administers a state-run disability insurance program, it covers only a portion of a workers’ income – specifically 55% up to $1,011 per week. Furthermore, to qualify for the maximum benefit amount of $1,011, an individual must earn at least $23,872.73 in a calendar quarter during the base period. This can exclude workers who earn in excess of $95,585 annually. Even for workers who qualify for the benefit, it can often fall short in covering medical expenses and the impact of losing an income.

As a result, policies, such as voluntary short-term disability insurance, are growing in popularity among employers and their employees. Historically, brokers and agents have been reluctant to sell disability policies. They felt frustrated by roadblocks in getting applications approved or thought that too many policies were being issued with exclusions and/or declined. Restrictions mounted, making it difficult to maintain a high interest level in the policies from both employers and employees.

However, voluntary short-term disability insurance policies have become more attractive for buyers and sellers. Companies are seeking low-cost benefit options and employees are relying on them to provide financial stability if faced with an unanticipated disabling accident or illness. Brokers are in prime positions to serve as benefit advocates by educating and promoting the value of voluntary disability insurance as a necessity rather than simply an optional choice.

Employers will enhance their benefit offerings at no direct cost to their company and employees will have the added financial protection they seek in case of an unforeseen disabling incident. And brokers will be able to expand their disability insurance sales.  It’s a win-win situation to be had by all.


Employers and employees, alike, should fully understand the consequences of not being prepared for an unexpected accident or illness. Helping clients understand their risks and how best to protect income over the long term is a valuable role brokers can play, and it’s a win-win situation. During Disability Awareness Month, taking time to educate current and potential clients about the need for disability protection could really pay off.


Adam Michaels is the California-Los Angeles West state sales coordinator for Aflac. He is responsible for creating and implementing the state’s strategic market development plan as well as acquiring and training new talent for the sales force. For more information about Aflac, visit or email

What Life Insurance Brokers Can Expect This Year

by Kenneth A. Shapiro

While most future gazing is only slightly less successful than trying to understand teenage behavior, here are four significant signposts that deserve life insurance brokers’ attention this year:

1. More Consumers Are Paying Attention To Their Future

As a recent Forbes’ report points out, “With the economy in the state of flux, consumers are being understandably conservative in using their credit cards.” The Federal Reserve indicates that household liabilities, which rose to 135% of disposable income in 2007, has been sliding steadily and was at 119.3% most recently.

While this focus shift has retailers reeling, it may indicate that some consumers are thinking more about their future, rather than just about today. Instead of being preoccupied with spending, they are planning ahead. This is a good omen for life insurance producers since it creates an opportunity to gain prospects’ attention and to share with them strategies for making their future more financially secure.

2. The Federal Estate Tax – Year Two 

As of December 31, 2012, the $5 million per-person estate, gift and generation skipping tax exemption ends and reverts to $1 million with a 55% maximum tax rate as of January 1, 2013. This means that time is of the essence since no one knows what the future holds, particularly at a time when the government has a seemingly insatiable appetite for revenue. To give clients breathing room and greater flexibility, it may be appropriate, for example, to suggest survivorship policies. With low prices, this strategy will maintain client insurability and give them time to weigh possible options.

3. Life Products More Effective In Meeting Expectations

As carriers continue their focus on consumer needs, we can expect the evolution and innovation of life products to continue unabated this year. Here are thoughts about six of these products:

• Term Life – Look for a slight bump in term life sales since some carriers are introducing term insurance on a UL platform. This allows insurance companies to put away lower reserves. Also, expect the rates to be fairly stable or even drop slightly in 2012.

• Guaranteed Universal Life fades away – If there was ever a product with high consumer appeal, it was guaranteed UL. And why not? It gave clients the assurance they wanted, particularly as they reached retirement age. It remained this way as late as 2010 and would still be today, if it were cost effective and readily available. But, as we all know, the story has changed. Even though the demand exists, some carriers are exiting this market or pricing themselves out of it and producers will be seeking alternative solutions for their clients.

• Whole Life lives – This is an exciting time for life insurance sales. And there’s every reason to believe the year ahead will an exception. What’s driving it is the breadth of product choices. It’s interesting to note that whole life sales showed 5% growth in the first quarter of 2011 and 10% in the second quarter, according to a LIMRA report, while term life sales continued a long decline. This upturn is certain to grab the attention of more carriers. Whatever the need, there is an appropriate solution and this includes the use of permanent life insurance. It can be particularly valuable in providing supplemental retirement income and meeting estate and business planning needs.

