How Brokers Can Find Opportunities in the Health Care Reform Era

The Patient Protection and Affordable Care Act (PPACA) is designed to bring benefits to millions of uninsured Americans by decreasing health care costs and premiums.

More than a year since the federal legislation was signed into law, the PPACA has yet to exert downward pressure on these costs and premiums. In fact, the latest reports show an opposite effect. Employers are expected to pay nearly 9 percent more for health care costs for their workers in 2011, the highest level in five years. And employers will more than likely ask their workers to absorb 12 percent of these costs.

The future savings predicted by the government also have been questioned because of the sheer cost of the health care reform package—an estimated $940 billion during the next 10 years—and uncertainty about how it’ll be funded.

For the most part, medical insurers, pharmaceutical manufacturers, medical device makers and even affluent Americans are designated to collectively foot the bill. But some predict these new financial burdens may be passed down and produce cost repercussions for Americans. And both employers and their workers believe health care reform will bring higher costs for both employer-sponsored benefit programs and health care services overall.

That’s why voluntary benefits present a clear opportunity for brokers during this time of change. Both real and anticipated medical cost increases and the associated shift to less rich medical plans will make voluntary benefits very attractive to both businesses and employees.

Today’s voluntary benefits are designed to do much more than fill gaps in a medical plan. When people see friends or family financially devastated by an illness or injury—even with solid medical insurance—they understand the need for voluntary benefits. That’s why these coverages such as short-term disability, accident, cancer and especially critical illness insurance are gaining a stronger foothold.

In addition, as employers look for smart benefits strategies to deal with health reform changes, the role of brokers will continue to be extremely important. Working directly with employers to structure medical packages to better align with market reforms means brokers will have front-line knowledge of new products that may be needed to complement redefined health coverage. 

Brokers who may have previously overlooked these voluntary products are now re-engaging and learning how to use this coverage to increase their revenue stream, while meeting important needs of their customers and employees.

Health Care Costs and Premiums Will be Directly, Indirectly Driven Higher

Joint research by Towers Watson and the National Business Group on Health shows nearly three-fourths (71 percent) of employers believe health reform will increase the overall cost of health care services in the United States, while 69 percent believe it will increase the cost of their benefits programs. A separate survey of U.S. workers found similar concerns. Two-thirds (67 percent) believe health reform will result in higher benefit costs, while more than one-half (54 percent) believe it would reduce their available benefits and lower the quality of health care (53 percent).

Let’s look at a few health care reform measures that have the potential to directly and indirectly drive up employers’ health care costs and premiums:

So Far

• No Pre-existing Condition Limitations – Medical insurers will be required to accept all applicants without excluding any pre-existing conditions from coverage. This applies to children up to age 18 now, and will extend to adults in 2014.
• Total Coverage for Preventive Care – Medical insurers will be required to pay for the entire cost of preventive services specified by the Department of Health and Services and cannot ask employees to share this cost (exception for grandfathered plans).
• Child Coverage – Insurers will be required to offer coverage to eligible children until they turn 26 years old, unless they have access to benefits at work.
• Annual and Lifetime Maximums – Medical insurers will no longer be permitted to have lifetime maximums or place annual maximums on what are determined to be “essential benefits.”
• Pharmaceutical Tax Levy – A multi-billion dollar tax will be levied on branded drug manufacturers

The Future

• Comparative Effectiveness Fee – In 2013, this fee—charged to medical insurance providers—will be used to fund a non-profit organization to study patient outcomes.
• Medical Device Manufacturer Tax – Manufacturers of medical devices, such as pacemakers and X-ray machines, will be assessed a 2.3 percent tax, starting in 2013.
• Health Insurer Levy – Beginning in 2012, a levy will be imposed on health insurers, with exclusions for insurers that meet certain criteria.
• Excise or “Cadillac” Tax – This 2018 provision levies a 40-percent excise tax on health insurers for any plan with a premium that exceeds standards set by the Department of Health and Human Services.

These measures have many employers rethinking their entire benefits program in order to maintain some level of cost control while still providing competitive packages that appeal to current and prospective employees.

The Voluntary Benefits Market Is Expected to Grow Due to Health Care Reform

As brokers help employers create new benefits strategies to deal with these rising costs, voluntary offerings will be key ingredients. Here’s why:

Significant moves toward consumer-directed health plans are underway (CDHP). One solution experiencing resurgence is the consumer-directed health plan (CDHP). As the name suggests, CDHPs place consumers in the driver’s seat, assuming they will make more informed and frugal health care decisions if they have a bigger financial stake in the process. Seventy-nine percent of employers expect to offer account-based CDHPs by 2012.  These plans typically pair a high-deductible medical plan with a Health Savings Account (HSA), Health Reimbursement Account (HRA) or Flexible Spending Account (FSA).

Reductions in premium costs mean more employee out-of-pocket costs. To control premium costs, many employers will explore increasing deductibles and co-pays, just to name a few alternatives. As these types of strategies are rolled out, the need for voluntary benefits will grow as employees look to cover the financial gaps these new medical plans create. Since the recession, employers have become increasingly concerned about their employees’ financial welfare.

Voluntary benefits are not included in the calculation for the 40-percent excise tax. The anticipated impact of tax, revenue and enforcement provisions will be minimal when it comes to benefits other than medical, such as disability, accident, long-term care and critical illness insurance. Voluntary coverage is accepted from the market reforms such as the elimination of the pre-existing condition exclusion and the guarantee-issue requirements as well as from the excise tax on health plans when premiums are deducted on a post-tax basis.

