B2 B General White Paper In0808[1]

Voluntary Insurance:

A Solution for Employers’ Complex

Health Plan Challenges

IN0808 3/09

American Family Life Assurance Company of Columbus (Aflac)Worldwide Headquarters • Columbus, Georgia

Aflac | www.aflacforbusiness.com | 2

Voluntary Insurance:A Solution for Employers’ Complex Health Plan Challenges

SynopsisHealth care costs have a significant impact on our nation’s economy and are greatly undermining the ability of U.S. businesses to compete globally. For perspective, the United States spends six times more per capita on the administration of the health care system than its peer Western European nations.1 In 2008, total national health expenditures were expected to rise 6.9 percent—two times the rate of inflation.2

In 2008, the United States spent 17 percent of its gross domestic product (GDP) on health care, and it is projected that the percentage will reach 20 percent by 2017.2

Rising health care costs not only affect the United States economy; the real impact is on the individual. Since 1999, family premiums for employer-sponsored insurance have increased 120 percent while wages have gone up 44 percent and inflation has gone up 29 percent.2 To address this growing expense, most employers and employees have been forced to share premium increases in the form of higher deductibles, copayments, or other out-of-pocket expenses.

But those are just the financial burdens. Research also shows effects on employee morale, productivity, retention, and recruitment. Couple that with an emerging workforce that is older, multigenerational and ethnically diverse, and corporate America is facing a tough future regarding the effective management of human capital.

Despite these market pressures, benefits managers are still challenged with creating substantial, affordable, and valued benefits packages while faced with limited budgets, rising benefits costs, and a competitive job market.

Businesses of all sizes and across all industries have discovered that the adoption of voluntary insurance policies can help meet the needs and demands for employer-based health care solutions.

Voluntary insurance is defined here as employee-paid insurance coverage that has no direct employer cost, complements existing benefits plans, and helps businesses attract and retain employees.

This paper explores the market conditions that have created the need for voluntary insurance and the specific case for voluntary policies.

1“Accounting for the Cost in the United States,” McKinsey Global Institute, January 2007.2“Facts on Healthcare Costs,” National Coalition on Healthcare, 2009.



Today’s Benefits Decision-Makers Are Workplace Warriors Anyone responsible for selecting and administering corporate benefits engages in a daily battle to balance the needs of the business with the needs of the employees. It is a strategic and financial struggle to continually find ways to cover a share of the spiraling cost of benefits while trying to maintain the well-being and satisfaction of employees.

Health care benefits are the basis of many corporate challenges and can often make the difference between corporate profitability and red ink. Medical coverage is the foundation of most employer-provided benefits packages, and employees feel that no other workplace benefit comes close in terms of importance.3

But when health care costs outpace business and household budgets, companies and employees alike feel the pain.

Plus, when it comes to attracting and retaining employees, a good health care plan plays a crucial role. As the baby boom generation begins heading for the door, employers are realizing they must engage in a war for talent where the competition is fierce. And, as the uninsured population increases, the need for an immediate and long-term solution becomes painfully apparent.4

Health care reform is a hot topic during these turbulent economic times. It may be quite some time before a full reform is in place. But most employers would agree that there is a need for an immediate solution that provides affordable and attractive ways to enhance and complement existing benefit offerings.

3“HR Trends and Challenges,” LIMRA International, 2007.4“At the Brink: Trends in America’s Uninsured,” Robert Wood Johnson Foundation, March 2009.

Rising Health Care Costs Hurt Small BizA survey of some 4,000 self-employed individuals and business owners with ten or fewer employees find most can’t afford health insurance for employees.

Business Week, July 2, 2008. Health Insurance Woes Hit Workers

Premiums rising six to eight times faster than wages have.

Wall Street Journal, September 4, 2008.

Employers to Shrink Insurance BenefitsChicago Tribune, March 5, 2009.

Health Care Costs Seen Rising Again Next YearWall Street Journal, September 4, 2008.



The Human Side of BusinessBenefits decision-makers know they should never lose their sensitivity to the human side of business—their employees. Yet, often to accommodate the annual increase in corporate health plan rates, benefits specialists must pass some of these costs on to their workforce in the form of:

• Increased share of premium • Plans that offer less coverage• Higher deductibles and copayments• Increased out-of-pocket limits• More restrictive provider networks

Some companies even apply penalties for unhealthy lifestyle habits (e.g., smoking) or apply a surcharge if a covered spouse is eligible for coverage through his/her own employer. This is all done to help defray the growing cost of insuring employees.