• Current assumption UL has consumer appeal – Today’s consumers want to control their destiny and, with a choice of options, current assumption UL plans offer a high degree of flexibility including cash value provisions. Since the cost is based on current interest and mortality rates, consumers benefit from greater product transparency. With current interest rates at an all-time low, these plans should perform well if rates increase in the future, which makes them even more attractive.

• Indexed universal life steals the show – Needless to say, this product has attracted the attention of both producers and consumers. IUL has a strong appeal since it can serve as an income stream for retirement and college planning, as well as a permanent death benefit. With such flexibility, it’s easy to see why it’s popular with consumers. At the same time, this is a product with a substantial number of moving parts that make it more difficult to understand. This is why producers need to take the time to learn how to sell it before venturing into this growing market.

• Life/long-term care hybrids offer sales kick – While individual LTC policies have been on the market for about 20 years, sales have never taken off, mostly because of cost, policy provisions, and a track record of failed products and re-pricing. Producers complain about the amount of time they spend with clients, only to have their efforts fail to produce sales as prospects change their minds.

On the other hand, the so-called “hybrid” products seem to be overcoming consumer objections and worries. Although there are variations in policies, all send the message that a purchaser can have it both ways, permanent life insurance and long-term care protection. While no one policy can meet everyone’s needs, the hybrids are gaining traction since they offer a high comfort level and make LTC more affordable.

4. Competition in the year ahead.

To quote the late comedian, Jimmy Durante, “Everybody wants to get into the act! That’s just the way it is with the marketing of life insurance products today. Along with life agents, the list of players includes banks, wirehouses, accountants, property & casualty agencies, and online marketers, among others.

The message should be crystal clear: avoid complacency at all cost. Ignoring new products and strategies can prove dangerous. It isn’t just jumping on the product bandwagon. Producers must be competent in knowing what works and what doesn’t. Some products are flawed, while others may not be a good fit. A producer’s value rests in knowing the difference.

All this suggests that producer opportunities are enormous for the foreseeable future. And it isn’t just because the demographics are right. While it’s popular to talk about Boomers, Millennials and other segments, such discussions may be overrated because they miss the point. Perhaps, far more significant is a basic economic shift that has occurred. Although, it began a couple of decades ago it has been greatly exacerbated by the Great Recession. A growing segment of consumers now recognize an essential fact: they are responsible for their individual economic destiny.

They are looking for financial products that give them flexibility and the ability to decide how to tailor those products to their needs. This is a message that looms large throughout any discussion today, including this one. The life insurance industry has the tools to deliver what consumers want. However, it remains an open question if we have the will and determination to meet the challenge. q


Kenneth A. Shapiro is president of First American Insurance Underwriters, Inc., a national life insurance brokerage firm based in Needham, Mass. and specializing in coaching growth-oriented producers. He began his career with Northwestern Mutual Life and later worked for The Guardian Life Insurance Company. He can be contacted at 1-800-444-8715 or


Life Settlement News

by Leila Morris
California Considers New Rules on Provider Licensing

The California Department of Insurance is considering using financial instability as grounds for denying or revoking life settlement provider licenses. Its rationale for amending California’s life settlement regulations is that it is not in the public’s interest to license an entity without financial staying power. The Department notes that providers have ongoing obligations to insured sellers after the close of a life settlement transaction, according to a report by the law firm of Barger & Wolen (

At a public discussion on the proposed revisions on March 9, industry representatives said that it would be hard for the Department to enforce such a requirement without having an objective standard for a lack of financial stability.

Also, the industry said that the Department is not thinking of providers in the correct light. Industry reps argued that nearly all providers are simply fund originators and not risk bearing entities since they generally do not hold policies for their own account. The industry also added that there are many reasons why providers go out of business; it is not always because of a lack of financial stability.

The industry representatives reported that most of the time life insurance policy servicers contract to undertake any post-closure obligations, not providers. They said that a better approach is a servicer registration or licensing requirement. The Department said it would consider the servicers’ role in the transactions.

There was also discussion about the following:

• Why the providers in retained death benefit cases may be risk bearing entities.

• How the Department can protect insureds who try to retain some death benefits from a secondary market buyer who may stop paying premiums.

• Whether coverages and rights owed to the insured should transfer to the new owner. The industry believes that there is no difference in the rights and obligations under a policy sold in the secondary market since the secondary buyer simply stands in the shoes of the insured.

“There were clearly differences of opinion between the Department and the industry, but the workshop was productive. We will not know how much traction the industry’s positions will get until the Department publishes its proposed revised regulations,” according to Barger & Wolen’s report.

