Skee-Ball, the first redemption game, relies on people overspending to play the game and accumulate points, just to win a cheap teddy bear. Learn how voluntary benefits can be similar if you’re not careful.

Key Takeaways

  • In Skee-Ball, players spend a lot of money to accumulate points that eventually only win them a cheap prize, like a teddy bear
  • Voluntary benefits can work the same way — employees put in a lot of money without knowing where it’s going, and it doesn’t get close to matching the value of what they’re getting
  • The BeneRe model is different because there’s complete transparency about where dollars are going, and dividends are reinvested in employee benefits programs

An ongoing issue in voluntary benefits is that employees have no transparency about what their costs are covering and often end up paying a lot more than the value they’re getting out of their benefits. The heaped and high-level commission structures deployed by consultants lead to a lot of inequality in contributions versus actual benefits. In this way, voluntary benefits can be a lot like Skee-Ball, a system that should be avoided.

Here is your guide to understanding how to prevent insurance Skee-Ball with voluntary benefits.

How voluntary insurance has become a redemption game

Skee-Ball was the first redemption game out there. This means that people continue to put money into the machine to try to earn points by throwing the ball down the lane and landing it in the different points buckets. You can accumulate, say, 500 tickets after playing for a while and head to a prize wall to pick out a stuffed animal. 

Even though it feels like you’re winning something at the end, which is especially true for kids who just want to play a game and get a prize, you could easily spend $50 just to get a $5 teddy bear or $0.50 water gun. The amount of money put in versus the outcome is not equal at all. (However, the game, at least, has some entertainment value.)

Skee-Ball is similar to voluntary benefits, specifically the heaped commissions structure in insurance. Brokers and consultants essentially give employers and their employees tickets to pay for their insurance services. They act as a kind of bank, and employees can use that bank to pay for services. But employees can’t even spend all of their dollars on the prize wall because markups can be 3X to 5X. 

Employees are playing Skee-Ball, but they don’t know they’re playing. There’s no transparency about how brokers are getting paid and what employees are really paying all those fees for. They just assume that the fees are necessary for their insurance and broker services.

Unlike Skee-Ball, where at least the kids are getting enjoyment out of the activity and a prize at the end, employees are paying millions of dollars into such an unequal situation that they aren’t getting any value out of it.

The risk of playing insurance Skee-Ball begs the question: How can employers perform their fiduciary role when there is very little transparency about how the claims, commissions, and carrier profit math works in this game?

The way commissions commonly work in voluntary benefits is under that heaped structure, where the brokers’ money comes in the first year and then trails off the next few. Brokers are thus incentivized to keep changing their clients’ plans so they can keep getting that big initial payout. The big payout also comes with every new employee hired via turnover or growth, so the blended commissions remain very high in a lot of industries.

Because of those heaped commissions in the first year, consultants want to justify that big number with optics, so they might spend more time and money on flying to visit their clients unnecessarily and other expensive perks. Overpriced services for massive commissions take advantage of employees and completely obfuscate what’s actually happening.

Another issue is that, when you have, say, 50% turnover in the company every year, half of those contracts vacate, and half come in on the high commission. Because there isn’t a trail of employees staying long term to go to the low commissions in subsequent years, when the insurance carrier could start to earn back the exorbitant costs, prices rise dramatically. In that kind of environment, the loyal employees who stay are excessively overcharged for the value received.

These additional costs are baked into the plan, which prevents employers and employees from being able to see what’s really happening. It ends up leading them to play Skee-Ball, where they’re getting that $5 teddy bear but paying 5X to get it.

Say that voluntary benefits have a 20% participation rate. Should such a small portion of the employee population be paying for all the consulting services for 100% of the population? Definitely not. It’s not a fair model and transparency is a big issue.

Benefits counselors versus technology

In today’s environment, technology has made it harder to excuse this kind of system. New tools can better educate employees about enrolling efficiently for their needs. 

Still, some companies don’t have the right tech resources yet, so insurance counselors come in to educate employees on voluntary benefits and medical plan options, helping them decide whether or not to enroll in life and disability plans. They may explain the plans well, but they come in pressured to sell because that’s how many of them get paid.

Additionally, with today’s technology and decision-support tools, employees have the ability to research and make decisions on their own time, from their homes, and with the input of their spouses and families. Compare this environment to the counselor model, where employees often feel pressured to make a decision on the spot without consulting anyone else. 

The pandemic has also accelerated the move to a remote model where these trends were already heading. It’s no longer advisable for counselors to make expensive trips to offices around the country all the time, let alone the employer’s operational disruption from these activities.

Technology also helps businesses and employees make fewer errors in the benefits realm. Good platforms will be easy for employees to use, provide access to everyone, and deliver metrics and AI support to help people with recommendations and scenarios for better decision-making and coordination of voluntary benefits given medical plan elections.

The bottom line is that people want the ability to discover on their own time, not under pressure from a counselor sitting in front of them. Counselors too easily behave like insurance salespeople, which isn’t what employees want.

How BeneRe prioritizes transparency

BeneRe approaches voluntary benefits differently. We recognize and remove the inefficiency that comes with steep commissions and high profit margins. Because the financial performance of BeneRe’s plans is totally transparent, policy coverage improves, costs go down, claims go up, and the employees win. These are their payroll-deducted dollars, after all.

Stop playing Skee-Ball with voluntary benefits programs by decoupling excessive compensation in exchange for overpriced “prizes on the wall.” BeneRe knows that you have to decouple the commissions from the consulting services to drive transparency. The added benefit of the captive model is that all excess premiums are distributed back to employee benefits plans for further reinvestment for employees.

Learn more about our group captive insurance program for critical illness, hospital indemnity, and accident voluntary benefits. Reach out to BeneRe for a complimentary financial analysis of in-force programs.

Post by BeneRe
March 3, 2022