An Advisor Opportunity In Revamped Hospital Indemnity Plans

By Cyril Tuohy
InsuranceNewsNet

Brokers and advisors with a book of business in the voluntary benefits marketplace have their work cut out for them as the Affordable Care Act (ACA) quickly reshapes the medical coverage landscape.

Gone are the limited medical, or “mini-med” plans. They have been replaced by different types of coverage, primarily hospital indemnity plans, or “gap” or supplemental health plans.

Ginger Bates, director of research for Eastbridge Consulting, said the challenge for brokers is to position hospital indemnity plans correctly so that employers know how to fill the coverage gaps when offering health savings accounts and high-deductible plans.

“It’s not just that carriers are changing products, but about educating brokers and distributors about how to respond in the marketplace,” Bates said in an interview with InsuranceNewsNet.

She said that about half of the insurance companies in a recent Eastbridge survey offer a hospital indemnity plan on a third-party insurance exchange.

“It’s really about educating the distribution channels with the market changing and showing employers how these hospital indemnity plans are valuable,” Bates also said.

Brokers have to assess the current benefits of their employer clients: Does the employer offer a high-deductible health plan, or a traditional preferred provider organization (PPO) medical plan? Does the employer offer a health savings account and, if so, what are the out-of-pocket expenses and how high are the deductibles?

Hospital indemnity coverage as a line of business has decreased over the past few years in terms of new sales because of ACA, Bates said.

But now that the insurance industry understands what hospital indemnity coverage really needs to look like under health care reform, carriers can go forward and develop new programs or recast their existing hospital indemnity programs.

“A lot of carriers are in the process of developing viable hospital indemnity products and several carriers are in the middle of redeveloping or revamping their hospital indemnity coverage programs now that they have a clearer understanding of how health care reform is shaping up,” Bates said.

She also said there’s a growth opportunity for carriers and brokers as “all the unknowns” around health care reform fade into the rearview mirror.

With an average cost of $10,000 per hospital stay in 2011 in the U.S., according to a 2013 study by the Agency for Health Care Research Quality, hospital admittance doesn’t come cheap.

Hospital indemnity coverage is designed to soften the blow by paying policyholders a set amount per day, per week or per month for hospital services.

Other products sold in the voluntary market include term and permanent life insurance, long- and short-term disability, cancer and critical illness coverage, and accident coverage.

For the moment, because of changes to the ACA, hospital indemnity coverage is undergoing some of the biggest changes in the voluntary market. Carriers offering voluntary hospital indemnity plans include Aetna, United HealthCare, Colonial, Aflac and Transamerica.

In the voluntary market, the premium is 100 percent employee-paid. The employer makes the product available through the workplace, often via the convenience of a payroll deduction, and the employee benefits from buying the coverage through a group rate.

Employers see value in participating in the voluntary market because it’s an employee retention tool. In addition, employers don’t contribute to premiums, so the coverage is cheaper for them to offer. Employees use voluntary benefits to complement their primary medical coverage and take advantage of rates that are lower than in the individual market.

All signs point to surging demand in the voluntary/worksite market. Industry experts say voluntary benefits are moving from a “nice to have” to a “must have” benefit if they want to keep up with changing employee demands.

Even nontraditional voluntary products are making their way into the options available to employees. These include auto/home insurance, identity theft insurance, discount plans, legal plans, purchasing programs and pet insurance.

The latest market data from Eastbridge’s annual U.S. Worksite/Voluntary Sales Report issued last year estimated 2013 voluntary and worksite benefits sales at $6.64 billion, an increase of 10.1 percent over 2012.

The top carriers in premium written in 2013 were Aflac, Allstate, Transamerica, Colonial and Aetna, the Eastbridge report found.

A separate estimate, the 2013 U.S. Worksite Sales Survey issued last year by LIMRA, found that new annualized premiums for voluntary benefits reached $4.3 billion, an increase of 9 percent over 2012.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].