Thursday, March 28, 2024

Better Together: Benefits Addressing Employees’ Long Term Care Needs

Looking for ways to help clients deliver greater value with their portfolio of offerings? Start by helping them pair complementary benefits and highlight their commonly missed synergies, so employees see the value —at little-to-no incremental cost. An emerging opportunity to do just that is to assess what plans or services can complement long term care benefits—and fill in critical gaps in coverage.

There’s a growing care crisis as increasing numbers of employees are shouldering caregiving responsibilities for loved ones—and at the same time are delaying or avoiding the preparation for their own long term care situations. No single solution can handle all of these burgeoning care needs; it takes a set of complementary benefits to help employees navigate the myriad medical, financial, legal and logistical situations they may encounter.

Employers face a caregiving conundrum
Having to shoulder caregiving responsibilities for an aging loved one is already a cause of significant stress for employees, and taking on the caregiver role can create a major disruption in the caregiver’s life. The medical needs and financial hardships, coupled with the logistical and legal issues that emerge, can wreak havoc on an employee’s ability to provide care while remaining fully employed, let alone staying focused at work. The impact on their mental, financial—and possibly legal—well-being comes at a cost for employers. According to the Rosalynn Carter Institute for Caregiving,1 it’s causing:

  • Higher employee attrition. Nearly one-third of senior caregiver employees have voluntarily left a job to meet their caregiving responsibilities.
  • Reduced workplace productivity. Annually, employees lose up to $3 trillion in wages and benefits while employers lose $17-33 billion due to absenteeism and turnover.
  • Increased legal liability. There’s been a steep rise in the number of family responsibility discrimination claims in the past ten years, with discrimination against working caregivers to the elderly being the second most common category of claim.

With more than one in five Americans serving as caregivers2 and the majority (61 percent) caring for an adult relative or friend while working,3 this growing need for senior care is at the forefront of employers’ concerns. In fact, 43 percent of employers cite senior care benefits4 as the main benefit they’re prioritizing this year. As a result, companies are searching for innovative and attainable ways to assist employees with the immediate needs of caregiving, as well as addressing their care needs when they’re older.

Here’s the crux of the matter: Many of today’s employees are having to address the caregiving needs of their aging parents or grandparents who didn’t have a solid plan in place for their changing medical, financial and legal situations. Yet as these employees themselves age, their children—who will soon join the workforce—may face the same caregiving reality for their parents or grandparents.

This vicious cycle will continue unless employees become better prepared and are able to reduce the caregiving challenges they pass on to their children. Perhaps having experienced the financial and emotional fall-out with their parents or grandparents who require long term care, it may spur younger employees to think about their own futures and take action now. They could recognize that purchasing long term care insurance in some form means they’re protected as they age.

Forecasting the long term care crisis
When it comes to employees’ own future long term care needs, it’s not necessarily top of mind, as 63 percent of consumers who have received long term care did not consider the need for it beforehand.

This mindset flies in the face of a perfect storm brewing on the horizon: Americans are living longer, but not necessarily healthier, lives.5 Also, consider that 80 percent percent of older Americans can’t afford long term care service.6 Plus, financially strapped Medicaid programs are breaking under the strain as more and more people are relying on state assistance. The bottom line is that people just aren’t prepared to meet long term care needs nor the skyrocketing costs, as evidenced by the monthly price of a private room in a nursing home facility, which averages over $9,000.7

All of these factors lead to a current workforce that is increasingly being called upon to pick up the slack. For example, Washington was the first state to deduct money from workers’ paychecks to finance long term care benefits for residents who can’t live independently due to illness, injury or aging-related conditions such as dementia.8 And 12 other states are considering adding their own long term care payroll tax.9

Potential solutions for long term care
Traditional long term care plans, which have historically provided solid coverage, are largely out of reach of many employees as premium costs have increased. In fact, only around 10 percent of the marketplace is now stand-alone long term care insurance versus combination products.10 As a result, employers are looking at newer solutions, like products that combine life insurance with long term care riders, which have become a more prevalent benefit option in the market. For example, an employee might be able to use the accelerated death benefit rider on a life insurance policy, which allows them more immediate access to necessary funds to cover any long term care needs.

Also consider what other benefits can fill in the gaps of long term care coverage by providing ancillary services that address related issues that come with long term care. This could include an employee assistance program that offers financial or mental health counseling or a legal plan that gives employees access to legal counsel and related services.

