Health Savings Account Blog

"What we're seeing is a much more aggressive focus on voluntary benefits from carriers," says Bonnie Brazzell, vice president of Eastbridge Consulting Group, a marketing advisory firm in Avon, Conn. "This is changing the mix of products and the level of competition in this area. And the employer is the winner here."

Every two years, Eastbridge conducts a survey of insurance carriers to determine worksite product trends. Its 2006 report, released in May, shows that critical illness and supplemental insurance, disability insurance, and limited benefit medical plans are expected to be the top-selling voluntary benefits for in the near future.

Critical illness insurance topped carriers' list of "emerging" products, those not traditionally included in insurers' core voluntary portfolio. The second-strongest growth products are expected to be supplemental medical ("gap") insurance and limited benefit medical plans. (See Figure 1.)

Fifty-three percent of the survey respondents said that CI would be the top-growing voluntary product over the next few years, and 35% added that they expect to introduce a CI product in the next year or two.

However, despite carriers' bullishness on future employer and employee demand for critical illness plans, most deemed CI the industry's top "under-performer," indicating disappointment in current sales.

"Thirty-two percent of the carriers surveyed named critical illness as the product that has not grown as expected," says Brazzell. "This is even more interesting when we consider that Eastbridge's 2006 U.S. Worksite Sales Survey showed that the critical illness line of business grew at one of the faster paces in 2005. Sales were up almost 13% over 2004."

There's ample room for growth: According to the Society for Human Resource Management, the number of employers offering critical illness coverage has been growing slowly but steadily in recent years. Thirty-two percent of organizations offered CI in 2002, and 39% are providing this coverage in 2006.

Long-Term Care

Employer and employee interest in voluntary medical still does not extend to long-term care, though. Only 8% of carriers expect LTC to be a growth area in 2006, compared to 28% in 2002 and 16% in 2004. Though insurers will continue to offer LTC, nearly a third of the Eastbridge survey respondents indicated these plans are unprofitable for their company.

One reason that insurers are sticking with LTC is that they are optimistic that health savings accounts will breathe life into moribund sales, since LTC and other voluntary product premiums can be paid with HSA funds.

"Carriers are hopeful that HSAs will have some positive impact on LTC sales, but it won't be gangbusters because employee interest is limited," Brazzell says.

Insurers tried in recent years to make LTC products more appealing by creating lifecycle products, such as disability insurance that would "morph" into a long-term care plan.

"Carriers tried these morphing products, but it didn't go over as well as they'd expected," she says. "It's usually an affordability issue." A combination product "is a great idea," she adds, "but it's obviously more expensive than plain vanilla disability, so people don't buy it."

The problem may not be lack of interest, but lack of education. Often, Brazzell says, brokers don't inform employers and employee-consumers about newer products.

"Brokers have a comfort level with the products they're selling and how they fit into their existing voluntary benefits portfolio, and it often takes awhile for them to pick up on new [offerings]," she says.

In addition, brokers are under pressure from employers and employees to keep costs down and provide the best value for the least cost. This makes them leery of bringing in something new, Brazzell notes.

Life lags

Perhaps the most startling change reflected by the survey is the sharp drop in demand for life insurance products. In Eastbridge's 2004 survey, nearly six in 10 insurers said universal life would be the top growth product for their company over the next few years. This year, though, only 11% of carriers chose universal life as a growth product, and just 16% thought sales of term life policies would grow.

"Growth in life overall is flatter in 2006," says Brazzell, which will lead to increased competition among carriers.

LIMRA International, another market research firm, reports that for the past five years, growth in group life sales has averaged just 2%. (See related story on page 17.) SHRM's 2006 Benefits Survey Report shows that the number of employers offering life insurance actually has declined from 98% in 2002 to 94% this year. Sixty-five percent provide life insurance for dependents.

Vision goes voluntary

What carriers are excited about is the growing employer interest in vision care as a stand-alone voluntary product. Eastbridge survey respondents ranked vision third on their list of emerging voluntary products. Thirty-one percent of the carriers said they will offer voluntary vision plans in the next few years, up from 22% in 2002.

Vision care is extremely popular; SHRM reports that 73% of organizations offer vision insurance. According to research by the Hay Group, the percentage of companies offering vision benefits has increased by about 20% since 1999, but the percentage of voluntary programs has jumped from 27% to 39%.

According to EBN sister-magazine Employee Benefit Adviser, vision is an obvious candidate for a voluntary arrangement because it is inexpensive and doesn't necessarily affect the majority of employees. Vision also is well-received as a voluntary benefit; Ron Dutton, a Kansas City, Mo. benefits adviser, told EBA he has been able to maintain 70% participation for formerly employer-sponsored vision plans, though 50% to 60% participation is the norm.

Many carriers are bundling vision with other products, particularly dental, to enhance their appeal to both brokers and employers.

Rethinking and repackaging

With employers demanding more defined contribution benefits and competition intensifying among voluntary benefit providers, more product repositioning is likely. One idea that's taking root is to present voluntary medical products such as disability, CI and LTC as part of the overall retirement savings strategy.

"I view voluntary benefits as a way to preserve current income, and protect current and future savings," says MetLife Vice President Randy Stram. "Said another way, if an individual is diagnosed with a critical illness or become disabled or needs long-term care - institutional care - during their income years ... that would have a very severe consequence, a negative effect on retirement savings."

Employees should be receptive to such an approach. Many financial advisers already include some benefits, particularly long-term care, in retirement planning discussions with their clients, and HSAs commonly are considered good retirement savings vehicles, because they allow pre-tax dollars to be used for long-term care premiums, Medicare premiums and out-of-pocket costs.

However, while many benefit advisers believe this is a viable tactic to market benefits, it is not in wide use, in large part because it can be difficult to get the one-on-one time needed to explain this strategy to each employee.

"I think that as the workforce continues to age, it will become apparent that part of the worksite process is providing America with solutions to their future," says Marc Lower, Colonial Life's regional sales manager for the Western region. "The complexity of retirement planning will require more time with the employee.

"The challenge is getting the employer to agree to the time necessary to do that," concludes Lower. "There needs to be individual attention to find out what the needs of the employee are and to help the employee come up with solutions from a product standpoint."