This cost-neutral coverage fits a diverse workforce. Typical voluntary benefits can be added at little or no cost to the company while offering workers a variety of options to best protect their finances.

Employees can use these voluntary benefit payments any way they choose. They can offset expenses for deductibles, co-payments, rehabilitation, travel for treatment, home care or even daily living expenses while they are recuperating from an illness or accident.

The Stage is Set for Critical Illness Insurance to Expand Fast

Industry experts say the fear of a “worst-case scenario” has been a primary roadblock to employee acceptance of CDHPs.

Critical illness insurance is one voluntary product that is growing in popularity, thanks in part to new medical advances. These technologies help more people than ever survive serious conditions such as cancer, heart attacks or stroke. For example, federal data reveals that about one in every 20 adults in the United States has survived cancer, including nearly one-fifth of all people over 65.  But the cost of this advanced medical treatment is very high, even for those with medical insurance.

Even healthy people can be financially strapped by a serious injury. The cost for treatment and the potential for lost wages can create a severe financial strain.

Recent economic woes have intensified this issue. With 78 percent of American workers always or usually living paycheck to paycheck, few have any safety net of savings to rely on.  In a qualified high-deductible health plan (HDHP)/HSA plan, a family living in these circumstances could be extremely hard pressed to reach their annual out-of-pocket maximum.

And if a health crisis strikes within the early months or years an employee is enrolled in a HSA, the individual may not have accumulated enough contributions to make a dent in these catastrophic medical costs.

Critical illness coverage can help by providing employees financial assistance in the event of a serious illness, such as heart attack or stroke. The insurance may also include coverage for cancer and family members. The lump sum benefit from critical illness insurance can also supplement a disability plan, helping to keep employees “whole” during a time of financial crisis. 

Opportunity Abounds for Proactive Brokers

Although some elements of PPACA may be years away, the arrival of health care reform is forcing a long-needed conversation about health care in this country while at the same time increasing the level of awareness and need for voluntary benefits. The voluntary benefits industry as a whole has seen large increases in sales—even during the recession—as individuals look to increase their levels of protection and security.

There will be plenty of opportunities for brokers to help employers proactively prepare for the changes coming from health care reform. Brokers will be in the best position to help employers take a step back and re-evaluate not only their medical coverage, but also their total benefits offerings, in light of PPACA. It will be more important than ever for employers to work consultatively with brokers to find solutions that meet their unique needs in this new era of workplace insurance. Developing a voluntary benefits program that includes relevant products to address the gaps in health coverage is a proven way to build opportunities with both existing and prospective clients. 

Tips for Navigating Health Care Reform

Educate yourself. You need to be a sponge for information. Take advantage of the non-partisan, factual reports available free to the broker community. Companies such as Unum offer free resources that simplify the mandates of health reform (http://unum.com/HealthCareReform). By understanding fully how health reform will impact your customers and their employees, you can be the expert and consultative resource they need most.

Develop a voluntary benefits strategy and business plan. Focus on actively developing a voluntary benefits program. Treat voluntary benefits as a genuine revenue stream instead of a nice-to-offer service that brings in incremental income. Use it to expand existing clients’ benefits packages and open channels to new ones.

Evaluate current health plan designs based on health care reform requirements. Although existing plans may be temporarily grandfathered, future plan designs and contract negotiations may become more complex as the new health insurance market evolves.

Customize to align with other coverage. One-size-fits-all benefits packages will not work in the new workplace. Use the best combination of traditional and voluntary benefits to help employers offset their employees’ financial risk from health care reform. The right benefits mix can vary according to industry, region and specific workforce demographics.

Work with a provider offering strong benefits communication and education. Health care reform will certainly bring a myriad of complexities and questions to the workplace—for both employers and, especially, employees who are increasingly being asked to make more of their own benefits decisions. Partner with insurers that offer strong benefits communications and education programs to support any product offering, which can boost enrollment participation. This has strong value for customers, as well. Research shows that when employees understand the value of their benefits, they report higher levels of workplace satisfaction, which can lead to greater company loyalty and increased productivity.

1. Frank, Jackie, “Employer Health Costs to Rise in 2011,” Reuters, September 27, 2010.
   
2. Congressional Budget Office, Letter to Congress, Estimate of Direct Spending and Revenue of Health Care Reform, March 28, 2010.
   
3. Miller, Stephen, “Double-Digit Health Care Cost Increases Expected to Continue,” Society for Human Resource Management, February 3, 2010.
   
4. Ibid.
   
5. Towers Watson, “Rethinking Employer Strategies in a Post-Health Care Reform World,” December 1, 2010.
   
6. Frankel, Steve, “Boost Employees’ CDHP Comfort Zone with Voluntary Benefits,” VoluntaryBenefitsMagazine.com, March 2010
   
7. U.S. Centers for Disease Control and Prevention, “Cancer Survivors,” March 11, 2011.
   
8. CareerBuilder.com, “More Than Half of Workers Will Use Their Tax Return to Pay Off Bills, Finds New Career Builder Survey: Nearly Eight-in-Ten Workers Report They Live Paycheck to Paycheck,” April 7, 2010.
   
9. Unum, “Beyond the Usual Benefits; The power of employee education to influence workforce satisfaction,” June 2010.

About The Author

Lydia Jilek has been with Unum since 2006 as the director of product and market development. She is involved with developing and launching new products and platforms offering expanded capabilities. Jilek also is the health insurance and healthcare reform expert for the company.

She graduated with her bachelor’s degree in English from Bates College and received her MBA and master’s degree in Human Resources and Industrial Relations from the University of Minnesota. Before coming to Unum, Jilek worked for Medica Health Plans in Minnesota.