The Department is contemplating the following revisions to the life settlement regulations:

• Prohibiting the commingling or investment of escrowed life settlement proceeds due to the owner in a life settlement transaction.

• Defining grounds for the denial of a license application or the revocation of a license. For life settlement providers, failure to show financial stability will serve as grounds.

• Regulating the life settlement transactions that allow the owner to retain an interest in the policy by requiring the owner to designate an irrevocable beneficiary and requiring contractual provisions intended to protect and preserve the seller’s interest.

• Permitting the owner, who has entered a life settlement contract, to purchase annuities and retain additional benefits or optional riders that were part of the insurance policy.  However, if the owner elects not to purchase an annuity or continue any additional benefit or optional rider, such elections, would be terminated when the life settlement takes place.

• Requiring any subsequent life settlement purchaser that transfers ownership or changes the beneficiary to notify the provider so that the provider may again notify the insured of the subsequent change in ownership or beneficiary.

• Clarifying that a life settlement provider applicant or licensee must disclose any pending investigations of any criminal, civil, regulatory, or administrative actions taken against the applicant or licensee.

For more information or any questions, contact Tim Moroney at 415-743-3713 or


Melville Brokers the Sale of A Large Life Settlement Portfolio

Melville Capital, LLC has advised on the sale of Antietam Funding’s remaining life insurance portfolio that closed March 28, 2012. The parent owner of Antietam is a bankrupt hedge fund, SageCrest II, and through controlled entities like Antietam, purchased or financed life insurance policies. Melville was retained as the exclusive life settlement broker and advisor to the estate and Jack D. Huber, of Navigant Capital Advisors, the Wind-Down and Workout Manager in re SageCrest II LLC, et al. (SageCrest), Case No. 08-50754 in connection with bankruptcy proceedings in the United States Bankruptcy Court, District of Connecticut, Bridgeport Division.

Melville president Robert Stark said, “SageCrest is a complicated bankruptcy involving many entities and high-profile bank creditors. It was imperative that these Policies…be sold expeditiously but also at true market pricing and I believe we hit this mark.”  For more information, visit


New Company Helps Institutional Investors 

Former members of Chartis Risk Solutions launched Miravast, a risk management firm specializing in life contingent assets. Miravast will have an initial emphasis on the life settlement market, but expects to expand quickly to a full array of life contingent products.

Bill Taylor, former senior vice president and chief underwriting officer of Chartis Global Risk Solutions, leads Miravast. Taylor said, “There is a void in this market that we are looking to fill. Currently, investors are unsure of how to invest or whom to trust…Miravast is meant to bridge the gap for investors and provide turnkey access to investing in life contingent assets.”

Voluntary Benefits–The Evolution of Voluntary Benefits

by Dennis Lyons

Ten years ago, voluntary benefits, in which employees pay 100% of the premium, were found mostly in larger companies. But, they have gained traction over the past decade even among smaller companies.

Budgetary pressures are, of course, a contributing factor. But the majority of employers also say that voluntary benefits help provide more choices to meet the diverse needs of their employees; they help employees fill gaps in coverage; and they help employees achieve greater financial security, according to MetLife’s 10th Annual Study of Employee Benefits Trends released earlier this year.

The down economy has been one catalyst for increasing employees’ interest in workplace benefits. There is also growing interest in a wider array of voluntary benefits, particularly among younger workers. Forty-nine percent of employees say that, because of the economy, they are counting on their employers’ benefit programs to help with their financial protection needs. That percentage climbs to 55% for Gen X workers and 66% for Gen Y workers. In addition, 51% of employees are interested in having access to a wider array of voluntary benefits. The same is true for 57% of Gen Y and Gen X workers. Sixty-two percent of Gen Y workers and Gen X workers are willing to bear more of the cost of their benefits rather than lose them.

Employers seem just as eager to offer these benefits. Forty-one percent said that offering voluntary benefits is a significant benefit strategy – up from 32% last year. In addition, 42% of employers that don’t offer voluntary benefits plan to do so in the next two years – that’s a tremendous opportunity to tap. In addition, 62% of employers say that offering employee-paid benefits will become a more important strategy the next five years.

Common voluntary benefits include auto and homeowners insurance, vision, dental, supplemental life insurance, and supplemental disability, but others are quickly gaining traction, such as critical illness insurance and group legal plans.