As medical costs escalate and health plan coverages shrink, employees must dig deeper into their own pockets to afford the medical care they need. According to figures from the Kaiser Foundation, this differential has been further amplified just over the last four years as the average annual family premium increased 27 percent since 2004 to $12,680 in 2008.5

Rising Costs Top List of ConcernsAccording to a 2009 survey, employers perceive health care costs as the number one challenge to achieving short-term success in today’s economic uncertainty, while the ability to attract, motivate, and retain talented employees fell to the number two concern.6

Employees feel similar concerns. In the 2008 Health Confidence Survey conducted by the Employee Benefit Research Institute, 90 percent of employees believe that making health care affordable is an extremely or very important goal for reforming our nation’s health care system.7

“Having affordable health insurance” ranked as a main financial concern of 90 percent of employees surveyed in 2007.

5Employer Health Benefits Annual Survey, Kaiser Family Foundation/KRET, 2008.6“2009 Top Five Total Rewards Priorities Survey,” Deloitte LLC, 2009.7Health Confidence Survey, Matthew Greenwald & Associates, October 2008.

90 percent of employees believe that making health

care affordable is an extremely or very important

goal for reforming our nation’s health care system.



Source: Employer Health Benefits Annual Survey, Kaiser Family Foundation/HRET, 2007.

Source: Survey of Employer-Sponsored Health Benefits, Kaiser Family Foundation/HRET, 1999 – 2008.

As medical costs escalate and health plan coverage shrinks,

employees must dig deeper into their own pockets to

afford the medical care they need.



Less-Than-Adequate Coverage May Force Desperate MeasuresHealth care-related expenses can be a major factor in filing for bankruptcy and accounts for about half of all personal bankruptcies in this country, according to a landmark and frequently cited study conducted by Harvard University researchers in 2005. In 2001, between 1.9 million and 2.2 million Americans (filers and dependents) experienced medical bankruptcy.8 Dr. Deborah Thorne, a co-author of the study, said this percentage of medical bankruptcies has probably worsened since the study was conducted.9

Authors of the Harvard study learned that differences between health care coverage and medical fees were a common reason debts accumulated to the point of necessitating bankruptcy. In fact, 75.7 percent of people experiencing medical bankruptcy had insurance at the onset of the illness.10

For many, financial reserves were depleted and debt escalated because of out-of-pocket expenses such as deductibles, copayments, noncovered medical costs, incidental expenses and, in some instances, loss of pay due to absenteeism or loss of work. Among those whose illnesses led to bankruptcy, out-of-pocket costs alone averaged $11,854.11

The Harvard study cited four deficiencies in the financial safety net for American families confronting illness:

1. Even brief lapses in insurance coverage may lead to medical bankruptcy.2. Many health insurance policies prove to be too skimpy in the face of

serious illness.3. Illness may lead to job loss and consequent loss of coverage.4. Illness often leads to financial difficulties through loss of income as well

as high medical bills.12

When an employee faces financial difficulties, an employer feels the impact as well. According to Thomas Garman, a leading expert on employee debt, about 25 percent of employees in the U.S. report they suffer from serious financial distress, and up to 80 percent of those report their job performance is affected by their financial problems.13

Garman researched employees in 25 states and found that those with financial worries not only are more stressed and absent more often than others, but they spend about 20 hours of work time per month dealing with money problems.14

8Himmelstein, D., et al., “Illness and Injury as Contributors to Bankruptcy,” Harvard Study, February 2005. 9Stuckey, M. “When Staying Alive Equals Bankruptcy,” msnbc.com, August 2007.10Himmelstein, D., et al., “Illness and Injury as Contributors to Bankruptcy,” Harvard Study, February 2005.11Himmelstein, D., et al., “Illness and Injury as Contributors to Bankruptcy,” Harvard Study, February 2005.12Health Confidence Survey, Matthew Greenwald & Associates, November 2006.13Pierson, B. “Simply Put, It’s Just Good Financial Planning,” Supplemental Disability Insurance, August 2007. 14Stuckey, M. “When Staying Alive Equals Bankruptcy,” msnbc.com, August 2007.

When an employee faces financial difficulties,

an employer feels the impact as well.



Voluntary Insurance—A Solution to Today’s Rising Health Care Costs

How can HR professionals construct a substantial, affordable, and valued benefits package in spite of limited resources, rising costs, and a highly competitive job market?

Voluntary insurance policies enhance and complement existing benefits packages at no direct cost to employers while helping employees improve health care coverage and prepare for the unexpected occurrences of life, all while providing them with premium rates known to be more stable than major medical.

