An Employer’s Guide to Voluntary Products
What are voluntary benefits?
Voluntary benefits, often referred to as Worksite Marketing products can be any type of additional benefit that is added to an employer’s menu of benefit options. These benefits may be provided through insurance products that can be classified as either core products or ancillary products.
Core benefits typically consist of group major medical insurance, dental insurance and group term life insurance. Premiums for these core benefits are usually paid for by the employer, although in many cases at least a portion of the premium is paid for by the employees.
From the perspective of the Benefit Professional non-core benefits can be further broken down into ancillary and worksite products. Ancillary products are usually thought of as group short and long-term disability income coverage and optional group term life insurance. The disability income products may be sold as an employer-paid benefit, a voluntary employee-paid benefit or as a combination of a base employer-paid benefit with an option for the employees to buy-up to a high benefit. Worksite products have historically consisted of a variety of individual insurance policies that are paid for entirely by the employee through payroll deduction. These policies may be life insurance policies, cancer insurance, accident insurance short-term disability income, critical illness and limited medical benefit plans. Today many carriers are introducing many of these same products on a group chassis so that they can offer lower premiums, guarantee issue of coverage and simplified enrollment procedures.
Due to the rise in cost for major medical coverage in recent years, there have been a number of non-insurance products introduced to the marketplace. Many of these products claim to provide medical benefits for an incredibly low premium such as $89 monthly to cover the entire family. Employers should take care when selecting one of these medical discount programs. It is easy for an employee to believe that they have medical coverage when in fact they do not.
Voluntary Worksite Marketing products today will often include offering both group and individual policies as well ancillary coverage. The Voluntary Benefit Professional understands that in order to help an employer achieve his benefit goals it will require a better understanding of all products available.
What types of voluntary products are typically offered?
The most common voluntary benefit by far is life insurance. Voluntary Life can be offered on either a group or individual chassis and may be either term, U.L. or Whole Life insurance.
- Group Term Life Insurance: This is the most common of the various life insurance options. As a general rule the group policy is available to all active employees regardless of health. Rates are in 5-year age-banded increments and change when an employee moves from one band to another (i.e. employee turns 35). In addition there is generally an opportunity to purchase coverage on a spouse and children.
- Individual Term Life: As an alternative to the group model companies may choose to offer their employees the opportunity to purchase an individual policy. While the employer will make the appropriate deductions from the employee’s paycheck, the employee is really buying and individual policy. Individual Term Life Insurance may be either a 5-year, 10-year, 20 or 30-year term. Underwriting (health questions to qualify) will vary by insurance company as will the amount of coverage available.
- Universal Life Insurance: Like Term Insurance this type of product can be offered on either a group platform or as individual policies. The choice of which to offer can best be determined by working with a high quality Employee Benefit Professional. Universal Life is designed to be a cost-effective approach to permanent coverage. It builds cash value that earns current interest rates. Rates for a Universal Life policy are higher than for Term Life but lower than that of a Whole Life policy.
- Whole Life Insurance: This plan can also be offered on a group or individual platform. Whole Life Insurance is very much a ‘what you see is what you get” type of product. All aspects of the policy are guaranteed such as premiums, cash value and death benefit.
In choosing which life product to offer you will want to consider your benefit objectives and the make-up of your employees. For most of your employees the only life insurance that they will ever own will be what they can purchase at work.
Historically this has been the product that was sold by agents specializing in the sale of voluntary insurance products. The original design was a scheduled benefit policy where there were specified dollar benefits for each potential expense. For example a policy may specify that the carrier will pay the actual charges up to $300 per day for Chemotherapy. During the 1990s many carriers began to offer Lump-Sum Cancer policies. These policies simply pay a flat dollar amount upon the diagnosis of internal cancer. Options on a Lump-Sum Cancer plan may range from a $10,000 policy to a $100,000 policy. Cancer policies have generally been sold as individual policies that were portable upon termination of employment however in recent years many carriers have begun to offer group cancer plans. Group plans are easier to administer for a larger company with employees in more than one state. In addition there are generally less restrictive underwriting requirements when offered on a group platform.
This is a relatively new product for the United States market but has been sold in Europe, Canada, South America and other countries for quite some time. Critical Illness as the name implies pays benefits upon the diagnosis of a named critical illness. Typically the covered illnesses include internal cancer, heart attack, stroke, kidney failure, blindness, paralysis and major organ transplant. An insured receives a cash benefit upon the diagnosis of the critical illness regardless of what other insurance may pay. The logic behind a critical illness policy is that an insured with major medical coverage and disability income coverage will still incur a significant amount of unreimbursed costs such a co-payments, deductibles, travel and more. Many of these expenses will be for non-medical costs such as travel and childcare. In addition to the indirect medical costs there is the loss of income. An insured may have a long-term disability income policy but may have a 90 or 120 day elimination period before benefits will be paid or may not have enough disability coverage.A Critical Illness policy may be purchased as a stand-alone health policy or as a rider on either a cancer policy or a life insurance policy. The most common type of policy is a critical illness rider on either a 10-year or a 20-year term policy. As a stand-alone health policy it may be sold as an individual policy or on a group platform. Important considerations when looking at this type of product will be the underwriting guidelines and the definitions of the illnesses as well as the named exclusions.
Disability Income coverage is perhaps the most important insurance a person can have after a good major medical policy. Like all of the other products that we have spoken about, disability can be sold as either an individual policy or as a group-based product. As an employer you must decide what your goals are. Do you want to offer a short-term policy (typically paying benefits for 6 months to 2 years) or do you want to offer a long-term disability income policy (paying benefits for anywhere from 2 years to age 65). As you consider what type of coverage to offer make sure to review the definition of disability. Elsewhere on the NAHU website there is a consumer primer on disability income coverage which is a must read for employer considering a voluntary disability income policy.
