HOSPITAL INDEMNITY HAS UPSIDE POTENTIAL
Accident and critical illness carriers add HI to their mix
Sales of hospital indemnity (HI) insurance are growing, riding the coattails of other supplemental health products in the voluntary market, particularly accident and critical illness (CI). Sales of all supplemental health products are driven largely by the need for employees to fill gaps created by higher deductibles and copays in their major medical coverage.
According to Willis Towers Watson’s 2018 Emerging Trends: Voluntary Benefits and Services Survey, 24% of employers currently offer hospital indemnity, and the survey projects that within three years 50% of employers could offer it.
Reliance Standard had been offering voluntary CI and accident insurance for six years when, in 2017, “we began receiving requests from brokers to add hospitalization,” says Len Cavallaro, assistant vice president, voluntary operations. “Brokers told us, ‘we view the three—critical illness, accident and hospital indemnity—as a supplemental health bundle.’ ”
Joe Quintana, regional practice leader, voluntary benefits, at Reliance Standard, adds, “Our experience has been that the best purchasers of voluntary products are those who already have them. So we weren’t concerned about losing other lines of business when we added hospital indemnity.
“The way that hospital indemnity is rolled out initially is a big determinant of its success with employers,” Quintana continues. “For example, if you start to introduce several products all at once, you tend to see less participation across all lines. One strategy we’re seeing more now is a bundled approach where we try to position the HI along with the other voluntary products as one option.”
Five years ago, MetLife made a move like Reliance Standard’s—adding hospital indemnity to a voluntary portfolio that already included critical illness and accident coverage. “Our sales of HI have grown exponentially,” says Alan Hirschberg, vice president of supplemental health for MetLife. Typically (85% of the time) employers that offer hospital indemnity also offer CI and accident, Hirschberg says. “Of the employees that purchase HI coverage, approximately 40% also purchase coverage for their family,” he adds.
The Standard entered the voluntary hospital indemnity market four years ago. “Our experience has been that employers are adding hospital indemnity by itself, either as the initial product, or a year or two after they began offering accident and critical illness,” says Danielle Lehman, senior voluntary product manager. “If hospital indemnity is offered in later years, employees are likely to purchase it in addition to the other plan that they purchased.”
Hospital indemnity acts as a good complement to the other coverages, Lehman points out. “It provides additional coverage for hospitalization for illness or pregnancy that is not covered under an accident plan,” she explains, noting that HI also provides additional coverage for critical illness, covering the longer hospital stays.
The Standard’s sales growth in hospital indemnity has been “steady,” Lehman says. “It’s been a good fit for larger employer groups, particularly hospital systems, that are moving to a consumer-directed health plan (CDHP) or high-deductible health plan (HDHP) for their medical.
Most individuals purchasing hospital indemnity match the coverage for dependents to what they have on their medical plan, she says.
Quintana points out that selling hospital indemnity requires a little extra education for the benefits broker. “Hospital indemnity has to be paired closely with the major medical—both from the product perspective and communication perspective,” he says. “The broker has to make sure the HI product is being considered at the same time changes are being made to the medical plan.” If it isn’t, there’s likely a barrier to the employee using the product, he cautions.
Employees purchasing coverage under a hospital indemnity plan can utilize their benefits for any expenses occurring during their time of hospital confinement. Lehman explains, “If the hospital indemnity plan is compatible with a Health Savings Account, the IRS dictates what is permitted.” Included are charges for both hospital admission and confinement to the hospital and to a critical care unit.
“Wellness is also permitted,” Lehman notes, “and most plans will include some type of wellness benefit that pays an annual amount to reward individuals for having a covered health screening.
“If the plan is not compliant with a Health Savings Account,” she adds, “they can include coverage for physician visits, lab work, ambulance, emergency room, outpatient surgery, rehabilitation stays or skilled nursing facilities. Due to the increase in CDHPs and HDHPs, these benefits are not as popular as they were prior to the implementation of the ACA.”
