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.