Why is Employee Demand for these Coverages Rising?

There are a number of factors at play in terms of rising demand for supplemental benefits. Among them are:

Rising Costs

Heading into 2022, medical cost trend remains stable yet unsustainably high as healthcare costs continue to rise according to PWC. HRI projects 2022’s medical cost trend to be 6.5 percent. This is consistent with the previous five years, which have seen trends between 5.5 and 7 percent. Efforts to cut utilization have run their course and prices have continued to grow. This has put significant pressure on employer sponsored health insurance plans.

Average Annual Premiums for Single and Family Coverage 1999-2020

Source: KFF Employer Health Benefits Survey, 2020

Rising Deductibles

Over the past five years, the average annual deductible among all covered workers has increased 53%. Forty-two percent of covered workers in small firms and 20% of covered workers in large firms are in a plan with a deductible of at least $2,000 for single coverage, similar to the percentages last year.

Average Annual Health Plan Deductible for Single Coverage 2006-2020

Source: KFF Employer Health Benefits Survey, 2020

Soaring Out-of-Pocket Maximums

Most workers also face additional cost sharing for a hospital admission or outpatient surgery. After any general annual deductible is met, 68% of covered workers have coinsurance and 14% have a copayment for hospital admissions. The average coinsurance rate for a hospital admission is 20% and the average copayment is $326 per hospital admission. The cost-sharing provisions for outpatient surgery follow a similar pattern to those for hospital admissions. While almost all (99%) covered workers are in plans with a limit on in-network cost sharing (called an out-of-pocket maximum) for single coverage, there is considerable variation in the actual dollar limits. Twelve percent of covered workers in plans with an out-of-pocket maximum for single coverage have an out-of-pocket maximum of less than $2,000, while 20% have an out-of-pocket maximum of $6,000 or more.

  • 6 in 10 Single Plans have a $3,000 Out-Of-Pocket Max
  • 1 in 5 Single Plans have a $6,000 Out-Of-Pocket Max
  • $4,065 is the Average Out-of-Pocket Max
SOURCE: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2019

Who Would Benefit From Having Voluntary Benefits?

In a 2017 study, the Federal Reserve surveyed more than 5,000 people and found that about 46% of Americans said that they did not have enough money to cover a $400 emergency expense. When considering the Deductible and Out-Of-Pocket Maximums just mentioned, this situation puts a significant number of employees in financial jeopardy. What is surprising is the extent to which insured individuals have trouble keeping up with their medical bills. In 2017, The New York Times reported that 20% of Americans under 65 with health insurance had trouble paying their medical bills over the past year. Of those, 63% claim to have used up all or most of their savings to tackle their healthcare expenses, while 42% took on an extra job to cover their costs. These medical financial pressures will strike approximately 4 in 10 of employees each year, but pre-existing health conditions, current health status and age demographics do not accurately predict who that will be.

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About 4 in 10 Americans get unexpected medical bills. Pre-existing health conditions, current health status, and age are not clear indicators of who will be affected.

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A Federal Reserve Study found that about 46% of Americans did not have enough money to cover a $400 emergency expense.

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Medical bills are the leading cause of personal bankruptcy. Of those who filed, 78% had insurance.

Further evidence of the need for voluntary benefits:

The majority of Americans are worried about being able to afford surprise medical bills.

How worried, if at all, are you about being able to afford each of the following for you and your family?

On average, 18% of emergency visits result in at least one out-of-network charge, but the rate varies by state.

The percentages shown are among people with large employer coverage, the share of emergency visits with at least one out-of-network charge, 2017.

Four in ten (39%) insured nonelderly adults said they received an unexpected medical bill in the past 12 months, including one in ten who say that bill was from an out-of-network provider. Of those who received an unexpected bill, half say the amount they were expected to pay was less than $500 overall while 13 percent say the unexpected costs were $2,000 or more.

Who Qualifies?

Participation in BeneRe’s group captive insurance program is offered to U.S. based employers with either a minimum of 2,500 eligible employees or minimum premiums of $300,000 for these policies.

We only work with progressive, premier brokers and consultants with large employer relationships.

How does BeneRe work?

All employee premiums are paid directly to the insurance carrier, which holds the funds to pay all claims throughout the policy year.

BeneRe reinsures 100% of the program but the issuance of policies, handling of customer service and adjudication of claims are all handled by one of the most respected insurance companies in America. Underwriting gains are targeted to range between 10% and 20%, although actual results have been far superior. Because claims experience will vary from year to year, no distributions are guaranteed, however, employers will never face a capital call in the event there is a premium shortfall.

BeneRe Reinsures 100% of participating members’ voluntary benefits.

Contact us to learn more about how this works.