Cavallaro agrees. “When we created our hospital indemnity contract, we considered providing outpatient benefits, but that presents challenges to the HSA. Conversations with our brokers indicated they don’t want to offer anything that’s not HSA-compliant. They told us, ‘Even if we know that our client doesn’t have an HSA plan, we don’t know if the spouse may get dependent coverage under our plan and have an HSA with their employer.’ ”
MetLife’s approach to HI policy features is to lean toward customization. This tracks with the findings of its recently released 16th Annual U.S. Employee Benefit Trends Study, which shows that 70% of employees consider the ability to customize benefits to be an important influence on their loyalty to their employer.
MetLife’s Hirschberg says, “We typically offer the choice of a low/high plan that includes a lump-sum payment for hospital admission, daily confinement—including additional benefits for ICU admission and confinement—and daily confinement in a rehabilitation facility. We also offer plans that include additional care benefits such as ground/air ambulance, emergency room treatment, hospice and nursing care, child care, inpatient and outpatient surgery, transportation and lodging, plus wellness benefits when an employee or their dependents take preventive health screening tests.
“As employers continue to focus on employee wellness programs,” Hirschberg adds, “HI plans are one way to provide employers with options to further promote healthy programs for their employees, and to assist in containing medical costs.”
Insurers in the voluntary HI market provide product education materials and access to support specialists. “Our promotional strategy can vary depending upon the demographics of the client’s group and the broker involved,” says Quintana. “Some brokers are more experienced than others, not just in selling the product, but in engaging with the right communication and enrollment strategy. Part of what we bring to brokers is flexibility. Whatever their needs are, we can help them with their communication and education.
“We have a strong marketing team that can provide a range of materials, from videos to mailers to customized pieces to support the enrollment,” he adds. “Then we have voluntary market coordinators who meet with the employer and employees to make sure there’s a good understanding of the product.”
Hirschberg says his firm’s HI product support includes “a team of specialists who work collaboratively with our customers to educate and promote the benefits of hospital indemnity plans.” They are backed by educational materials showing employees how HI helps cover their medical deductible and additional out-of-pocket costs resulting from a hospital stay.
Brokers help promote The Standard’s hospital indemnity educational tools, including video, that explain benefits to plan participants, says Lehman.
Lehman sees hospital indemnity trending toward “increased ways to differentiate the product and make it more customized for specific employer groups.” For example, she says, The Standard’s Hospital Indemnity Plus product can be used by hospital systems to pay employees an additional benefit when they are hospitalized at their employer’s health system. “It works well as part of their employer’s strategy to encourage them to stay inside their employer’s system for treatment,” she says.
Cavallaro points out, “We’re starting to see some experimentation with the HI product where the employer will pay for it. Maybe they’ve introduced a HDHP and they see this as a cost-effective way to help the employee. For example, they might pay for a hospital admission benefit that’s the same size as the deductible. We’ve seen a couple of those come through. Maybe the medical plan has a $5,000 deductible, so they put in a $5,000 hospital admission benefit under the HI. So if someone goes in the hospital one time, their deductible is satisfied for the year.
“I wouldn’t call this a trend,” says Cavallaro. “If there is a trend, I would say brokers and their clients are looking at hospital indemnity plans and asking, ‘Is there a way we can use them in a way that is more beneficial and little more creative?’ As carriers, we’re willing to work with them on that.”
Quintana adds, “In the future, the industry may move toward more bundling of hospital indemnity with critical illness and accident—whether it’s a true bundle or just the way it’s communicated and enrolled. If that happens, I can see HI being a base component of that bundle.”
Cavallaro further describes this bundling concept as “a single product chassis where the employee could mix and match among the three products—CI, accident and HI—as to how much of each they want.”
He cautions that one constraint to this type of approach is that the more flexibility the product has, the more time and effort it takes to explain to buyers. “It’s a mismatch to have a product that’s very flexible with lots of choices, but without enough decision support and time to present it. However, as the broker and carrier continue to work together, they’ll develop a more robust set of tools that allow the customer to do some analysis and make informed choices.”
Just as with other voluntary products, ultimate sales success for hospital indemnity will be determined by how well plan participants understand what they are buying.
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Thomas A. McCoy, CLU, is an Indiana-based freelance insurance writer.