Traditionally, voluntary insurance (e.g., life insurance, disability, accident, hospital confinement indemnity) is viewed as coverage that exceeds an employee’s core benefits package [e.g., major medical and 401(k)]. But as the cost of health care continues to rise, many companies are cutting back on core health care coverage to help keep the rising costs at bay. Now the need for voluntary insurance as a cost effective supplement to core benefits has become essential to many businesses.

Other health care realities are also emerging on the horizon and taking hold. Bare minimum health care packages provide access to physicians and reduced costs for medication but do not cover major illnesses or injuries. Though these kinds of employer-sponsored health care plans have not taken widespread root, they are a consideration becoming more and more prevalent.

Broadly speaking, voluntary insurance policies:

• Have no direct employer cost. Employees pay 100 percent of the premiums.

• Complement existing benefits plans. • Enhance employee benefits plans, which play a critical role in attracting

and retaining employees.• May reduce corporate taxes by cutting FICA tax contributions when

premiums are paid with pre-tax dollars. • Help employees manage rising health care costs by providing them

with cash benefits that can be used toward deductibles, copayments, and everyday expenses.

More than half of this nation’s employers who manage work forces of ten or more individuals provide voluntary insurance,15 tapping into a remarkably easy way to address many of their complex benefits challenges.

15“HR Trends and Challenges,” LIMRA International, 2007.

Now the need for voluntary insurance has become

essential to many businesses.

Employers’ top three reasons for making voluntary insurance available:

• Retainemployees(23percent).

• Increasejobsatisfaction(20percent).

• Enhanceexistingbenefitspackages(22percent).



Among employers who currently provide or previously have provided voluntary insurance, the top three reasons for making it available are to:

• Retain employees (23 percent).• Increase job satisfaction (20 percent).• Enhance existing benefits packages (22 percent).Other reported reasons are to:• Provide an additional benefit while protecting the company’s bottom line

(16 percent).• Include the widest range of benefits possible (13 percent).• Attract qualified employees (13 percent).16

The Eastbridge Consulting Group confirms that employers have stepped up to become more involved in improving the quality of life of their employees, and voluntary insurance has helped make that possible. According to an Eastbridge study, sales of new and renewed voluntary plans totaled roughly $22 billion in 2006, about double the amount from 2000.17

Voluntary insurance can include policies for accident, cancer/specified-disease, dental, life, short-term disability, specified health event, hospital confinement indemnity, hospital intensive care, lump sum critical illness, and vision.

Employees Want Voluntary InsuranceEmployees appreciate the option to apply for voluntary insurance policies to address their individual needs. In a LIMRA study, employees were asked about a variety of voluntary insurance plans. More than 60 percent of employees surveyed considered voluntary insurance to be very important or somewhat important. Only 3 percent considered them not at all important.18

Im po r t a n c e A t t a c h e d t o V o lu n t a r y B e n e f i t s by E m plo ye e s

25%

36%

30%

6% 3%

V ery ImportantS omewhat Important

NeutralNot very important

Not at all important

Source: “Navigating the Workplace Benefits Landscape,” LIMRA International, 2006.

16“Market Structure: Decision-Makers,” TNS Taylor Nelson Sofres, 2006.17Barnhart, M. “Onward and Upward: Economic, Social Conditions Spur Rapid Growth,” Employee Benefit News, June

15, 2007.18”Navigating the Workplace Benefits Landscape,” LIMRA International, 2006.

Sales of new and renewed voluntary plans totaled

roughly $22 billion in 2006, about double the amount

from 2000.17

Employees appreciate the option to apply for voluntary insurance policies to address their individual needs.



Employees want voluntary insurance because it provides:

• Customization of benefits packages. Employees can select coverage relevant to their circumstances and build a benefits plan tailored to their specific needs.

• Cash benefits to help with expenses not covered by major medical. Voluntary insurance policies pay benefits regardless of any other health coverage, helping cover deductibles, copayments, and other out-of-pocket medical expenses.

• Cash to use for out-of-pocket expenses. Some voluntary insurance plans pay benefits toward expenses such as travel and lodging incurred due to illness or accident.

Additionally, voluntary insurance plans in general offer:

• Portability: Policies stay with the employees, even if they change employers.

• Guaranteed-renewable: As long as premiums are paid, the insurance will not be canceled.

• No coordination with other benefits, no preauthorization, and no provider networks.

Why Aflac?

For over 50 years, Aflac has helped business owners and benefits decision- makers enhance their employee benefits packages through its voluntary insurance. As a leader in the industry, Aflac provides competitive voluntary insurance policies that can address the needs of both the business and its employees.

