September 2012  
Rough Notes Benefits eReport
Carmel, Indiana
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Executing a strong integration of benefits and ?property/casualty under a universal health care system

Canadians settled the problem of universal health care decades ago with a single-payer mandate, managed by its provincial governments. But that doesn't mean employee benefits aren't a serious concern for Canadian employers-and U.S. firms with divisions north of the U.S. border.

While U.S. Republicans and Democrats still feud over the Affordable Care Act that was ruled constitutional months ago by the U.S. Supreme Court, Canadian employers have little to worry about in government-paid primary health care. But employers still consider their comprehensive employee benefit plans critical components of risk and human resource management, explains James Madon, president of Fort Financial Group in Montreal, Quebec.

"Canadian employers are extremely competitive and concerned about recruiting and retaining the best employees. Employee benefits are the key to their human resources success."

And Canadian brokers-even those that specialize in property/casualty insurance (P-C)-are still called upon to help design strategically strong benefit plans that help their clients meet their human resources goals. And they still need their broker's help in containing rising costs, he says.

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The sorting out of implementation continues

It's quiet-too quiet. But not on all fronts.

After the U.S. Supreme Court affirmed the constitutionality of the Patient Protection and Affordable Care Act (PPACA), the political battlefield that developed over the law has become disturbingly still. Presidential candidate Mitt Romney still fires the occasional salvo, threatening a repeal effort but, in general, political debate has entered a ceasefire.

Not so the stakeholder debate, which continues and grows even more fragmented. American consumers, employers and the health insurance industry are more divided than ever-even as key provisions move toward their 2014 implementation date and face an important intermediate deadline.

As the comprehensive package of access guarantees, market reforms and tax penalties and incentives goes forward, the groups most affected by the law are taking distinctly different and self-protective positions.

Insurers are protecting their products, agents and brokers their compensation, employers their plan designs and cost containment programs. Each has its own issues and rhetoric.

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Finding new ways to answer employee needs

The current financial condition of the world economy has caused a number of changes in the way we view various insurance products. One group of insurance products that is getting a fresh look is voluntary benefits. These insurance products have, to one degree or another, been a staple in the insurance marketplace since the 1950s. However, their usage has always been pretty limited.

In the 1950s and 1960s, the majority of an employee's insurance needs were supplied via programs that were frequently provided and paid for by the employer, thus negating the need for ancillary coverages such as those provided by voluntary plans. Additionally, because voluntary programs required the employee to pay for them, few had much interest in these products. For most insurance companies, they represented a very small percentage of their overall book of business.

But times change, and many employers now have to make difficult decisions about the long-term sustainability of their organizations. With eroding bottom lines, employers are searching for ways to reduce their overhead, just to keep the doors open. Over the past three to five years, employee benefits has been just one of the areas that has seen a downturn in employer participation.

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The new ball game

It's no secret, American employers are between a rock and a hard spot. How can they control their employee benefits costs and still retain and attract quality employees? That's the real question that's keeping HR directors awake at night. As a result, they are being forced to find creative approaches to help in this area.

Today, employer after employer is beginning to rediscover the advantages of voluntary benefits. Not long ago, voluntary benefits were being viewed by many employers as having negative connotations. They were characterized as pressurized sales that frequently ended in buyer remorse. But times change. Today, voluntary benefits are quickly becoming the "go-to" answer to the current benefits conundrum.

It may appear to some to be a rapid market change. But, according to Mike Witwer, vice president, Cigna Voluntary, the advances in the voluntary market have never really stopped. He notes that there is currently a convergence of traditional group voluntary coverages such as group health, and group disability, which were considered "worksite" products, with those that have been, at one point or another, considered to be individual products.

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The secret sauce for wellness programs?

Wellness programs, in one form or another, have been used by employers for more than a dozen years. These programs promote activities and organizational policies that are designed to support healthful behavior inside and outside the workplace, and to ultimately improve health outcomes. Overall, they have gained significant traction over the last three or four years as employers struggle to find ways to reduce the cost of medical care for their employees. When properly structured, wellness programs, in theory, align economic incentives of both the employer and the employee. Obviously both have a financial stake in encouraging and engaging in more healthful behaviors that should help drive the cost of health care down.

