July 9, 2012

Health insurers branching out

James Reid, head of voluntary plans and consumer services division, Aetna

When consumers typically think about supplemental insurance coverage, companies like Aflac, Allstate and Colonial Life typically come to mind as the major players in the industry.

Now some of Connecticut's largest health insurance companies are hoping to change that, particularly when it comes to voluntary medical care coverage.

Over the last 24 months, larger health insurance companies — including Aetna, Cigna, and UnitedHealthcare — have been making acquisitions, establishing new partnerships or unveiling new products to aggressively get into the supplemental medical insurance business. Such policies help cover out-of-pocket health care expenses that consumers may face as a result of a serious injury or a major illness.

For many of these insurers, it's their first foray into this space and they are offering products like voluntary critical illness or accidental plan coverage as a way to diversify their product base amid much uncertainty in the industry.

The new product offerings also come at a time when employees are shouldering a larger share of their health care costs and looking for ways to mitigate that burden, insurance executives say.

"It's a good fit at a time when more employers are offering high deductible health plans to their employees," said Mike Witwer, vice president of Bloomfield insurer Cigna's voluntary business. "There is an initial shock for some people when they have a high deductible plan, so these new products are an attempt to soften that situation and fill in gaps."

Witwer said voluntary medical care coverage is largely designed to supplement major medical insurance and reimburse individuals for expenses that may not be covered under a traditional health plan.

Supplemental or voluntary insurance has been around for some time and the industry is big business.

According to Avon insurance consulting firm Eastbridge Consulting Group, new sales premiums in the voluntary insurance industry totaled $5.5 billion in 2011, and in-force premiums were estimated to be $20 billion to $26 billion.

Medical care voluntary coverage has been growing at double digit rates. Sales for critical illness plans, for example, grew 20 percent in 2011 to $243 million, while accident plans grew 14 percent to $738 million, according to Eastbridge.

Meanwhile, 82 percent of insurers recently surveyed by Eastbridge said they plan to introduce at least one new voluntary product in the next one to two years, with critical illness and accident insurance mentioned most often.

Health insurance companies aren't entirely new to the supplemental business. In fact, many insurers have been offering voluntary products for some time, including coverage for things like life, disability, dental and vision care.

But now health insurers see the supplemental space as a potentially much larger part of their business, particularly for medical care coverage.

Hartford health insurer Aetna, for example, launched its voluntary business in 2010, and just last year signed a strategic alliance with Allstate Benefits that allows Aetna to offer multiple Allstate supplemental medical care products. That includes a critical illness plan that pays benefits directly to members diagnosed with a major illness, including heart attack, stroke and cancer. They are also offering an accident plan that pays benefits directly to members for death, dismemberment or injury caused by a covered accident on or off the job.

Meanwhile, UnitedHealthcare recently received regulatory approval from the Connecticut Insurance Department to begin selling critical illness protection plans in the state that cover 13 different illnesses or injuries including cancer and cardiovascular diseases, as well as critical injuries resulting in paralysis, major organ failure or severe brain damage.

The plan is available to employers with more than 50 employees, and employers can choose from four different plan options with consumer coverage levels ranging from $5,000 to $100,000.

Like most voluntary plans, UnitedHealthcare's new product provides a lump-sum benefit payout when an individual is diagnosed with any of the 13 covered illnesses. The payments can be used to cover any expenses needed, including out-of-pocket medical costs and daily living expenses, or to offset loss of income.

Meanwhile, Cigna plans to unveil critical illness and accidental voluntary insurance plans starting this fall.

James Reid, the head of Aetna's voluntary plans and consumer services division, said the Hartford insurer began to take a hard look at the voluntary medical care space about 24 months ago and decided to invest in new products and alliances as a way to diversify their business, especially with uncertainty surrounding health care reform, which could significantly change the way people purchase insurance.

Besides the Allstate partnership, which will allow Aetna to distribute plans through their own brokers, Aetna has also unveiled a new voluntary hospital plan that pays cash directly to an insured person for inpatient hospital stays related to non-occupational injury or sickness. The consumer can then use the money for any type of expense.

As health insurers move into the voluntary medical care coverage space, they will have to compete with companies that have been in the game for some time including Aflac, Allstate, Unum, Colonial Life and Humana.

Witwer, the Cigna executive, said one of the advantages health insurers have is that their core competency is in health care coverage, so they see the new policies as a natural extension to what they already do. At the same time, they have the opportunity to create new products that can pair a traditional health insurance plan with supplemental coverage.

Cigna, for example, eventually expects to connect its new critical illness plan with its cancer care program, Witwer said.

"We think we have an advantage as we move into this space because there is a natural connection with medical care plans," Witwer said.

West Hartford insurance broker Jason Gutcheon said he has seen a noticeable uptick in large health insurers offering supplemental medical care coverage, but he's not sure how the market will respond to the products.

For smaller employers, the product is likely going to be a tougher sell, Gutcheon said, but larger companies with 50 or more workers could see the products become a standard part of their employee benefits packages, even though the employee typically covers the full cost.

And for insurers to get value out of entering the market, Gutcheon said they must do large volumes of business, since the plans are sold to individual employees instead of a group. But he said he understands insurers getting into the market as a hedge against uncertainty in the health care industry.

"All these carriers are looking for new and different ways to offer employee benefits if group health plans become things of the past," Gutcheon said.

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