‘Voluntary benefits’ filling gaps in insurance coverage
After several of his co-workers at the post office were diagnosed with cancer a few years ago, Bob Dempsey decided to buy insurance aimed at just that disease.
Dempsey’s mother had colon cancer and eventually died from it. He knew costs could pile up with chemo appointments, time away from work,and experimental treatments, exceeding the coverage of traditional health plans. The cancer insurance, offered through the Boston area postal union for $37 a month, seemed like the best precaution against huge, out-of-pocket expenses that can easily run into tens of thousands of dollars.
“A lot of workers started to get nervous, we all signed up hoping to not collect,” said Dempsey, 55, now the vice president of the American Postal Workers Union Local 100, which represents post office employees around Boston. “You might as well. It’s a good program at a reasonable price.”
Cancer insurance is among the growing number of products, known as voluntary benefits, that are becoming increasingly popular among employers and employees to fill gaps in health insurance and other needs. Does your family have history of heart disease? There’s critical illness insurance to cover the cost of visits to out-of-network specialists or nonmedical expenses during recovery, such as child care. Have active kids? There are accident policies to cover the hefty copays and deductibles of emergency room visits for soccer, skiing, or cheerleading injuries.
Worried about identity theft? There are plans to protect you from that.
“Almost anything can be structured as a voluntary benefit,” said Gil Lowerre, the founder of Eastbridge Consulting Group, a Connecticut-based firm that tracks the voluntary benefits market. “You can pick and choose what you want. That’s pretty appealing to employees.”
Voluntary benefits are a small slice of the $1.1 trillion insurance industry, but it is a market that is growing. Long-time stalwarts of the voluntary benefits business, such as Aflac Inc. and MetLife Inc., face increasing competition as more insurers expand from life and disability coverage into supplemental health plans, including Sun Life Financial Inc., a major Canadian financial services firm that has its US headquarters in Wellesley.
Over the past decade, the number of carriers offering accident insurance, for example, nearly doubled to 67percent from 36 percent in 2004.
Meanwhile, new sales of voluntary benefits rose to $6.6 billion in 2013, up 4.3 percent from the previous year and 60 percent from a decade ago, according to Lowerre.
Several factors are contributing to the trend, but probably none more than the rising costs of health care. To control these costs, employers are turning to less expensive polices with higher deductibles and copayments and offering employees the option of buying additional coverage to help pay these bills.
For decades, these voluntary plans were mostly popular among manufacturing companies based in Southern states, where benefits were less generous.
But now, employers everywhere, including the higher-paying Northeast, are trying to manage health insurance expenses, said Mike Sheehan, who last year joined Marsh & McLennan Cos., a brokerage firm that advises companies on insurance, as its first voluntary benefits director for New England.
“Because medical plans have changed, we’re not seeing just blue-collar companies,” Sheehan said. “We’re seeing high-tech clients, health care companies; it’s across the board. We’re seeing clients who wouldn’t typically be seen in voluntary benefits.”
In Massachusetts, the average employee deductible more than doubled for a family to nearly $2,200 between 2003 and 2011, according to the Commonwealth Fund, a New York foundation for health care research. On average, these supplemental plans cost less than $10 a week, for a 45-year-old worker to get between $10,000 to $20,000 of additional coverage.
“It’s a form of cost shifting,” said Tom Gilligan, a vice president at Sun Life. “It’s all driven by employers only having so much money and much of it going to medical.”
The city of Boston has long offered voluntary benefits, including life insurance and disability, as well as accident and critical illness plans. About half of the city’s 17,000 workers participate.
But as employees are required to share more of the cost of health care — the city recently raised the copay for an emergency room visit to $100 from $25 — more are likely to buy supplemental insurance, said human resources director Vivian Leonard.
“As health insurance cost continues to escalate, we think about what are the areas that we can control,” Leonard said.
Steven Tolman, the president of the Massachusetts AFL-CIO, said he expects employers to continue to shift more of the cost of health care onto workers, even as wages and salaries have stagnated. “It’s a real problem, for many of the middle class,” Tolman said.
The Affordable Care Act, known as Obamacare, also is likely to accelerate the growth of voluntary benefits, said Pat Haraden, a vice president at Longfellow Benefits, a Boston consulting firm.
Under the law, starting in 2018, companies that offer generous health insurance coverage will be charged a “Cadillac tax,” in an effort to discourage the use of these plans, which critics argue encourage consumers to get expensive and sometimes unnecessary tests and procedures, increasing overall costs. These high-cost plans, worth more than $10,200 for individuals and $27,500 for families, will be hit with a 40 percent excise tax.
As a result, many employers will pare back coverage to avoid the tax and give workers the option of supplementing the plan by purchasing voluntary benefits, Haraden said.
“There’s a market that’s been created by health care reform,” he said. “It’s fertile ground.”
Voluntary benefits, though, aren’t just driven by health insurance.
Employers still offer these benefits as way to attract and retain workers and help them to save money. Some companies provide group plans for legal counseling or assistance in buying new cars.
Others deduct money from payroll checks for vacation savings plans that help employees get to Hawaii or Paris.
Whatever plans employers provide, they need to ensure that they complement what companies already provide and aren’t so restrictive that workers can’t collect when they do get sick or need the money, said Leonard, Boston’s human resources director.
“You’re allowing people to have access to a large employee population,” she said. “ If something goes wrong, its always going to be our fault.”