Covering a Critical Illness 

The concept of critical illness insurance is attractive to employees – although few people know what it is, according to the MetLife Critical Illness Insurance Awareness Study of 2010. When the product features were explained, 75% of employees who didn’t own critical illness insurance or had not heard of it, found the concept appealing; most were even willing to pay the entire premium. Why the appeal? Many people are not prepared for the financial impact of a critical illness. Another MetLife Study, Financial Impact of a Critical Illness Study (2010) found that that $35,500 is the average financial burden of recovering from cancer, a heart attack, or stroke. Much of this cost is linked to lost income. There are also expenses that are not covered by health insurance, such as deductibles and co-insurance. Since many employees are already living paycheck to paycheck, it’s not surprising that only 16% of full-time employees are confident that they could pay for a medical emergency. Therefore, having a lump sum payment in the event of a serious illness could be an attractive option for employees who are looking to ease that potential financial burden.

Navigating the Legal Process

Tough economic conditions have contributed to a surge in member requests for legal services. From 2007 to 2011, Hyatt Legal Plans’ data found that members more than doubled their use of legal plan services for debt and financial matters. Use of bankruptcy services increased 167%; use of debt collection defense services increased 50%, and use of refinancing and home equity loan services increased 50%.

Employers also show a strong interest in group legal offerings. Simply dealing with day-to-day personal legal issues in the workplace can have a significant effect on employee health and productivity. The study reveals that people with personal legal matters, such as will preparation, traffic tickets, real estate matters, or family situations, like adoption and divorce, are spending, on average, nearly three hours a week at work dealing with their situations for an average of five to six weeks. Furthermore, 37% of men and 47% of women say dealing with their issues affected their physical or emotional health.

Just 30% of employees who used a group legal plan took time off from work to resolve their legal issues compared to 50% of those who did not use a group legal plan. In addition, employees who used a group legal plan resolved their issues in 4.4 weeks, on average, compared to 6.1 weeks for those who did not.

With a growing number of employees turning to the workplace for assistance, there are vast market opportunities for group legal plans. Most employers have not yet added a group legal plan to their benefit portfolio, representing a conversation starter for brokers and consultants.

Taking the Next Step

Brokers have a tremendous opportunity to grow their business with voluntary benefits as employers prepare to navigate the post-reform benefit landscape. Integrating additional voluntary benefits can help mitigate employees’ financial concerns while strengthening their loyalty toward their employers. Voluntary benefits offer a wide array of benefit options that cater to employers’ desires to address cost controls.

The MetLife Study of Employee Benefits Trends reveals that employers underestimate how non-medical coverage, such as dental, vision, disability, and life, drives employee loyalty. For instance, 51% of employees say that having non-medical benefits has a strong influence on their feelings of loyalty toward their employer. However, only 32% of employers recognize this. Your counsel can help narrow this divide and help your corporate clients leverage their benefit programs more effectively.


Dennis Lyons is vice president, Employee Paid Sales, MetLife. Metropolitan Life Insurance Company (MetLife) is a subsidiary of MetLife, Inc. (NYSE: MET). MetLife and its affiliates are leading global providers of insurance, annuities, and employee benefit programs, serving 90 million customers in over 50 countries. Through its subsidiaries and affiliates, MetLife holds leading market positions in the United States, Japan, Latin America, Pacific Asia, Europe, and the Middle East. A copy of MetLife’s 10th Annual Employee Benefits Trends Study, referenced in the article, can be obtained at Legal plan services are provided by Hyatt Legal Plans, Inc., a MetLife company. In many states, the services are provided as insurance from Metropolitan Property and Casualty Insurance Company and its affiliates, Warwick, RI. The companies referenced in this material operate independently and are not responsible for each other’s financial obligations. 

Voluntary Benefits–Choice Rules: How Legal Plans Can Enhance Your Client’s Voluntary Benefit Package

by Dennis Healy 

Every day, we face multiple decisions – decisions as simple as what type of coffee to buy during our commute to work to more complex choices, such as whether to commute to this job in the first place.

The choices we make and the number of options we have in our personal life illustrate that we are choosy consumers before anything else. We live in a society of choice and we expect the same at work. A healthy voluntary benefit program is an easy, low-cost, and effective way for your clients to reward their employees by offering more choice in the workplace.

Add Choice with Voluntary Benefits

The recent Mercer “What’s Working” survey shows declining employee loyalty worldwide. The percentage of workers who are seriously considering leaving their employer has increased nine points in the U.S., from 23% in 2005 to 32% in 2010. This trend could increase as the economy improves.

In that same Mercer study, 53% of employees said that benefit choices are a vital part of the employment deal. And according to an Aflac study, 60% of employees said they would purchase voluntary benefits.

This leads to the question you must encourage your clients to ask themselves, “If I provide more choices through a robust voluntary benefit program – including supplemental life, dental, vision, critical illness, and legal solutions – will it increase my employees’ loyalty and engagement?”

