Healthcare Reform: Boom or Bust for Voluntary Benefits?
Jul 1, 2012
The Affordable Care Act is rapidly approaching the culmination of a four-year implementation plan. In 2014, several important changes are to take effect as the next wave of reforms are implemented. Among the potential effects of the Act on the voluntary benefits industry is the transparency of medical costs and the mandate to provide coverage to those with preexisting conditions.
Transparency of costs for medical coverages helps consumers understand how their money is spent, but what does that mean for voluntary benefits?
Healthcare reform has raised the profile of voluntary benefit programs among employers and consumers. Because the law provides transparency to the true costs of medical coverage, consumers are becoming more aware of their overall expenditures on financial protection products. As voluntary benefits take hold in the marketplace, the costs of these benefits may come under further scrutiny from consumers as they look to make the best decision for their benefit dollar.
The prohibition of discrimination against preexisting conditions may influence how voluntary benefits are provided in the marketplace in the future.
One of the key tenets of Healthcare Reform in its current state is the requirement for health insurance companies to make their policies available on a guaranteed issue basis. This practice ensures that everyone will have the ability to obtain health insurance, even with a preexisting medical condition. Voluntary benefits such as disability insurance, cancer coverage, accident coverage and life insurance are considered excepted benefits under HIPAA and do not fall under the umbrella for this mandate. While this stipulation is currently limited to major medical insurance, it is wise for voluntary benefit providers to be wary of how these benefits may be interpreted in the future.
The insurance business model is predicated on the predicted claim rates and losses based on probability of incidence for the collective group of participants in a given program. The financial risk that insurers are exposed to with group voluntary plans is materially affected by the participation rates for the program. Participation rates for any group voluntary program generally fall in the 30 – 40% range. While some programs are offered on a guaranteed issue basis, many exclude buyers with preexisting conditions. Should preexisting condition limitations be removed from consideration in voluntary insurance underwriting, risk will increase even while participation rates may rise.
So what does this mean for the voluntary benefits industry?
A popular perspective holds that voluntary coverage will become more important as consumers look to bridge the gap between what their medical insurance plans provide and the actual cost of care. Under this philosophy, coverage such as critical illness insurance, cancer coverage, long-term care insurance and other benefits will rise in popularity as employers cut costs to their overall benefit programs. Additionally, the prominence of healthcare exchanges will provide increased transparency of the costs and benefits of healthcare programs for consumers.
However, the potential downside for voluntary insurance carriers is the risk that cost awareness of healthcare plans may make consumers more averse to making additional insurance protection purchases. In many instances, consumers who are provided healthcare through their employer today may not be fully aware of the “true” cost of medical insurance. The appetite for financial protection products such as voluntary insurance as a percentage of consumer budget will become an even more important consideration for voluntary benefit carriers.
How can insurers account for the shrinking wallet share opportunity and provide a value proposition that resonates with consumers?
The importance of voluntary coverages to cover expenses over and above those covered by major medical insurance cannot be overstated as healthcare reform continues to mature. In order for consumers to understand these benefits amidst the myriad changes within their medical program, education is paramount.
The seemingly endless combination of plan designs, deductibles and insurers to choose from undoubtedly causes significant confusion for consumers. In order to capitalize on the opportunity to increase the penetration of voluntary products, carriers need to create messaging that rises above the noise of healthcare reform programs and makes the decision process simple for consumers.
As 2014 approaches, voluntary benefit providers are on the precipice of a potential revolution in how employee benefits are distributed. In order to capitalize on the potential revenue opportunities, insurers must maintain precaution regarding how the Affordable Care Act is impacting the insurance industry today and how that may evolve over time. Recognition of the potential for future expansion of insurance reforms and directing proactive measures in educating consumers of the value of voluntary benefit programs will help protect the voluntary benefit business model in the age of healthcare reform.
About the Author
Dr. David T. Stoneback has spent over 11 years in the employer benefits industry studying employee service strategies and employer benefits trends. He is a director of growth strategies as well as an adjunct professor of business. He resides in Bucks County, PA. Dr. Stoneback can be contacted at firstname.lastname@example.org.