Accident Insurance is often referred to as ‘broken bone’ insurance because in many of these policies benefits are tied to a specified injury such as a fractured femur or a laceration requiring sutures. These policies are often sold to blue-collar workers as an income replacement policy. The value of an accident policy is hard to assess as employees that have purchased them are incredible reluctant to cancel. An accident policy is not to be confused with accidental death and dismemberment policies that pay cash benefits to the insured or a designated beneficiary in the event of an accidental death or the loss of a limb due to an accident.
These policies are essentially a hospital indemnity insurance policy that pays a cash benefit directly to the insured when admitted to a hospital. With the rising number of uninsured people insurance companies have added benefits to these policies to make them more attractive. In addition to a daily hospital benefit that can range from $30 per day in-hospital to as much as $4000 per day. In addition there may an immediate benefit upon the admission to a hospital as well as benefits for in-hospital doctor visits. Other covered expenses may include in and outpatient surgery, diagnostic testing, annual wellness exams and outpatient doctor visit reimbursement. As an employer you should identify what your objective is offering a mini-med product. As important as the design of a policy is, it is even more important that the benefits are communicated to employees in a way that ensure their understanding. You do not want your employees to confuse a limited benefit plan with major medical coverage.
Often thought of as a core benefit, dental is perhaps the most popular of the voluntary offerings. As an employer you must choose between offering an individual list bill policy or a group policy. In addition you must decide whether you want to offer a plan that pay benefits based on reasonable and customary or based on a schedule of benefits. The schedule of benefits states exactly what dollar amount the insurer will pay for a specified procedure. While these policies may be rate stable they will not keep up with the rising cost of going to a dentist. On the other hand a plan that pays benefits based on what is reasonable and customary for a given area will adjust for the dentist’s rising fee schedule but the premium will also increase over time. Within the world of dental plans there is also a choice of a traditional, go to any dentist plan or a plan with specified network of dentists. Which is right is matter best decided in conjunction with an insurance professional.
What products should I offer?
In an ideal world the products that you choose to offer your employees will be based on an understanding of your overall employee benefit objectives. As an employer you want to make sure that the voluntary products that you offer do not duplicate coverage that you are already providing. Additionally you will want to identify what is important to your employees. The ultimate success of any voluntary benefit offering will predicated on two things: Your commitment to the success of the enrollment and the employee’s sense that this is about meeting their needs.
How should I choose an agent?
Employers generally choose to implement voluntary benefit either through the agent that provides services for their core benefits (group health, dental, term life etc) or through an agent that specializes in the voluntary benefits arena. When choosing a voluntary benefits agent how do you determine whether that agent is simply a peddler of products or a true professional who has your best interests at heart? There are a number of professional designations that are the employee benefit equivalent of a CPA or an MD. In addition there are some great questions that you can ask an agent as well as some great questions that a professional should ask you. The following should provide some tools that can help you ensure that your voluntary benefits offering helps you achieve your business goals.
- Registered Health Underwriter (RHU): The RHU is a three-course curriculum administered by the American College in Bryn Mar, PA. This curriculum requires the student to pass six hours of national exams covering all facets of the health insurance marketplace. Health insurance in this context includes managed care plans, traditional major medical plans and a variety of supplemental policies. When you work with an agent displaying this designation you can be assured that you are working with someone committed to staying abreast of changes occurring within the industry.
- Registered Employee Benefit Consultant (REBC): The REBC program is also administered by the American College. This program consists of five courses covering all aspects of the employee benefit arena including retirement plans. Completion of the program requires passing ten hours of national exams. In addition, holders of this designation must have continuing education in excess of that required by most states. When you work with an agent that has completed the REBC program you can be assured that that agent is committed to the highest standards of excellence in the delivery of services to employer clients.
- Certified Employee Benefit Specialist (CEBS): The CEBS program is offered through the International Foundation of Employee Benefit Plans in conjunction with the Wharton School of the University of Pennsylvania. To be awarded the CEBS designation candidates must complete eight courses and pass 16 hours of national exams.
There some other nationally recognized designations that are proof that you will be working with an agent that is committed to his chosen career. That is not to say that if an agent does not hold any designation that he is necessarily less of a professional. A designation is simply a visible symbol of a certain degree of professional knowledge.
Qualities of a highly qualified agent
- Years in business: Always ask your agent how long he has been working in the area of employee benefits withy a specific emphasis on how long he has provided voluntary benefits.
- References: Your goal in asking for references is identify an agent with clients that have been with him for some period of time such as more than a year. If an agent can only provide recent clients then it is possible that he either has not been in the business for very long of cannot keep clients. In either case this may be a red flag.
- Support staff: If the agent is promising a high level of service does he have the staff to be able to deliver on his promises.
- Carriers represented: It is always worth knowing how the agent chose his carriers as well as how long he has worked with these carriers. The answer may tell you a lot about the depth of research the agent has put into learning about his carriers.
The agent that you choose to work with should be looked on as an integral part of your employee benefit team. He should be knowledgeable about more than his products. He should have an understanding about employee benefits in general and should show an interest in your goals and objective. He should also be willing to work with your group health agent. Too many employers put their program together in a piece-meal fashion with one agent handling their group health insurance, another selling cancer and accident insurance and often a third agent selling life insurance or dental insurance. And not one of these agents ever confers with another. In the end your employees may buy unnecessary products that duplicate benefits that you already provide or they not really appreciate the voluntary benefits as being a part of your benefit plan. Through the National Association of health Underwriters you can find a highly qualified employee benefit professional that can help you navigate the maze of products out there.