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Voluntary benefits fill in the gaps left by high-deductible health care plans

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Voluntary benefits fill in the gaps left by high-deductible health care plans

Voluntary benefit products such as critical illness, accident and hospital indemnity can help to fill gaps in health care coverage that are created when employees enroll in high-deductible health plans.

However, employers often hesitate to offer these gap-filler products out of concern that introducing additional product offerings at the same time they are implementing a new health plan may be overwhelming for their employees.

“Many employers have historically viewed voluntary benefits as kind of an afterthought,” said Bruce Sletten, senior vice president and national practice leader for elective benefits at Aon Hewitt in Dallas. “In years past, you'd have to make your decisions about medical, dental, vision, your 401(k) and all of these kind of core benefits first. Then at the end, if you had any energy left, there was a list of voluntary benefits. The problem is by that time, employees are often suffering from 'decision fatigue.'”

However, “If you put them on the ballot in the enrollment flow with the medical decision, employees can better connect the dots, putting together how a hospital indemnity plan would help them potentially mitigate the risk of a high-deductible medical plan,” he said. “So when properly designed and positioned, voluntary benefits can really help employers in their health care strategy.”

“As employers add more high-deductible health plans, they are absolutely adding more voluntary benefits,” said Barbara Gniewek, a principal at Pricewaterhouse­Coopers L.L.P. in New York. However, “employers are more likely to do voluntary if they do full-replacement HDHP,” she said.

Beth Grellner, health and group benefits leader at Towers Watson & Co. in St. Louis, said she usually recommends employers consider adding voluntary benefit offerings whenever they implement an HDHP.

“They are usually intrigued if it's not something that they have ever considered before,” Ms. Grellner said. “Often we find they may not really understand how the products work. So we have to spend some time educating them around why their employees might find the offer valuable and then speak to how, especially with a (health savings account), there are some compliance requirements with the types of voluntary benefits that can and cannot be offered.”

For example, “sometimes employers really want more of a 'gap filler' to say that someone could get reimbursed for outpatient care as well, but that's not allowed under the HSA guidelines,” Ms. Grellner said.

Under Internal Revenue Service rules

governing the tax-deductibility of contributions to HSAs, employees generally cannot have any other health coverage that is not an HDHP with at least a $1,250 deductible for individual coverage and $2,500 deductible for family coverage.

However, critical illness, accident and hospital indemnity policies that pay a fixed amount per day of hospitalization are permitted.

The cost of the coverage varies based on the ages of individuals purchasing them and the amount of coverage they buy.

For example, Portland, Maine-based Unum offers “low, medium and high plans,” said Marilyn Finley, the company's director of product and market development based in Chattanooga, Tennessee. As such, a $5,000 critical illness policy would start at about $270 a year, she said.

Most employers that aren't interested in offering voluntary benefits in conjunction with an HDHP “see concerns around the education component,” Ms. Grellner said. “They wonder how much information their employees can take in at one time. If they're already moving them to a high-deductible health plan, potentially with an account-based model, they are concerned they might overwhelm them with the additional products that might come into play.”

Helping employees understand the value of the voluntary benefit products is essential to their ability to make decisions, acknowledged Bob Love, vice president and head of group distribution at New York-based The Guardian Life Insurance Co. of America (see related story).

“There are a number of products that historically have been confusing. We're making sure we're building products that are simple to use and easy to understand. There's a lot of opportunity for education during the enrollment process,” he said.

Meanwhile, many employers that had offered voluntary products in the past and are hesitant to do so now — even in conjunction with an HDHP — are concerned about their administrative complexity, especially since these products historically were individually underwritten and not integrated into group benefits platforms, according to Alyssa Williamson, a voluntary benefits consultant at Mercer L.L.C. in Atlanta.

“But voluntary benefits have evolved. They look and feel a lot more like group programs. Administration is easier today, and they can be payroll-deducted,” she said.

About two-thirds of employers have successfully integrated voluntary benefit offerings on the same administrative platform as core benefits, up from 60% in 2012, according to Mercer's “National Survey of Employer-Sponsored Health Plans 2013.”

In some cases, to soften the impact of a high-deductible plan, employers will provide a base level of critical illness, hospital indemnity or accident coverage at no cost to employees and then give workers the option of buying higher levels of voluntary benefits coverage for an additional premium, according to Mercer's survey. In these cases, insurers underwriting the voluntary benefits products will often shave a few percentage points off of the cost of the coverage purchased by employees because they are guaranteed higher voluntary benefit participation rates.

“We do see opportunity to provide more competitive pricing on critical illness and hospital indemnity when there's an employer-paid basic level of $5,000 or $10,000 of coverage,” said Lydia Jilek, vice president and head of voluntary products and private exchange strategy at Voya Financial Inc., formerly ING U.S. Inc. She said she sees this strategy used most often when employers offer more than one plan choice as an incentive to drive employees to select an HDHP.

Guardian Life's Mr. Love agreed. “Anytime you have a transition from a fully employee-paid product to a fully employer-paid product, you're eliminating adverse selection. You have more stable risk, and you can provide a discount,” he said.

Read Next

  • Ease into adding voluntary benefits to avoid employee confusion

    To prevent information overload from introducing voluntary benefits in combination with a move to a high-deductible plan, some benefits consultants recommend that employers add benefits in stages, coupled with a concerted communication and education campaign.