Advantages of Supplemental Benefits as a First Step Towards Consumer-Driven Health Plans

 Advantages of Supplemental Benefits as a First Step Towards Consumer-Driven Health Plans

As a consultant for businesses with an emphasis on change management, I was often approached by company owners, CFOs, and HR directors who wanted to know what they could do about the increasing cost of their healthcare benefits. This is one of the main reasons I decided to get my insurance license. Regarding their major medical plan expenses, which have been increasing at double-digit rates annually, I had no choice but to suggest that they just swallow the pain and undergo a painful process of micro-re-examination of plan prices almost year until recently. A lot of decision-makers are having to cut perks or pass the cost on to their employees. The good news is that a reasonable solution has emerged to cut expenses (and taxes, incidentally), provide workers with greater agency and safety nets, and, dare I say it, even prevent them from launching a rake-and-torch revolt in response to demands that they personally chip in more money. Because the policyholder has the same amount of say over their health benefits as their employer does, these plans are appropriately named "Consumer Driven Health Plans" (CDHPs).

A lot of attention has been focused on two important aspects of CDHPs. Both the Health Savings Account (HSA) and the High Deductible Health Plan (HDHP) are required to be utilized simultaneously. Without getting too bogged down in the specifics, the basic gist is that the business (or the employee) can drastically cut premium costs by enrolling in a major medical health insurance plan with a substantially larger deductible ($1000 or more). Furthermore, tax-free dollars can eventually cover the deductible by substituting Health Savings Accounts (HSAs) for Flexible Spending Accounts (FSAs), which force participants to spend the tax-free money they contributed during the plan year or lose it.

The one drawback of this plan is that Flexible spending accounts (FSAs) release the chosen amount immediately upon plan start, while health savings accounts (HSAs) release only the amount that has been funded thus far. Put simply, the majority of individuals may face significant out-of-pocket costs associated with the deductible in the initial year of having such a plan.

Supplemental Benefits, the third pillar of the plan, can help you steer clear of this danger. Through the Cafeteria (Section 125) plan, whether it's brand new or already in place.

There are a number of good reasons why every HDHP/HSA plan should begin with additional benefits. The first step is to help workers feel secure enough to start contributing to their own financial security by introducing them to employee-funded, fully voluntary plans. The second advantage is that employees know they are lowering their out-of-pocket costs in the event of an unexpected event because supplemental plans cover deductibles and co-pays. Finally, they find out how much money is available before taxes. Lastly, improved understanding of the options available is a natural byproduct of increased choice. What this means is that workers are more invested in finding out how everything comes together and how to make the greatest decisions for their families.

An organization can inspire confidence in its workers by offering supplemental insurance first, so they can better safeguard their families without affecting other aspects of their work lives. Consequently, much fewer workers will perceive themselves as being unfairly affected when the HDHP/HSA transition occurs.

So, how might one go about creating an effective Supplemental plan?

Although many of the plans are structured and offer comparable benefits, the providers' methods of operation and the quality of customer support they offer differ substantially. When they require financial security and control, your employees know they can rely on you to choose reputable benefit providers. With the increasing number of participants, it's inevitable that every insurance company will boast about their own achievements. Just keep in mind that behind every recognizable brand name are a lot of smaller, less established businesses. Sometimes, insurance behemoths are nothing more than the merged entities of unaffiliated companies that have a common strategic goal—in this instance, breaking into the voluntary benefits industry. Just as in the Wizard of Oz, the marketing and financial data of a parent firm can paint an inaccurate picture of the size and competence of the division responsible for product development, underwriting, and servicing.

Surprises are disliked by all. This is particularly true in matters of monetary stability. The last thing anyone wants to hear is that a policy that an employee thought they were getting from BIG Insurance Company—whose savvy marketers boasted about the company's vast resources and decades of experience—was actually underwritten by the National United Smoke and Mirrors Insurance Company of Hoboken, NJ. This company specialized in property and casualty insurance until last year. The employee was devastated to hear this news. Whoever is hiding behind the curtain deserves your concentration.

In order to choose the finest supplier for your company's and employees' needs, it is important to ask the correct questions of possible providers.

Consider these recommendations:


How long has this company been in business and who exactly is underwriting the policy?
Being large is important in the assured renewable (supplemental) market, and experience is a strength in this regard. Can you tell me about the past and present of this organization? You should go with a firm that has experience working with clients from many kinds of businesses and the resources to deal with adverse selection.

Where does the organization stand financially?
Be sure to go with a highly rated company, regardless of whether you use Standard & Poor's, A.M. Best, Moody's, Fitch, or any other rating system. I can think of a few. Superior to B is A, superior to - is +, and the list goes on.

