Supplemental accident coverage: Protect, serve and profit

Supplemental products provide a valuable service for clients, and if commissions are maintained at current levels, they can serve as a key incremental revenue stream for brokers.

Following the Supreme Court ruling on the Patient Protection and Affordable Care Act (PPACA) and as health insurance carriers seek ways to manage their business to meet the mandatory 80 percent medical loss ratio, brokers increasingly need ways to protect their business from potentially impacted commissions. At the same time, because of the health care legislation’s guaranteed-issue provision and mandated penalties for non-participation, millions of consumers are expected to enter the market for individual health insurance.

Yet, PPACA’s ultimate impact on the affordability of health insurance is still unknown, and the qualified plans have an annual family out-of-pocket maximum of $11,900. It’s likely the need for supplemental insurance to help cover costs for accidents or critical illness will remain very important. Such coverage is not subject to the PPACA or its 80 percent medical loss ratio, so the commissions for these types of products can reasonably be expected to be at or near today’s levels.

Given that medical bills are a contributing factor in nearly 60 percent of bankruptcies,1 supplemental accident products are critical to helping clients, while also serving as a way to help agents maintain their businesses. This article will review some of the factors helping to shape market conditions and some features to consider when adding supplemental accident products to one’s portfolio.

A look ahead

To frame the discussion, let’s take a look at what health insurance plans might look like as a result of the PPACA. Granted, there’s still not a clear picture — but for the sake of this discussion, let’s think about the exchanges in 2014 as potentially carrying four types of qualified health insurance plans. Under a “bronze plan” scenario, the plan might pay 60 percent of the cost of care, and the policyholder then would be responsible for the balance, up to a potential out-of-pocket maximum of $11,900 per family. The “silver plan” could pay 70 percent, with the policyholder paying 30 percent, up to the $11,900 out-of-pocket family maximum. The “gold plan” might pay 80 percent, with the policyholder being responsible for 20 percent of the cost of care up to that $11,900 out-of-pocket family maximum. And lastly, we might see a “platinum plan,” paying 90 percent, while the policyholder pays 10 percent, also up to the family out-of-pocket maximum of up to $11,900.

Let’s assume that consumers will be able to choose which of those four plans they want, but in all four cases, the family maximum out-of-pocket liability will remain at $11,900. Through the exchanges, some people will potentially be eligible for a subsidy depending on their income. Considering the subsidy, the lack of underwriting and the fact that penalties will be assessed for the failure to carry coverage, expectations exist that as many as 30 million more consumers will enter the individual health insurance market.

Even with the qualified health plans, it’s reasonable to anticipate strong need (and strong sales) for supplemental accident and health coverage going forward. Consumers need ways to cover rising out-of-pocket deductibles and hefty co-pays that result from accidents or critical illness. There’s no question that $11,900 a year is a lot of money to a lot of people.

But that might not be the half of it. That $11,900 limit only applies to “essential” health benefits. While this is broadly defined in the law, there is, to date, no definitive word on exactly which costs will be deemed to be essential. Therein lies the potential for expenses to exceed the $11,900 mark. This creates more uncertainty and, potentially, more demand for supplemental accident products.

Implications for brokers

Essentially, there are three factors here that are relevant to brokers:

1) The health insurance carrier must charge the same premium for a qualified health plan whether it is sold by an exchange or by an agent.

2) The 80 percent medical loss ratio that’s been established also will hold for these qualified plans. Therefore, as carriers seek ways to keep costs down outside of that ratio, broker commissions could be significantly impacted to help maintain the affordability of the insurance.

3) Due to the guaranteed-issue provision and the fact that penalties will be levied for people who don’t enter the system, the pool of individual health insurance buyers will likely expand dramatically.

For agents, offering supplemental accident products truly provides a valuable service for clients by helping to protect against potentially overwhelming out-of-pocket expenses. Further, with increasing demand and commissions presumably being maintained at current levels, supplemental accident and health products can serve as a key incremental revenue stream for brokers.

Features to look for

What types of features can be important when adding supplemental accident products to one’s portfolio? There are several that merit consideration:

Direct reimbursement. Benefits are paid directly to the insured and not to the provider.

No coordination of benefits. Benefits are not reduced by payments made by the primary major medical policy.

Product flexibility. Choices are available in benefit amounts and deductibles, so the insured can design a plan to fit his or her specific needs.

Simplified enrollment. Seek secure, expedited online application processes.

Flexible payment options. Let clients pay via recurring credit card, direct bill or their checking account — whatever they prefer.

Optional riders. Some supplemental products offer a critical illness rider, which pays a lump sum when a covered condition is initially diagnosed. AD&D and short-term accident DI riders may also be available.

The bottom line is, the protection afforded by supplemental accident products with these types of coverage features is important today, to brokers and clients alike. Furthermore, as we move toward 2014, such protection will also be important tomorrow.

 

FOOTNOTE:

1. Medical Bankruptcy in the United States, 2007: Results of a National Study; The American Journal of Medicine, August 2009

American General Life Companies, http://www.americangeneral.com, is the marketing name for a group of affiliated domestic life insurers.

 

By Jay Drucker from the December 01, 2012 issue of Life Insurance Selling

 

 

 

 

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