Reprinted from HEALTH PLAN WEEK, the most reliable source of objective business, financial and regulatory news of the health insurance industry.
By Patrick Connole, Editor
April 15, 2013 Volume 23 Issue 13
Benefits consultants believe that when public health insurance exchanges open in 2014 there will be greater demand from employer-based group plan members and individuals for ancillary insurance products like dental, vision and disability coverage. A top executive for eHealthInsurance Services Inc., an online health insurance marketplace, says health insurers will seek out higher-margin ancillary products to offset what should be a highly competitive major medical market.
“Many of the carriers will offer other products other than major medical, which has become so commoditized with the metal plans, leaving less of a chance to make much money,” Bob Hurley, senior vice president of carrier relations for eHealth, tells HPW. For example, a bronze metal plan, the lowest of the metal tiers, can be supplemented with additional coverage via ancillary products marketed off the public exchanges. “Carriers then can offer a broad area of products to consumers,” he adds.
Carriers also should brand plans inside and outside the exchanges, Hurley stresses, saying ancillary products can assist with branding as well. “I also believe that metal plans may have their own sense of branding. Consumers will get relief that they [metal plans] are certified by the government and will trust in the metals [plans] themselves,” he concludes.
Ancillary products will not be offered on the state exchange Web portal, but are sold on private exchanges and marketplaces like eHealth or directly from a carrier, consultant or broker. Products sold through state and federally facilitated exchanges will be limited to those deemed as meeting essential health benefit requirements.
Christopher Condeluci, of counsel at law firm Venable LLP, tells HPW carriers will be able to make money off major medical plans on public exchanges, but agrees that ancillary offerings will grow in importance and availability. “Carriers can say to consumers, ‘Come to my website and after you buy on the public exchange, buy ancillary products.’ More ancillary products will be sold,” he says. That is because some individuals, even with subsidies, may not be able to afford premiums for richer coverage, so they will get a basic health plan and look to supplement by aggregating other coverage options, Condeluci explains.
Hurley says an analysis by eHealth shows premium increases are going to be fairly significant for young people, but that group may also be the most eligible for subsidies. A 30-year-old single should expect to pay $200 a month for major medical on a public exchange even with a subsidy, and a single 40-year-old around $300 per month, he adds. “We’ll see how it plays out. It is higher than today, but not unheard of in some states in the Northeast where there are essential health benefit-like mandates and guaranteed issue,” Hurley says.
UPMC Readies Products for Private Exchange
UPMC Health Plan (University of Pittsburgh Medical Center) sees major opportunities in 2014 and beyond in attracting customers to ancillary products, partly because several health reform law provisions don’t apply to such products. Unlike medical coverage, the health reform law does not require ancillary products to conform to minimum medical loss ratios (MLR), John Mills, senior director, consumer products for UPMC Health Plan, tells HPW. Under the Affordable Care Act’s MLR requirements, health plans must spend a minimum of 85% of the premiums they receive from large groups to pay for medical costs and a maximum of 15% of these premiums for administrative expenses, or face rebating members. In the individual and small group business, the breakdown is 80% for medical and 20% for administrative expenses. Mills adds that there is also no community rating for ancillary insurance products.
In addition, he says, while major medical coverage costs hundreds of dollars of month, premiums for ancillary products like dental, vision and disability are only in the tens of dollars a month, Mills says.
UPMC will unveil its own private exchange in October with the expectation it will attract members from small to mid-size employers that can set up a defined-contribution platform allowing employees to enroll in whatever type of coverage they want. Mills says a lot of larger employers are already using private exchanges offered by Aon Hewitt, Buck Consultants, Mercer and Towers Watson, among others (HPW 2/14/13, p. 1). Thus UPMC expects middle to smaller group markets to be the most active on UPMC’s new exchange, in addition to individual purchasers.
Employers that are not able to offer their workers multiple plan choices through a defined-contribution benefit design, but that don’t want to abandon group coverage altogether, will be able to purchase ancillary products that may not be available currently from the employer plan.
Reform Law Spurs Ancillary Trade
Mary Drueke, vice president of employee benefits with Omaha, Neb.-based Swartzbaugh-Farber & Associates, Inc., a United Benefit Advisors (UBA) partner firm, tells HPW that health reform changes will fuel greater interest in ancillary insurance. “One of the main ways before to attract and retain employees was through maintaining medical insurance, but because of the removal of pre-existing conditions [exclusions], it will now be attractive to offer other services,” she says.
UBA released a preliminary survey on ancillary products in late March that said as “health care exchanges go online and fewer businesses are burdened with a full health care plan, an interest in ancillary employee benefits products continues to grow.” UBA got responses from nearly 12,000 employers, which showed that nearly three-quarters of all employers responding offered employees dental coverage, with almost all large employers providing the benefit.
Nearly all businesses with more than 500 employees said they offered group term life insurance, but only 56% with fewer than 50 workers did. “An industry breakdown of short-term disability coverage shows that 37% of employers responding in all major industries offer the coverage. Eight percent of employers with 1,000-plus employees offer pet insurance, but less than .5% of smaller employers with less than 200 employees included it in their benefits packages,” the study said.
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