How legal can fill the caregiving gap—now and for the future
It can be argued that many situations that employees encounter in life, from getting married to moving to retirement, can have a legal component to it. When it comes to a long term care plan, legal insurance can provide complementary coverage—providing benefits that will help employees both with immediate caregiving needs for loved ones, as well as helping them plan ahead for their own care needs. In fact, in a recent survey, more than one-third of ARAG clients have expressed interest in how their legal plan can complement other long term care benefits.

First, legal insurance can help employees plan ahead for their long term care needs by empowering them to create critical documents like wills, advance directives and trusts to protect themselves and their loved ones financially and from protracted legal processes, such as probate or Medicare and inheritance disputes. A legal benefit may also provide access to attorneys for legal advice, document review and even representation for a parent or grandparent of a plan member.

Second, a legal plan may also feature caregiving referral services for the parents and grandparents of employees, where they can work with an elder care advocate who can provide information and referrals when selecting a care facility for a loved one.

Help Clients Navigate Long Term Care Benefit Needs
The long term care terrain is getting even trickier for employers to navigate—and hybrid product solutions will continue to evolve in response. Here’s an opportunity to help clients in their ongoing search for innovative and attainable ways to assist employees with the immediate needs of caregiving, as well as addressing their care needs when they’re older. Pointing out the synergies with legal insurance gives them additional tools and, frankly, the peace of mind, to deal with the rising costs and complex situations that come with long term care.

Reference:

  1. https://rosalynncarter.org/new-white-paper-reveals-why-one-in-five-employees-are-at-risk-of-leaving-the-workforce-and-what-employers-can-do-to-help/.
  2. https://www.aarp.org/ppi/info-2020/caregiving-in-the-united-states.html.
  3. https://www.aarp.org/pri/topics/ltss/family-caregiving/managing-a-paid-job-and-family-caregiving/.
  4. https://www.care.com/business/resources/ebooks-and-reports/future-of-benefits-report-2023/.
  5. https://www.prb.org/resources/americans-living-longer-not-necessarily-healthier-lives/.
  6. https://www.ncoa.org/article/80-percent-of-older-americans-cannot-pay-for-long-term-care-or-withstand-a-financial-shock-new-study-shows.
  7. https://www.genworth.com/aging-and-you/finances/cost-of-care.html.
  8. https://apnews.com/article/washington-long-term-care-tax-disability-cb54b04b025223dbdba7199db1d254e4.
  9. https://ltcconsumer.com/resources/ltci-library/twelve-states-now-considering-implementing-ltc-tax/#:~:text=States%20Considering%20Their%20Own%20Tax,North%20Carolina%2C%20Pennsylvania%2C%20Utah.
  10. https://brokerworldmag.com/2021-milliman-long-term-care-insurance-survey/.

All Aboard: In The Digital Age, Broker Guidance Remains The North Star For Clients

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Just as a skilled captain guides a ship through tumultuous waters, insurance brokers act as expert navigators, weatherproofing the vessel for the stormy seas of life’s uncertainties and ushering passengers and their loved ones toward the safe harbor of financial protection. As technology transforms the industry, clients are looking for understanding, guidance, and trust—elements that can only be cultivated through genuine interactions. Valuing client relationships and the value of time-honored expertise brokers offer are critical to making this shift. Leading digital solutions providers, like Haven Life, aim to make life insurance simpler, more accessible, and more affordable for everyone, by empowering brokers with tools that streamline the day-to-day—freeing up crucial time to refine practice management strategies and elevate client engagement to new heights.

Anchors Aweigh
Even in a digital world where people are accustomed to self-serving on many transactions, there is a growing consensus among consumers about the benefits of life insurance and the value of tailored guidance from brokers. A recent LIMRA report finds that top barriers to those who recognize the need for life insurance but do not obtain a quote include affordability and difficulty understanding how much coverage is needed. In fact, more than 50 percent of Americans overestimate the cost of life insurance by 300 percent.

These knowledge gaps represent a major opportunity for brokers to interface more regularly and directly with clients and prospects to address common misconceptions and offer insights into the purchasing process. This guidance is especially valuable to those 48 percent of adults who do not own life insurance, but of course hinges on the broker having the time to nurture these interactions. If only there were more hours in a day! Working with digital partners enables brokers to reclaim valuable time by simplifying the application process while also catering to the modern-day consumer, who has come to expect instant gratification and access to information at their fingertips. By harnessing the power of digital innovation, brokers can unburden themselves from time-consuming and repetitive tasks and instead focus on building relationships, honing expertise, and prospecting for clients (and/or pirate gold).