A number of recent studies have demonstrated employers' increasing interest in using wellness programs as an important component to a comprehensive cost containment strategy. This has become even more pronounced over the last year or two. For example, Towers Watson's annual employer survey finds increased usage in workplace wellness programs this year over prior years. Plus, it also notes that even more implementation of these programs is in the works for 2013.

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Inevitable changes will force more entities to look at alternative solutions

While captive insurance companies were once considered quite daring, today they have become commonplace in the property and casualty marketplace. And while they were once viewed primarily as an antidote for hard market displacement for property and liability coverages, corporations have now expanded their captives' usage to much more strategic endeavors. Many of the current crop of captives are being established to enhance holistic approaches such as an enterprise risk management program.

Along those same lines, more and more corporations have begun searching for additional ways to utilize their captives in the employee benefits area. While there is specific methodology available for incorporating employee benefits into a company's captive, a key element involves gaining approval from the Department of Labor, a task that continues to remain very onerous. As a result, captive owners are looking for less arduous approaches.

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Physician-guided managed care produces dramatic cost reductions

Health care costs in the United States have become a real challenge to both employer and employee. As a result, U.S. corporations have been eager to find ways to reduce the financial burden generally associated with maintaining employee health coverage. Over the years, numbers of concepts have been tried and discarded. However, one method that has retained its usefulness has been managed care.

Managed care is a term that is used to describe a variety of techniques designed to reduce the cost of providing health benefits, while improving overall quality of care. Managed care is nothing new; it got its start as a result of enacting the Health Maintenance Organization Act of 1973. Managed care techniques were so successful that they were quickly adopted by a variety of private health benefit programs in addition to the traditional HMOs. A more recent convert to manage care techniques has been workers compensation carriers.

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These beliefs apply to any producer, regardless of the line of business

If you have read my previous columns, you know I believe that the best opportunities for benefits producers are still in front of us. However, they won't be there for everyone. In fact, some of the opportunities for successful producers will be the result of much of their competition not surviving.

You also may have heard me say: "The financial reward for mediocrity in our industry has been way too high." Well, that is definitely changing. Not only will mediocre performance no longer have the high reward it has in the past, but also mediocre performers will struggle just to survive. The big financial rewards are still out there, but they will go only to those who are willing to work hard and make the necessary changes.

I've thought about both of these ideas a lot recently in light of the Supreme Court decision upholding the individual mandate in the Affordable Care Act. The response of benefits producers to the decision reflects a range of opinions. Some think the game is over, whereas others think it is just beginning. Guess what? They are both right.

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Health care moves toward perfect vision

Hardly a day goes by that we don't read yet another article or hear another news story regarding the escalating cost of health care in the United States. In fact, over the past 30-plus years, it has become one of the greatest challenges facing our economy. No other segment of our economy has created as many problems for employers and employees alike.

The Consumer Price Index (CPI) is a common indicator of the extent of inflationary costs, and it measures inflation at the retail level. It reflects the average price change over time for a constant quality, constant quantity market basket of goods and services. The basket of goods and services typically includes such staples as food, transportation, energy, shelter and medical expenses. As currently being used by the Department of Labor in developing its CPI, there are two medical care classifications-medical care commodities (MCC) and medical care services (MCS)--each containing several item-specific categories that make up the medical segment.

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Principal Financial says they belong together in long-term financial planning

One of the most effective retirement planning tools an employer can offer may be one that isn't considered a retirement product. It's a wellness program. That's because an employee's health can either sabotage a retirement plan or enable it. A wellness program can be a long-term solution to a long-term challenge-maximizing an employee's potential for good health both before and after retirement.

The impact of health care costs after retirement is not hard to visualize. For example, a study conducted by the Employee Benefit Research Institute (EBRI) in 2010 showed that a moderately healthy couple would spend an average of $250,000 to pay for unreimbursed health costs over a normal retirement.

Health care costs also can derail retirement strategies before retirement. Just look at the growing number of baby boomers who say they want to work more years to make up for low retirement account balances (the "I'll just work till I'm 90" crowd). This year's Retirement Confidence Survey, conducted by EBRI and Greenwald & Associates, shows that the proportion of employees who plan to work past age 65 has risen dramatically, from 11% in 1991 to 37% currently.

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