Insuring the employee’s risk

Insuring the employee’s risk

The benefit gambit currently in vogue is a new kind of risk-transfer.  Instead of having the employer assume the employee’s long term risk (by defined benefit pensions, and by comprehensive health benefits), the name of the game now seems to be: transfer the risk to the employee.  How?  First, by giving the employee a defined contribution 401(k) and letting the employee take the risk that it might not be sufficient for retirement; and second, by designing a health benefit plan where large components of the risk of health costs are transferred back to the employee, and giving the employee a Health Savings Account that may or may not be sufficient to cover that risk.  And so on.

What about insurance of these risks?  Where are the new insurance products (protection for employee’s medical “HSA-Gap”? Employees’ 401(k) inflation protection?) designed to absorb and mutualize the employees’ cost of these risks?  Why not provide that kind of insurance to employees, but through employers, on a group basis purchasable by employees through their own § 125 cafeteria?

This is a market in need of new insurance products.  The insurers have a well-established but perhaps obsolete habit of “selling” group products primarily to employers, designed to save money for employers and reduce the employer’s risk.  What new safe harbors or other law changes are needed to facilitate an insurance industry effort to reduce employees’ risks?  What new “suitability” issues are involved? Surely the need is there, and the need should make the market.

Comments

[Roy Harmon]

Frank,

Perhaps the real trend is toward individual-based as opposed to employer-based insurance. That's the way you insure your automobile and your home and perhaps that is the future of retirement and health benefits. From this point of view, the employer-based programs arose as an anomaly based upon price controls and labor negotiations back in the WWII era - with economic changes since that time, we may be returning to a natural economic base of individual responsibility.

Roy

[Don Levit,CLU,ChFC]

Frank:
Thanks for posting your concerns.
In order to provide an HSA-gap type product, insurers would have to offer "permitted insurance" products.
While this limits their options, there may be creative ways to do so.

My experience is that insurers do not want to see their revenues decrease through offering higher deductibles. As I understand the HSA legislation, while people can now contribute even more money to their HSAs, the deductibles will grow only with inflation (even if the HSA balance exceeds the deductible).

We need to start looking away from the commercial insurance market, and start looking toward the non-commercial market.
As a non commercial insurer, a Voluntary Employees' Beneficiary Association (VEBA) can offer products not avilable to the public. Thus, its plan designs are virtually infinite.
Don Levit,CLU,ChFC

[George D. Burns]

While a very good concept, it will be attacked by the IRS as being in the same vein as the "double dipping" arrangements addressed in Revenue Ruling 2002-3 and 2002-80. It would be best to do it outside of the cafeteria plan.

We at Burns and Associates, Inc have been trying to market a variant on what you are suggesting, except that we do it outside the section 125 Cafeteria Plan.

The problem is that it has to be of interest and benefit to the employer otherwise they will not allow it to be offered to the employees on company time nor on the payroll.

I would be happy to provide details etc to interested large employers.

gburns@alloymail.com