“Until I know this sure uncertainty, I’ll entertain the offered fallacy.”—William Shakespeare, The Comedy of Errors
Right now, charting the health insurance landscape feels a bit like wandering through a murky, mazy Shakespearean forest. Between President Trump’s executive order to “minimize the economic burden of the pending ACA repeal”; the replacement option proposed by Senators Collins and Cassidy (which would allow states to keep the ACA model, if they choose); and the various legislative strategies starting to emerge in Congress, the journey can feel like a pathless wood.
So where can health insurers look for stable growth amid this uncertainty?
In the face of market turmoil and revenue insecurity, the core ancillary products (including dental, vision, life insurance, disability, and voluntary befits) offer a stable, growing profit pool for health plans.
Here are three important points about ancillary benefits that payers should consider in the context of today’s uncertain market:
1. Ancillary products are essential to defending the core
Although they account for just a fraction of total health-product revenue, ancillary products play a key role in customer retention. We benchmarked performance across numerous carriers and found that in small and mid-size markets, retention of employer accounts can increase by 10 to 15 percentage points if health is bundled with at least two ancillary products.
Additionally, our research found that smaller employers value how bundled products lessen the administrative burden, and bundling helps cement the insurer-employer relationship. On the persistence front, it becomes more challenging for an employer to cut ties when multiple products are involved. And on the revenue side, an insurer that can deliver multiple value-add products starts to be seen less as a vendor and more as a strategic partner, and the potential for long-term returns is higher.
In other words, and to belabor our Shakespearian analogy, while ancillary is never going to play the lead role, these product can play a key supporting role as part of an ensemble cast.
2. Ancillary products are important to consumers shopping on private exchanges
Over the past three years, there has been a shift in how consumers allocate benefits dollars. Consumers are buying down on medical and shifting to high-deductible products, while also buying up to products that filled the funding gap – products like Cancer, Critical Illness, and Hospital Indemnity. Consumers are smart and understand that these products can be a low-cost way to cover some of the financial exposure of a high-deductible product.
But it’s not only about alleviating the burden of a HDHP; more consumers are thinking about risk protection for their particular life stage, and they are proactively embracing the idea of total risk protection. Having a robust ancillary portfolio offering can help with employee “stickiness,” and that can further boost payers’ value to employers.
The interest in total risk protection is also observed in the shopping patterns on private exchange. In the small-group market (employers with less than 50 employees), the number of employees shopping on a private exchange increased from 6 to 26 percent between 2013 and 2016. Not all of these employees are purchasing on exchanges yet; but in shopping on these marketplaces, they are able to easily configure benefit bundles that meet their needs. They see value in the ancillary products and the continued roll-out of exchanges will help drive uptake.
With the new administration voicing interest in consumer directed health plans, and the potential for more high-deductible products (due to removal of minimum benefit levels), the voluntary “gap” products are likely to become even more attractive to consumers.
3. Ancillary products are rising in importance with brokers
We know from our most recent market research (which was fielded after the November election) that employers are watching the ACA debate with confusion and concern. Brokers report a flood of questions, and they describe the mood as eerily similar to 2010, when the structure of the ACA began to emerge. The market uncertainty is driving a need for consultative advice, and brokers are ready to serve.
Brokers recognize that their value as advisors increases with their ability to provide a complete benefits solution. This is especially true for brokers who cover small-market employers. Ancillary benefits allow brokers to offer a broader scope of products and more complete benefits solution. Insurers who have an integrated approach to benefits will become increasingly attractive to brokers, and so ancillary products can serve as means to strengthen position with this important channel partner.
The one sure uncertainty
Although it will be months – and perhaps years – before we know what the new health landscape will look like, we can count on one certainty: Finding growth amid market turmoil will be more difficult than ever. Ancillary products present an option for growth that has often been underappreciated, but will need to be front-and-center as insurers look to drive results amid a turbulent market environment. Regardless of what surprise plot twists and turns await before the final curtain falls on ACA repeal, health plans need to reevaluate how their ancillary product strategy can grow share and open up new paths to profit.
Chris Bernene Partner, Health & Life Sciences, Oliver Wyman
Howard Lapsley Partner, Health and Life Sciences, Oliver Wyman