Bridging the Generational Gap for the Long Haul
In addition to delighting your current client base, incorporating digital solutions can help you engage with younger age groups, including Millennials and Gen Z in their mid-20s through early 40s. While your existing clients may prefer to meet face-to-face, their children might appreciate the flexibility and self-service options offered by digital capabilities. This may be a group of digital natives but nearly half of Millennials and Gen Z say they expect to research online for life insurance but work with a financial professional to ultimately purchase coverage. Millennials in particular stand to gain from thoughtful broker interactions and education, as they are among the heirs poised to inherit $30 trillion from baby boomers by 2045.

Let’s meet a few of these folks, who are celebrating key life milestones and seeking financial protection for their loved ones along the way.

Sebastian and Devonta

  • First-time homebuyers
  • 32 and 30 years old
  • Combined income of $180,000 per year

With new careers Sebastian and Devonta barely have time to spend with each other or work on the home they just closed on, let alone compare policies and quotes. They have no idea how much life insurance coverage they should purchase, but after many canceled appointments due to busy schedules, the couple was able to fill out the digital application.

On a virtual call, their broker explained the nuances of term and whole life products (and gave them the phone number of a trusted local handyman).

Charlie and Finn

  • Newlyweds
  • 27 and 29 years old
  • Jointly own a popular pet grooming business and manage social media accounts with thousands of followers

As recently married small business owners and online influencers, Charlie and Finn have a lot going on. In the next few years, they plan to grow their retail presence—and their family. Today, though, their main priorities are managing cash flow and producing content for their followers around the world. Believing they are too young to think about life insurance, Charlie and Finn are among the 55 percent of Americans without life insurance who plan on purchasing it in the future.

After an initial call with a parent’s broker, the online application they filled out was approved almost instantly, allowing them to turn their attention back to their entrepreneurial pursuits.

In each of these situations, a simple conversation coupled with the convenience of a digital application helped these young couples chart a course toward a more secure financial future. In an era where screens often mediate our interactions, the need for human connection and understanding has never been more pronounced. It is here that insurance brokers shine—as mentors, educators, and trusted advisors. A digital solution just gives them more time to be exactly that.

X Marks the Spot
As the winds of technological change fill our sails, clients are increasingly seeking flexibility and instant results in addition to a partnership forged in trust, nurtured through genuine connection, and guided by expertise. Brokers are the key to the proverbial treasure map, decoding the complex language of insurance policies and helping clients navigate the landscape. It’s incumbent on the industry to show brokers how digital solutions aren’t just more efficient, but can help make the broker more effective in a future where interactions are more impactful, relationships are deeper, and practices are more efficient than ever before.

Image by Yuri from Pixabay

Digital Distribution Of Premium Finance Life Insurance

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Please take a few minutes to go on a quick journey with me. I want you to think back to the first vehicle you owned. For many, that was one of the best times of their life. You were a young 16-year-old with the whole world in front of you. Times were simple. Even though your first vehicle was a gas-guzzling stick shift with windows you had to roll down by hand, and the glove box only opened when you smacked it just right, you loved that car. That car was the best thing to happen to you.

Back then, we did not know what future technology our world had in store for us. We were just happy to be on four wheels.

Fast forward to today.

Now you are behind the wheel of your brand new, top-of-the-line electric car that looks like a spaceship, is charged by your solar-powered home, everything functions on voice command, and drives itself to work. At 16 you would have done anything for a spaceship like this. We had no idea what technology had in store back then but we kept evolving along with it and, by doing so, those new technologies have greatly improved our lives.

What if your insurance business was your vehicle? Are you still cranking your windows down like when you were 16 without AC, or are you rolling around in an advanced car that takes the work out of driving and makes your life easier? If it has been a while since you looked around to see what is on the market, it might be time to schedule a test drive and see what you are missing out on.

With a unique proprietary technology offered through a limited distribution by our firm, you can upgrade your business and open the door for opportunities you would not have had with outdated business models and strategies. This one-of-a-kind technology can market, educate, and enroll your clients or prospects into a hybrid premium finance product using indexed universal life insurance.

Rather than cover the inner workings of a specific product, rates, or regulations, we will cover how this new technology and service enhancement can put the power into the hands of your clients like never before. You may have thought that the first vehicle you had when you were 16 was great, but now that you are driving the number one electric car, you understand that our lives can be exponentially better with the right technology.

In the next few decades, your aging clients will transfer over $84 trillion of wealth to the next generation. The purchasing habits of your prospects and customers have changed. Millennials are becoming the most successful generation of their age. #social #media is omnipresent. DIY culture is becoming more popular with advancing technologies allowing for increased independence. Is your practice evolving, or are you getting left behind while the industry evolves without you?

