The Case for Employer Sponsored Group Disability:
Are you providing group disability benefits for your employees?
Today only about 40% of employers actually sponsor a group disability program for their employees but it is one of the most important benefits that an employer can offer after group life, group health insurance and a 401K plan.
Did you know that roughly 25 percent of people entering the workforce today will have their income interrupted for 3 months or more due to illness or injury?
Most commonly this is due to musculoskeletal issues, depression or other mental/nervous disorders or cancer.
As you might expect, older individuals are more likely to file a claim, however companies with young women see a lot of claim activity under Short Term Disability for maternities. The plan will pay for the period the Doctor disables that employee upon giving birth.
Group Short Term Disability provides an income replacement for a disabled employee equal to 60 or 66 2/3% of their pre-disability income and it can be created to be a tax-free income replacement. Typically, a Short Term Disability benefit will begin paying after two weeks of disability and the employee receives a weekly check up to a maximum of $1500 week.
The costs for this coverage is related to income but averages about $18.00 to $20.00 per employee per month.
Group Long Term Disability plans typically begin paying after an elimination period of either 90 or 180 days (can be designed to dovetail with the Short Term Disability benefit) and typically cover 60% of pre-disability income up to a monthly maximum. These programs can be set up to provide a taxable or tax-free benefit (a tax-free benefit typically costs a little more). The total cost of group disability is based on the contract, industry and income of the employee however, the average group cost is $20 to $25 per employee per month for a comprehensive plan.
A quality group Long Term Disability plan will typically provide benefits for as long as the employee is disabled up to their normal Social Security disability age.
These plans are good for employers as well. There is a premium cost but it is a benefit employees appreciate and are looking for and the plan can be designed to share the low group rate with the employee if they elect coverage.
If you have a group disability plan in place the disability benefit is what will be paid to the employee if they become disabled. You as an employer can feel good about the fact that you put a plan in place to provide income security for that employee.
Further, you don’t have to struggle with decisions about how long to keep their job open and when you can actually begin finding someone to replace that person’s job duties.
After the FMLA period is met, the employee can be terminated and offered Cobra coverage. If there is a job for them when and if they become well enough to return to work, there is no problem hiring them back but no obligation to either.
All in all, group disability insurance is a “win/win” for the employer and the employee and more employers should be offering this benefit to attract and retain the best employees.
Suzy K. Johnson
Employee Benefit Strategist
The most difficult and challenging role in any benefits agency today is new client acquisition. Finding and engaging the right clients takes research, knowledge, persistence, organization, a challengers mentality and a tremendous belief in the agency’s ability to provide the right guidance, advice and solutions for the client.
For too long some health insurance companies have seen the brokers role as less than it really is.
These markets have tried to control advisors and brokers by granting them a low rate to “be able to get the business”. What the client should realize is the first year low rate comes at a price…an obligation on the part of the broker to “sell the high rate renewal” to allow the carrier who provided the first year discount to make up the lost profit.
Our agency took a lead in our market many years ago to make sure the client recognizes we sit only on their side of the table in an advisory capacity. We also take it as part of our role to know the markets well which includes their strengths and their weaknesses.
If a market has a track record of buying business and selling on first year rate it doesn’t serve the client well and markets who operate this way have not done well with our agency.
We only want to work with those who understand our first obligation is to represent the best interests of our clients.
I have witnessed carriers threaten to de-appoint licensed broker partners if they can’t sell an unreasonably high renewal rate. These carriers engage in these behaviors with the very best of brokers and sometimes it mystifies me.
Because our agency has been very lucky to partner with carriers over the years who know they must have the best product, network, services and value to win, we continue to have faith in the long term viability of most of the insurance companies we work with.
My message to all health insurance carriers is this:
a) Decide what caliber of agent/producer you want to have representing your brand(product) and select them based on their dedication to the industry, credentials and designations, integrity, activity, productivity, doing their job well, representing your product accurately, ability to innovate and commitment to keep up with changes in the industry.
b) Focus on offering the best value and product to clients and forget about selling on a low ball first year price. Get it right from the start by having lower expenses, better product offerings, more accurate underwriting and build a sound foundation and value experience for the client and their employees.
For the carriers who figure this out and execute best, the market is theirs for the taking.
Lots of things are changing in our market and the way the health carriers view the role of their broker partners must as well. Health insurance companies need to be able to win by having the right combination of value and price and seek out broker partners who are not just looking for the lowest rate first year to win the business.
And if the broker focuses on meeting the clients needs, understand that is a good thing and dig deep to understand what those needs are.
In the end, the cream rises to the top. This is true for the client regarding the employees they attract and retain, the carrier’s success in building market share and the broker’s ability to deliver the best guidance and advice to their clients.
Clients desire to create long term stability and a quality benefits program.
A fair product at a fair price for many years will endear the right client to the right insurance provider. And the right client will return the favor by showing loyalty in a tough year if the rate increase request is reasonable.
CEBS, RHU, President and Owner at Employee Benefit Advisors of the Carolinas,LLC
As Employee Benefit Advisors, we can’t fulfill our mission of ensuring the health and financial security of our client’s plan beneficiaries if the employees don’t know what their benefits include or how to use them. Even with a good education campaign it is difficult to assure the message is clearly understood.
Here is a checklist of “dos” for your next employee benefit communication campaign:
1) Keep your message free of jargon. Make your message clear, concise and easily understood.
