Voluntary (supplemental) benefits give employees a financial safety net should they face a medical emergency or illness. However, the insurance market isn’t always favorable to employers or workers. That’s why BeneRe created a different model.
Key Takeaways
- Health insurance isn’t enough on its own as employees face ever-higher deductibles and out-of-pocket maximums
- More than half of Americans have less than $1,000 in savings
- Voluntary benefits offer a solution, but problems exist in the overall industry
- Brokers have misaligned incentives because they may receive high commissions in the first year, which often leads them to carrier hop
- The BeneRe model ensures that profits go back to employee plans, not the traditional carrier
- Employees are better financially protected and enjoy lower premiums
Supplemental insurance plans are becoming more common in the U.S. as healthcare costs rise and employees aren’t able to cover expenses, even if they have employer-sponsored health insurance.
However, the voluntary benefits market still has a lot of issues. These obstacles tend to be more beneficial to brokers, consultants, and the industry at large than the employees paying for coverage or employers sponsoring their plans.
This guide will walk through what the voluntary benefits market looks like today, its key problems, and how the BeneRe model can help your company address them.
The 2024 voluntary benefits market and its issues
Employer-sponsored health insurance programs on their own are no longer enough for employees, who are dealing with very high deductibles and out-of-pocket maximums. The average deductible amount has increased 10% over the last five years and 53% over the last ten years. For covered workers in small firms the average deductibles were $2,434 and $1,478 for large firms. These issues spread across industries and to employees within all income brackets.
Around 40% of Americans get unexpected medical bills, yet roughly 37% do not have enough money to cover a $400 emergency expense, and 57% can’t cover $1,000. And, our research shows that the majority of Americans are somewhat or very worried about being able to pay unexpected medical bills.
Voluntary benefits have emerged as one solution. Accident, Critical Illness, and Hospital Indemnity coverage allow workers to get extra support when something serious happens. This coverage gives them a financial safety net to counteract those deductibles and out-of-pocket maximums from their regular health insurance.
However, there are a few issues weighing down the voluntary benefits market today. These include:
- Heaped compensation: Incentive comp plans pay brokers as much as 75% in the first year of a plan and step down after that, leading to misaligned incentives.
- Pay-to-play platforms: Large brokers get profits when platforms crowd out the competition.
- Low claims ratios: The heaped commission structure forces insurance carriers to seek low-loss ratios for years in the future so they see their target ROI.
- Carrier hopping: Because of heaped commissions, brokers are incentivized to change carriers every few years.
Another major challenge with the current voluntary benefits market is a lack of transparency. Employers don’t know the numbers behind claims and expenses, so they don’t understand what kind of value they’re offering their employees. This is precisely why we established BeneRe.
How BeneRe is different and the advantages of our model
BeneRe uses a group captive insurance model that ensures employees are getting the most value out of their plans, not the insurance industry. Our plans are guided by transparency, so employers always know exactly where employees’ dollars are going and how the plans are performing.
BeneRe reinsures the risks of all companies that belong to the group and distributes any dividends that are available at the end of the year to all participating members. These dollars are then reinvested in employee benefits programs. This model works well for voluntary benefits because risks are shared across all participating employers, claims are paid out of that same pool, and insurer and broker costs are appropriately set, reported, and controlled.
Single-parent insurance companies usually can’t include voluntary benefits without a Department of Labor exemption since it’s considered a conflict of interest under the Employee Retirement Income Security Act (ERISA). The company would essentially profit directly off of its own employees.
However, the group captive model removes this conflict of interest since it’s based on a pool of employers sharing the risks and rewards across a pool of hundreds of thousands of employees.
The BeneRe group captive model offers:
- Lower premiums for employees
- Greater financial protection for employees
- Streamlined claims administration
- Vendor stability
- Fair compensation
- Quarterly financial reporting
- Potential annual dividend distributions
All employee premiums are paid directly to the A-rated insurance carrier, which issues fully insured policies and handles all administration and claims processing. BeneRe then reinsures 100% of the program.
All underwriting gains go back into the employers’ benefits plans as dividends, so they can reinvest the funds in employee benefits programs. Targets for underwriting gains are between 10% and 20%, but we’ve seen even higher results for members. When claims vary from one year to the next, and in the event of a premium shortfall, employers will never have to deal with a capital call.
Here are the steps involved in our program:
- Employees enroll in voluntary benefits during open enrollment. Payroll deductions are then sent to the insurance company that fronts the plan. There is no financial risk for employees.
- The carrier administers and manages the program like any other plan.
- BeneRe reinsures 100% of the risks while allowing the premiums to be held by the insurance company. The carrier thus holds the dollars until final claims are paid for the policy period, protecting employees.
- At the end of the policy year, the premiums net of claims and expenses are released to BeneRe and distributed on a pro-rata basis to participating plans. The 40% of expenses include carrier fees, client service, captive management, compliance, broker commissions, and taxes. There is then 60% left to pay claims. If claims don’t take up that full amount, the employer would receive the difference as a distribution at the end of the policy year.
Voluntary benefits give employees better financial support when they face an injury, serious diagnosis, or hospitalization. But the current market doesn’t always favor employers and employees.
The BeneRe difference: Since 2018 we have operated a first-of-its-kind group captive insurance solution for Accident, Critical Illness and Hospital Indemnity coverage. We give you full transparency about where the dollars are going, your employees receive lower premiums and full protection, and any potential dividends are reinvested in employee benefits programs. It’s that simple. There is no downside.
To learn more about our model, contact the BeneRe team today.