1. Employees enroll in the supplemental benefits program as part of open enrollment. Their payroll deductions are sent to the insurance company that is fronting the program. The employees enjoy the full faith and credit of the carrier fronting the program, meaning there is no financial risk to the employees.

2. Insurance company administrates the program as any other standard program. They issue policies for employees, handle customer service, adjudicate claims, etc.

3. The captive difference is that BeneRe reinsures 100% of the risks from these employer sponsored programs while still allowing all premiums to be held by the insurance company. This means that the insurance carrier holds the dollars until the final claims are paid for the policy period, thus providing extra protection for the employees. Note: All risks from participating employers are aggregated and the resulting loss experience is calculated on a composite basis.

4. Upon policy year end, premiums net of claims and expenses are released to BeneRe and further distributed on a pro-rata basis to all participating plans. Total expenses run 40%, which includes carrier fees, client service, captive management, compliance, broker commissions and taxes, leaving 60% of premiums to pay claims. If claims run at 50%, the employer would receive a distribution at the end of the policy year. If claims ran better or worse than expected; the distributions would be subject to change.

Important Considerations

What is a group captive insurance company?

It is an insurance company that exclusively reinsures the risks of firms belonging to that group. BeneRe is domiciled in Arizona and is regulated by that state’s Department of Insurance (DOI). They monitor BeneRe’s issuance of policies, collection of premiums, disbursement of claims, financial stability and compliance with all regulatory requirements as with any standard insurance company.

What’s the difference between a Single Parent Captive vs. a Group Captive?

The vast majority of large employers own a Single Parent captive and may wish to write these coverages through their controlled insurance company because of the consistently low loss ratios. However, this would represent a prohibited transaction unless the DOL were to grant a specific waiver to that employer. Conversely, the group captive does not require the DOL waiver:

  • BeneRe has removed the employer/employee conflict of interest.
  • Distributions are earned via third-party risk, i.e. the aggregated risk of all employers in the BeneRe group captive.
  • The only policies allowed in the group captive are Accident, Critical Illness and Hospital Indemnity.
  • All distributions must be reinvested in Employee Benefits.

What is the employee value proposition?

Unless employees would receive the same or better coverage at the same or better price, BeneRe will not allow participation in the captive. Analysis is performed on every current VB cost and plan design to calculate the actuarial and benefit value of the program. BeneRe will only allow an employer to join if the insurance program is improved for the employee.

What is the employer value proposition?

Many employers have been uncomfortable with the aforementioned low loss ratios and high commissions associated with voluntary benefits programs. BeneRe has solved for that by transparently disclosing all commissions, expenses, claims and then distributing 100% of all underwriting gains back to employers on a pro-rata basis. There are no contingent bonuses or other misalignments of interest prevalent in the market today.

How Does the Voluntary Benefits Market Work Today?

While corporate sponsored supplemental programs have many advantages, including enhanced financial security, cost savings and employee goodwill, plan sponsors need to be aware of how the market for these programs works today.

Loss Ratios

As was previously mentioned, commissions can be relatively high and claims experience relatively low for these supplemental programs, yet this information is not readily shared with the sponsoring employer. As such, employers don’t have a method to gauge the overall effectiveness and efficiency of the supplemental program being offered to their employees. Furthermore, contingent profits (aka “Over-Rides”) are at times shared with brokers based upon the profitability of these programs. This is in addition to standard commissions.

Level or High-Low Commissions

Many sponsoring employers are surprised to discover the unique commission structures endemic to these policies. Level commissions may range from 10-25%, while High/Low (aka “Heaped”) commissions could be as high as 70% in the first year with a trail of 5-10% each year thereafter. The latter option creates an incentive for the broker to periodically move the program to repeatedly recapture the high first-year commissions.

Service Provider Strategies

There is a trend in the industry for service providers such as benefits administration companies or wellness companies to set up their own insurance agencies to collect these commissions to offset the cost of their own services. This may be a viable option for a sponsoring employer but this structure masks the pricing for services and ties the program to a service provider that may not be offering a truly market competitive price or delivering the best service.

Voluntary and/or Employer Paid

Supplemental benefits are most often offered on a voluntary basis though many large employers are opting to pay for a base level of coverage with a voluntary buy-up option. The employer paid rates are lower (due to 100% of the population being covered) and the investment generates employee goodwill, especially in a high-deductible environment.

Enrollment Considerations

Participation rates in supplemental plans are in large part determined by the method of enrollment, communication and timing. To maximize the impact from a supplemental program, the policies should be offered as part of open-enrollment and the same platform as the core benefits. Education should be tailored to how these coverages fill gaps in coverage prevalent in most modern plan designs.

