Voluntary Benefits Overview: Key Factors & Considerations for Effective Coverage

1. 2017 Voluntary Benefits Analysis Kansas

2. Underwriting Overview Premium Rate Development • Age and gender of enrollee – occasional consideration of health history/condition, for higher level benefits • Actuarial morbidity (illness) and mortality (death) tables • Pooled – risk spread over a group (or groups) of enrollees • Insured – carrier bears the risk/liability for paying the claim • Products and rates are filed with, and require approval from, each State’s Department of Insurance • Rates tend to be low, due to relatively low incidence of the covered condition and/or event, and the fixed benefit level Commission • Typically high broker commission – 1st year highest, then leveling off • Many carriers include commission in the rates filed with the DOI – often, a portion of these is “baked in” and cannot be removed – if employer requests “no commission”, no additional broker commission is added, but the “baked in” commission remains – may be used to fund enrollers, call center, agents, etc.

3. Legal Considerations Pre-tax vs. Post-tax Payroll Deductions • Typically, voluntary benefits are payroll deducted on a post-tax basis to avoid reporting and tax implications • Pre-tax payroll deduction for voluntary benefits results in tax reporting implications for the employer, and tax payment implications for the claimant • Two recent IRS Chief Counsel memorandums (201703013 and 201719025) have addressed these issues – if payroll deducted on a pre-tax basis, voluntary benefit indemnity payments in excess of actual medical costs are considered to be taxable income to the claimant. HSA Compatibility • Employers who offer HSA qualified medical plans must ensure that other benefits offered in tandem don’t jeopardize the HSA participants’ ability to continue tax advantaged contributions toward the HSA. • IRS (Section 223) HSA compatibility requirements: • Accident – benefit paid for an injury/condition and treatment of that injury/condition, resulting only from an accident (no sickness related benefits) – benefit has no relation to actual cost of medical care. • Specified disease or illness – benefit paid for diagnosis of a covered condition – benefit has no relation to actual cost of medical care. • Fixed indemnity – group benefit may be paid only on a per-time-period basis (e.g., per day, per week, per year, etc.).- not per service or event.

4. Critical Illness vs. Stand-Alone Cancer • 2014 US Cause-of-Death Ranking* • Heart Disease • Cancer • Chronic Lower Respiratory Disease • Unintentional Accident • Cerebrovascular Disease (stroke) • Alzheimer’s Disease • Diabetes • Influenza/Pneumonia • Nephritis, Nephrotic Syndrome, Nephrosis (kidney disease) • Intentional Self Harm (suicide) Cancer and Critical Illness Enrollment, Reported by Carriers * CDC, 2016, https://www.cdc.gov/nchs/fastats/leading-causes-of-death.htm

5. Carrier Ratings AM Best Financial Strength Ratings

6. Carrier Differentiators - General

7. Carrier Differentiators – Products

8. Carrier Differentiators – Products (continued)

9. Carrier Differentiators – Concerns