2) Highlight how the participants benefit from what you provide them.
3) Make the message fun and engaging! A clever graphic or fun campaign theme can help catch their attention and inspire action.
4) Use reminders. Once is not enough. Plan a communication timeline for your message so you can repeat key points and offer helpful reminders. Out of sight out of mind!
How to help your employer clients implement a High Deductible Health Plan with Health Savings Account and engage employees so they embrace (may even be excited about) the new plan design:
There is nothing “easy” about initially understanding a Qualified High Deductible Health Plan (plan with no copays) and the accompanying Health Savings Account.
More than 12 years of experience moving employers to these plans has taught us a great deal.
The first recommendation I make to employers is that they need to understand and embrace these plans themselves…for themselves first.
Many employers will say….”We like offering the traditional copays and don’t think our workforce is suited for a plan that doesn’t offer copays”. My next comment is….”Can I show you a way that you can create the same robust benefit plan by spending the same dollars you would on the traditional PPO plan through employer funding into the Health Savings Account and if employees don’t use the dollars…they are the employee’s to keep in the account for future health expenses…even in retirement?”
One area we have given lots of attention to is ideal target customer identification and how to be less reliant on the group health carriers and their compensation programs. These programs have traditionally determined what we are paid from our small health plan groups (under 50 or under 100 lives).
While we have been thinking about this for a few years, in early December 2016 we received a commission schedule change notice from one of our large national ACA group carriers (groups under 50 employees) confirming the commission levels on their new balanced funding plans would increase to $32 per employee per month January 1. Terrific!
However, the same memo declared the ACA plan commissions will decrease from $25 per employee per month to $4 per employee per month for groups up to 50 employees as the groups renew in 2017. Ugh!
Yes the ACA health plan rates are typically higher and the level/balanced funding plans do frequently provide a much better solution for those employer groups losing their transitional plans. What is hazardous is the fact that the carriers are using their brokers to control their agenda based on what they need to sell. Not what is the best client solution (because they can and they feel they need to).
I have vowed for 35 years I would never base a client recommendation on what is best for me or my pocketbook at the expense of the client. I continually reaffirm to our team we must always objectively recommend and implement the very best solution for the client from the tools in our toolbox. As I see it, we are at a crossroads thrust upon us by industry and the ACA. We must detach ourselves from what the group health carriers are willing to pay us to be able to run a profitable business.
I get it. The MLR part of ACA has squeezed the carriers admin margins because they can only retain 15% or 20% of rates. Unfortunately, commissions are part of the 15% or 20%. So, what is the best answer?
First, you should know my least favorable option is to move directly to a health plan consulting fee billed direct to client. And secondly, I am still a very big proponent of getting paid commissions on non-medical products where change has been much less dramatic and the commissions continue to be reliable.
I learned a big lesson regarding collection of client fees for group health plan in 2016.
We wrote a 250 employee group that was self-funded that wanted us to invoice them separately from the TPA/carrier bill for the health plan. Luckily, the other non-med benefits still paid us a commission. So we agreed to bill the client our monthly health plan consulting fee. The client got into financial trouble and eventually went into receivership.
The client fully paid their TPA and stop loss bill every month through the turmoil because if they didn’t the employees’ coverage would terminate and our state has a law about providing 45 notice of coverage cancellation. It is a criminal violation to not provide notice. What they didn’t pay was our consulting fee bill after the first nine months of the year. Yes, we had a written contract and they kept on telling us they knew they were behind and would catch us up. They never did.
While significant, to me the amount was too little to justify hiring an attorney to collect, so we took the loss. What I learned in a dramatic way is that it is much better to have our fee collected as part of the carrier or TPA bill for the group health plan.
The client will always pay this bill first (or the insurance claim payments stop to employees).
We as an industry are very lucky to have this option and need to seize every opportunity for our fee to be part of the TPA and/or carrier bill.
Here is what we as a company have determined:
- Client needs to agree to our separate fee for the group health plan consulting and fee needs to be collected as separate line item on TPA carrier billing statement. We have received lots of accommodation on this from the TPAs/carriers because it gets our fee out of their retention. I Hope this willingness to work together continues.
- We are not well suited or equipped as a business to be in the collection business.
- Our consulting fee needs to be presented to the client and agreed upon based on their needs and services very early in the client engagement and marketing conversations.
Our group health consulting fee needs to be calculated methodically based on what we need to thrive and deliver with a focus on value to the client. If the client needs ben admin, HR assistance, or SPD preparation and 5500 filings offer these, but show it as an “extra PEPM above the basic cost for our consultation, expertise and dedicated account manager.”
Can you imagine a world where carriers didn’t pay us anymore commissions on group health? They would still want the business, so they would have to run lots of new client and retention bonus and incentive programs.
I love the thought of not being subject to group health carrier control other than training and education on their group health products. Yes, the carriers may still choose to only work with certain agencies/brokers, but even that might change if group health compensation is no longer part of their control.
Many of you are way ahead of us in going down this road, but we must all be untethering ourselves from the group health insurance companies and stand as truly independent advisers to our clients regarding the healthcare plan.
But let us not forget the great value these health plan carriers can provide in their willingness to collect our fees and remit them to us. They are still our partners and without them we have no industry.
The group health commission ride was good for many years, but it is time to kiss it goodbye for everyone’s benefit.