Aflac for every business:Currently, over 427,000 employers make Aflac available to their employees. With a broad range of policies and value-added services, Aflac’s offerings suit virtually every business size and type. From three employees to 30,000, Aflac fits easily within any benefits package.

The benefits of making Aflac available go beyond the voluntary insurance policies employees receive. With Aflac, employers also experience one or more of the following advantages:

• No direct cost to the business – Aflac’s insurance policies are 100 percent employee paid and sold on a voluntary basis. The employer is under no obligation to cover premium costs nor are employees required to apply for Aflac.

• Potential tax savings – Premiums are paid on a pre-tax basis and by allowing premiums to be paid through payroll deduction, the employer may save on FICA taxes.

Voluntary insurance can help enhance corporate benefits packages–at no direct cost

to the employer–while helping to attract and retain

employees.



• Complements existing benefits packages – No matter the current medical plan a business may have in place, Aflac’s policies are designed to complement it. There are no coordination of benefits, copayments, deductibles, or doctor networks.

• Designed for ease of administration – Aflac provides administrative support needed by its customers. From enrollment services to automated bill pay system, Aflac offers tools designed to ease the burden of administering voluntary insurance.

• Helps attract and retain top talent – A robust benefits package can help a business retain its key talent. With Aflac, employers are able to provide voluntary insurance that can increase the value of their benefits package.

Products for every need:Aflac’s extensive product offerings address the needs of both employers and employees, as well as their families. From accident and disability, vision and dental, to cancer and specified-disease, Aflac’s policies can help ease employees’ concerns about medical costs by paying cash benefits directly to the policyholders (unless they choose otherwise). With these cash benefits, policyholders can help pay out-of-pocket medical and living expenses.

With Aflac’s individually owned policies, employees also enjoy greater responsibility and flexibility. Policies are portable and guaranteed-renewable which can help businesses give their employees a better sense of self-reliance in meeting their own financial needs.

Aflac’s broad range of voluntary insurance policies vary by state, but may include the following coverage:

• Plans to address expenses associated with an accidental injury such as emergency treatment, initial hospitalization and confinement, and accidental death and dismemberment.

• Coverage to help with expenses associated with the diagnosis and treatment of cancer or other named specified-disease such as hospital confinement, surgery, and radiation/chemotherapy.

• Benefits for basic preventive dental and vision treatments.• Income protection when out of work due to an accident or injury.Service for every day: For employers, administering and managing benefits package can be just as difficult as selecting a provide. As a recognized leader in technological innovation, Aflac offers a range of online and automated services to help benefit administrators with streamline premium payment and reconciliation.

Additionally, Aflac has more than 70,000 licensed insurance agents who meet face-to-face with employees to provide guidance on selecting the appropriate products to meet their personal needs. These one-on-one communications create an instant appreciation and understanding of the value of Aflac’s voluntary policies. Aflac is also recognized for its customer service and claims centers that process claims in an average of four days.



ConclusionThe cost of health care continues to outpace inflation and household earnings at a pace greater than 2 to 1.19 To reduce the burden on corporate bottom lines, benefits decision-makers are often forced to pass larger portions of these increases onto their workforce.

The result, however, is that employees are now forced to make some tough decisions with many resorting to drawing from personal savings, dipping into retirement accounts, and increasing use of credit—all of which can take a toll on personal savings and, in some instances, may lead to personal bankruptcy.

For corporations, offloading significant portions of these increases in health care costs doesn’t solve the problem for them either. In fact, the number one challenge facing human resource professionals is controlling health care costs.

To stay competitive, HR managers must continue to attract and retain the best employees. Competitive pay, a friendly culture, and a solid benefits package help HR managers achieve that objective.

To that end, voluntary insurance plans can provide HR managers with some leverage in this daily struggle. They are growing in popularity because they can help enhance corporate benefits packages—at no direct cost to the employer—while helping to attract and retain employees in an increasingly competitive job market.

When it comes to voluntary insurance, businesses of all sizes and in all industries turn to Aflac. With a wide range of insurance policies as well as an extensive service offering that can ease administrate burdens, Aflac understands the needs of employers in today’s health care climate.

For more information on Aflac’s voluntary insurance policies, visit aflacforbusiness.com.

19“Health care costs outpace Inflation 2 to 1,” The News Journal, June 18, 2008.

American Family Life Assurance Company of Columbus (Aflac)

Worldwide Headquarters • Columbus, Georgia

When it comes to voluntary insurance, businesses of all

sizes and in all industries turn to Aflac.

American Family Life Assurance Company of Columbus (Aflac)

Worldwide Headquarters • Columbus, Georgia

Documents

B2 B General White Paper In0808[1]