The wind out of Washington
blows hard
The uncertainty surrounding efforts to kill or change the Affordable Care
Act should make this a great time to sell supplemental health insurance products
in the voluntary benefits market.
Accident insurance, hospital indemnity insurance, cancer insurance,
critical illness insurance and other supplemental products are like umbrellas
that workers can use to make up for the holes in the employer's major medical
coverage.
The holes were growing rapidly before the ACA came along, and they kept
growing after the ACA arrived. The average annual deductible for a worker with
single coverage increased to $about 1,200 in 2016, according the Menlo Park,
California-based Henry J. Kaiser Family Foundation. That's up from an average
of about $500 in 2009, before the ACA took effect, and up from about $300 in
2006.
Typical workers, meanwhile, have no spare cash. Rob Grubka, president
of employee benefits at Windsor, Connecticut-based Voya Financial, says 46
percent of Americans would have to borrow money to handle a $400 emergency
expense.
Now, the attack on the ACA seems likely to poke new holes in major medical
coverage, and ease restrictions on use of supplemental health products to fill
the holes.
If, for example, the federal government stops enforcing the ACA employer
coverage offer mandate and the individual coverage ownership mandate, some
employers may drop their major medical coverage. Some workers may stop taking
up the coverage their employers offer.
Republicans in Congress and the executive branch may also roll back Obama
administration efforts to restrict sales of supplemental products that could
compete with major medical coverage.
Because of those changes, workers could make more use of supplemental
health benefits both to make up for growing gaps in major medical coverage, and
to compensate for loss of access to major medical coverage.
But, of course, in the insurance industry, every potential opportunity
comes with concerns about potential risks. Here's a look at some of the
potential risks.
1. Major medical uncertainty
The Affordable
Care Act has had a more dramatic effect on the individual market than on the
group market, but it's done plenty to change the group market. ACA change
efforts could change the group market even more. How group major medical
evolves will shape the supplemental products workers need.
Ashley Mehrer,
a voluntary products development executive at Chattanooga, Tennessee-based Unum
Group, says it's too early for Unum to tell what opportunities might emerge
from efforts to change the ACA.
Jeff Smedsrud,
co-founder of Miami-based HealthCare.com Inc., a web-based insurance quote
service, says he's assuming Congress will eliminate the ACA mandates but save
some kind of subsidy for purchasers of individual health coverage.
Grubka says
product designers at Voya are trying to focus on what they knew for certain.
"The growing prevalence of high-deductible health plans means more costs
are moving to consumers," he says.
Mehrer and
other voluntary benefits specialists say the best defense against major medical
market uncertainty is a flexible product.
"Having
detailed information can certainly help us customize plan designs and price
points," Mehrer says.
But she says
Unum tries to design products so they'll be valuable even when conditions
change.
2. Major medical deserts
Marilyn
Tavenner, the president of America's Health Insurance Plans, a Washington-based
insurer trade group, testified at a Senate hearing in early February that
problems with efforts to change or replace the Affordable Care Act, or delays
in efforts to set rules for 2018, could lead to loss of access to individual
coverage in many U.S. markets.
Severe
disruption in the individual market could disrupt the small-group market.
Insurers and
brokers may need to get creative to come up with quick solutions for employers
in coverage deserts.
Smedsrud, for
example, says he expects to see explosive growth in sales of fixed indemnity
plans that can pay more than $1 million per year in benefits.
3. Delays
If Congress
makes major changes in federal health laws, voluntary products issuers might
need to replace their old products with updated products. But state insurance
departments might be too busy dealing with upheaval at major medical insurers
to have an easy time processing filings for new supplemental health
products.
4. Employer confusion
When the
Affordable Care Act was coming to life, employers were too busy worrying about
the ACA to think much about supplemental benefits.
Now, securities
analysts are wondering whether a shift away from the ACA could lead to another
period of employer angst and inability to focus on products other than major
medical.
Executives at
Unum and Columbus, Georgia-based Aflac Inc. took questions about that topic
during recent conference calls with analysts.
At Aflac, for
example, Teresa White, the president of Aflac's U.S. unit, said last week that
she's still talking to agents and brokers to find out what they're hearing
about employers' reaction to ACA change uncertainty.
5. Risk management worries
Writing a
profitable supplemental health product is harder than it looks.
In 2015, for
example, when the major medical looked stable, Michael Weilant of Milliman
noted in a presentation at a Society of Actuaries event in Austin, Texas, that
issuers were struggling with low participation rates by employers' employees,
and pressure from employers to offer products without asking about the workers'
health.
Another
speaker, from a carrier, complained about declining enroller access to
employees.
Major medical
turmoil could make any existing voluntary market risk-management problems
worse.
6. Killer competition
Although
Affordable Care Act change paralysis could keep some insurers from competing
effectively in the market later this year and in 2018, disruption in the major
medical market could push some major medical carriers into efforts to make up
for lost major medical business by increasing voluntary products sales.
7. Crazy growth
Sales growth
that's far stronger than expected can strain an insurer's capital reserves and
lead to claim projection problems.
This risk could
especially acute if a botched Affordable Care Act change effort pushes large
numbers of employers to use supplemental health products as major medical
coverage alternatives.