Legal Solutions – A Valuable Choice

As your clients consider offering more choice in their voluntary benefit program, steer them toward a group legal solution. It’s quickly becoming a key differentiator in employee benefits as employers look for no-cost solutions to round out their total compensation package and increase loyalty and engagement. Smart consumers look for ways to protect what they’ve worked so hard for.

Comprehensive legal products are designed to meet the majority of the personal legal needs of the average consumer and their family. Your clients pay nothing while employees gain access to a network of attorneys and other legal resources at an affordable rate. Most providers offer a comprehensive array of benefits to meet consumer needs and choices, such as the following:

• Online educational resources and legal documents, such as legally valid and state-specific wills and estate-planning papers.

• General legal advice over the telephone as well as educational and referral resources for needs such as elder care, financial counseling and identity theft.

• Comprehensive plans that offer in-office visits with an attorney and court representation.

Providing a way to increase benefit choices without increasing costs is a win-win as your clients deal with healthcare changes, an uncertain economy, and shrinking budgets. It also helps you diversify your product offering in an evolving voluntary benefit landscape.

Increased Need for Legal Choices

Many consumers believe that they will never need a lawyer in their lifetime, but research shows the need for legal counsel is increasing and it’s costing money for employers and their employees.

Seven out of 10 employees will experience a life event this year that will require legal counsel and one in four Americans are financially distressed. Even though employees are consumers before anything else, most don’t know where to turn for legal help and can’t pay the average attorney rate in California of $435 per hour, according to the Survey of Law Firm Economics.

Having stressed-out employees who are trying to resolve personal legal matters affects your clients’ bottom line. In fact, stress causes American industry more than $300 billion annually in lost hours due to absenteeism, reduced productivity, and workers’ compensation benefits, according to the American Institute of Stress. Your clients can combat these workplace problems by offering employees important resources to prevent and deal with legal issues.

Smart consumers will see the value in preventing stressful legal situations. Group legal solutions allow employees to create a will and power of attorney agreements, review real estate contracts, and execute trust and estate-planning documents, among other preventative measures.

If legal issues can’t be prevented, a legal product can help resolve them with less pain and expense to the consumer. The continued anemic economy has increased consumers’ legal needs. Bankruptcies are on the upswing; foreclosures are on the rise; more than half of all marriages end in divorce, according to Also, identity theft has been the most frequent consumer complaint received by the Federal Trade Commission for the past 11 years. A legal product gives consumers the ammunition to deal with those problems, which are all too prevalent in today’s struggling middle class.

Additionally, your clients can encourage their employees to increase their financial wellness and become savvier consumers by choosing legal products. Leading legal solutions providers offer free and unlimited financial guidance from a financial counselor as well as access to online personal financial plans, calculators, and educational articles. Furthermore, paying for legal solutions can save consumers money in the long run by covering the cost of unexpected legal needs.

Many consumers work fulltime and then go home to their second fulltime job of care giving. According to the National Alliance for Caregiving, 67.1 million people – 31% of all households – are caregivers. They provide an average of 20 hours of care per week to a loved one. Serving as a caregiver affects income, career advancement, and retirement benefits. It also puts consumers at risk for legal issues. Leading providers offer advice and consultation for elder law concerns as well as online tools, and resources. They also offer caregiving support services to assess needs and develop plans and provide information, ratings, and reports on caregiving facilities.

With so much going on in employees’ lives, they’re searching for help and they’re looking for choices. Your client can offer that choice with a group legal product.

Boost Your Business by Offering Choice

In this world of choice, encourage your clients to offer more voluntary benefit options to employees who are craving choice in the workplace. Recommending products, such as legal solutions, will position you as a true adviser to your clients, diversify your book of business, and differentiate you from your competitors. As you explore additional voluntary benefits for your clients, group legal solutions deserve a hard look to increase the success of your business and your clients’ business.


Dennis Healy is ARAG vice president of Group Sales. He has more than 20 years of insurance industry experience, with a primary focus in the sale of group voluntary benefit products to employer groups of all sizes. He is responsible for developing and maintaining relationships with distribution partners and employers to position legal solutions as an important part of an employer’s overall benefit offering. Dennis has a bachelor’s degree in Management from Keene State College in New Hampshire. He has been published frequently in trade publications and is a featured speaker at industry conferences and seminars. Dennis is active in many sports and instills his enthusiasm for sportsmanship and healthy competition by coaching youth baseball and basketball programs in the Boston area. For more information, call 800-888-4184 ext. 237.