Communication Importance

Supplemental benefits are typically underwritten at a targeted loss ratio of between 50-65%. The actual losses experienced run lower than actuarially anticipated due to the “mail-in rebate” effect. Because employees don’t always file a supplemental claim after an accident, major diagnosis or hospitalization, carrier underwriting profits usually run much better than expected. But the truth is that insurance companies want to pay employees these claims! Thus a thoughtful communication plan can help remind employees to maximize the value of the coverage they have purchased.

Issue Age or Attained Age Option

Carriers generally offer Critical illness in five-year age bands. “Attained Age” simply means the employee pays based upon their current age. However, some carriers offer the option of “Issue Age” rates. If an employee purchases an “issue age” policy, they continue to pay the same rate for that coverage for the duration of their policy – the downside is that this option comes at a significant cost, making the coverage less affordable for all employees.

BeneRe seeks to disrupt “business as usual” by offering unprecedented transparency and value for employees and employers alike.

Why is BeneRe’s Group Captive a Compelling Option?

We established BeneRe, a group captive insurance company, in partnership with VOYA to offer employers unprecedented transparency of expenses, claims, commissions and the ability to capture underwriting profits to further enhance employee well-being. Prior to explaining how BeneRe works, the following attributes are important to understand:

  • BeneRe offers employees Accident, Critical Illness and Hospital Indemnity policies at the same or better coverage for the same or better price. We will not proceed unless we can improve the program for your employees.
  • There is no financial risk for participating employees. Because this program is fronted by VOYA, the employee can expect the same financial stability that comes from any high-quality insurance company.
  • There is no financial risk for sponsoring employers. In the event claims experience runs higher than forecast, 100% of the downside risk is taken by BeneRe – not the sponsoring employer.
  • Employers receive underwriting profits on a pro-rata basis. If a supplemental benefits program experiences fewer claims than were forecasted, the employer stands to receive all financial upside in the form of captive distributions.
  • All underwriting profits are reinvested in programs to benefit the employees. All of BeneRe’s supplemental policies are treated as ERISA covered plans under the employer’s wrap document, which allows for funds to be used for a wide range of enhancements to the corporate benefits offered.

Putting Distributions to Work

All distributions earned by participating employers must be reinvested in any ERISA covered plans, which are included in the company’s Summary Plan Description (SPD). This affords the human resources staff wide latitude in determining how to spend the money. Employers can use the funds for health or financial wellness programs, benefits administration expenses, enrollment communications, HSA funding, or a multitude of other important initiatives. In essence, employers must abide by the same ERISA rules that already apply.

Non-ERISA Organizations

For employers that are not subject to ERISA, including governmental and certain non-profit entities, participation is welcome and greatly simplified. Please contact us for details and certain options that are not available to for profit companies.

ERISA Compliance

Only after significant research supported by multiple Opinion Letters did VOYA and BeneRe decide to launch this captive insurance initiative. Substantial positive benefit is being provided to employees and employers alike. Summary bullet points are provided below:

  • To join BeneRe, employees must receive the same or better coverage at same or better price for in-force plans; for new employer programs, VOYA’s underwriting team develops the pricing blind to the existence of the captive (meaning standard underwriting methods)
  • VOYA is the fronting carrier for the BeneRe program – thus the full faith and credit of the carrier backs all employee claims
  • VOYA is also responsible for client service and claims adjudication for all employees (thus protecting their brand)
  • Participating employers must treat the BeneRe coverages as ERISA governed (Accident, Critical Illness and Hospital Indemnity)
  • Assets of the captive are funds-withheld with VOYA during the policy period and distributions are calculated on an aggregate but pro-rata basis (third-party experience), negating any self-dealing potential
  • In the event of a claim fund shortfall, participating employers are NOT responsible for any downside risk; Only BeneRe’s core capital is at risk
  • Employers must re-invest into their employer-sponsored plans any and all distributions they receive from the captive; case law supports the use of these funds for ANY benefit covered under an employer’s SPD document for ANY subset of the employee population

Summary

The demand for supplemental benefits continues to rise and employers are looking for ways to offer these plans efficiently, competitively and transparently. For the vast majority of Americans, supplemental benefits can provide a safety net for serious financial risk caused by medical expenses. Due to the random nature of most major medical events, employees would be well served by the financial protection that supplemental insurance policies provide in addition to the core health insurance program offered by employers today. Employers that are currently or considering offering supplemental benefits programs want to ensure that the best possible value is offered to their employees. BeneRe was designed with this goal in mind.

Please contact us to discuss how BeneRe can not only financially protect your employees but also fund Human Resources initiatives without employer expenses by offering a better way to deliver supplemental benefits.