What measures does the company take to ensure its recognition?
Customer happiness over the long run is more important than short-term gains in recognition or market share. Good signs include long-term partnerships with businesses similar to yours. Above all else, how would you characterize the operational unit that really offers the underwriting? Something like a life insurance provider? A liability firm or a property and casualty corporation?
What are the ratings for each one?

Do insurance companies prioritize voluntary benefits?
Is the company's primary emphasis on supplemental and voluntary plans, or are they merely a glimmer that could lead to additional opportunities? How much of the parent company's total premium base does the offered insurance constitute? The decision to put all your eggs in one basket (or not) is heavily influenced by who you choose.

Do we have national representation?
Can I reach a real person in any of the 50 states, or is it just an 800 number that leads to a main office? Is there a network of intermediaries spread out over the world, or do they have local agents that focus on your area? Businesses having a single or double location in the area will not find this to be a problem. However, the degree to which your message is consistently communicated and your employees are well-served is dependent on the quality of training your firm's representatives receive regardless of their location, even if your company has multiple sites in the same state. Can you tell me the extent and caliber of the backup?

When are rate increases? What exactly are the factors that lead to increases in interest rates?
There are insurance providers that promise consumers a certain rate for a set amount of time, typically two or three years. Investigate thoroughly the frequency and magnitude of those rate increases over time. Demand documentation of past events. It is possible to foretell future patterns by looking at past actions. The market leader has maintained its status as one of the best-selling insurance stocks despite never increasing rates for current policyholders. It would be foolish to secure a historically low rate if it were to suddenly spike in price a few years down the road.

Is the underwriting process complicated?
Underwriting for critical illness insurance extends how far back in time does it begin? Do I need to submit any additional disclosure paperwork with my application? In order to gather information about a patient's medical history, how many questions are asked during the enrollment process and what details are needed? The goal should be to minimize the underwriting process. Even the greatest firms don't always offer Guaranteed Issue, and it's usually only accessible for very large groups. Familiarize yourself with the criteria for "knock-out" questions. Verify if they appear fair.

What does the company consider to be a severe disability?
In order to qualify as disabled under certain insurance policies, the insured must meet certain criteria, one of which is that they must be totally unable to carry out any and all aspects of their employment. In order to be considered disabled and receive payments, some organizations use a more lenient definition of "total disability." In these cases, the insured need simply be unable to perform "material and substantial" duties. Find out what people mean when they say they are "disabled" by looking at real-life examples; opinions differ greatly in this area. Slight relaxation is preferable.

How much money is lost by the business?
The loss ratio is calculated by dividing the total claims paid out by the total premiums generated over the policy's lifetime. What does the average payment look like compared to the premiums paid by policyholders? We prefer higher.

What is the company's claim payment policy?
Regrettably, this crucial aspect differs considerably across the landscape. Time is of the essence. We prefer less trouble. Take the time to learn about this one. In recent years, some businesses have taken heat for their internal practices that deal with the nonpayment of valid claims. It has come to light that some companies routinely delay or reject valid claims in the hopes that you would give up and wait for irrelevant paperwork that seems to be piling up. Inquire about data on both typical and unusual claims, and examine processes thoroughly.

Does the issuance of benefits necessitate coordination with other coverage?
Some businesses provide attractive plans, but if your coverage is already in place, you won't get full reimbursement. Supplemental insurance from other sources pays out in addition to the policyholder's existing insurance, independent of the kind, amount, or beneficiary of any other benefits.

How do I go about getting my benefits?
How is the policyholder remunerated? Visiting a physician or a medical facility? Perhaps a mix of the two? It is preferable to pay the policyholder directly so that they can decide how to use the money, since having more options is better than having fewer.

As a part of its policies, does the company promote preventive care?
To cut down on claims, several insurance firms include preventative care in their basic coverage and offer discounts to policyholders who have common precautionary checkups. Since more successful treatment and fewer time off work are typically outcomes of early detection, it makes perfect sense from every angle. Try to choose a company that includes these perks in the plan as standard, rather than as extras or extra riders.

Can I take the policies with me if I need to?
When an insurance policy is "portable," it means that the customer, and not the business, owns it. If the policyholder decides to leave the company, regardless of the cause, their coverage will remain unchanged. At the same pace is also true portability. Some businesses conflate the two terms, thus policies are only really transferable under specific conditions, rather than convertibility all the time. The term "convertibility" refers to the ability of an insurance policy to alter its form, typically indicating a change in the rates or benefits supplied.

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