In the ever-changing landscape of the insurance industry, one sector that has witnessed remarkable transformation is premium finance life insurance. The catalyst behind this evolution? Technology. These key points profoundly impact the role of premium finance in the life insurance industry and create tremendous opportunities for financial professionals such as yourself.

  1. Enhanced Customer Engagement
    In the digital age, customers are more informed and demanding than ever. The accessibility of information has empowered them to make informed decisions about their insurance needs. Technology has enabled insurers to have more personalized and engaging interactions with their customers. For financial professionals, this means leveraging customer data analytics to tailor plans that align with individual needs, thus improving client retention and satisfaction while increasing sales.
    The proprietary technology mentioned allows your prospects or clients to create usernames and passwords for your unique premium finance ecosystem. In this ecosystem, they can access a library of videos with topics ranging from index universal life insurance product knowledge to how we use leveraging to accomplish financial success.
  2. Streamlined Underwriting Processes
    As most readers likely know, the old underwriting in the life insurance industry was a time-consuming and paper-intensive process. However, incorporating big data, such as artificial intelligence (AI) and machine learning contributes to underwriting becoming more efficient and accurate. These tools analyze large amounts of data, making it easier for insurance companies to assess risks, determine premiums, and expedite policy issuance to days, not weeks.
    Imagine administering an entire premium finance plan from one central online space without bringing in multiple parties like banks, attorneys, or trust companies to slow down your process. The premium finance plans of old sometimes took six to nine months to administer, but now we can accomplish everything in as little as 30 days using this new technology.
  3. Digital Distribution Channels
    The DIY culture and the rise of digital platforms have revolutionized the distribution of insurance products. Online platforms and mobile apps have made it convenient for customers to research, compare, and purchase policies with just a few clicks. Most financial professionals embrace digital marketing strategies for reaching a broader audience and streamlining policy sales.
    Social media has been a new catalyst for change in the insurance industry. Not all of this change has been good. Prospects and clients are ingesting information from online influencers, and most of these influencers are inexperienced and causing harm to the industry. That is why it is more important now than ever to control the narrative, and the new technology in discussion does just that. The last thing we want is for someone to Google a topic to “research on their own.” Especially premium finance. Therefore, the more quality-controlled information we put in front of our clients, the better.
    The premium finance side of the life insurance industry is on the cusp of a technological revolution. For insurance agents, this presents both challenges and opportunities. Embracing technology can streamline operations, enhance customer engagement, and increase sales and profitability. Adapting to these changes proactively and staying updated with the latest advancements to remain competitive in this dynamic industry is critical.
    As financial professionals, your role in this transformation is pivotal. By harnessing the power of technology to serve your clients better, you cannot just thrive in this evolving landscape but also contribute to the growth and prosperity of the whole industry.

Should I Add Annuities To My Retirement Plan Or Not?

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Demystifying the annuity conundrum (are they all good or are they all bad?

It seems there is a divided financial services industry which fully embraces annuities as an intelligent complement to social security and other nonliquid assets and the other side of the industry that “bashes” annuities as investments too risky, too complex and commission driven so ipso facto stay away from them all.

Based on my 30 plus years in this industry acting in several capacities(as a General Counsel of a prominent life carrier, as a Chief Compliance Officer supervising hundreds of financial advisers, or as an independent financial advisor) I respectfully submit that both industry camps would serve the public better in not taking sides, i.e. with bad apples in both camps, a trusted adviser should and can serve his/her client’s best interest using both models where suitable. Yes, there are some annuities that have hidden charges, are overly risky and should be shied away from. Similarly, there are advisors who manage clients assets and profess to be “better” yet despite their window dressing are in the bottom line receiving far more compensation than they would by suggesting a risk free annuity with lifetime guarantees without extra rider charges.

To walk the talk, my wife and I have assets, some being managed by large institutional entities, and about a half a dozen lifetime annuities which pay us monthly and provide peace of mind that we don’t worry about the unpredictable stock market being severely affected by the incessant political infighting in Washington and unstable global economy. Presented with full disclosure of the advantages and disadvantages, a trusted advisor can and should educate a client approaching retirement with this landscape and suggest options so the client can make an informed decision about what is most suitable for him/her in terms of risk tolerance (baby boomers are likely more conservative at this time of life).

Anti-annuity bashers frequently misunderstand the myriad of annuity options and find it far simpler to say stay away because commission is paid upon sale. For example, a life only annuity with no period certain for the carrier to pay would be an extremely rare if ever good recommendation since one would make a single lump payment and take the risk that if they passed immediately after accepting the annuity, they would lose the entire investment after a single payment. If the policyholder has beneficiaries (the majority of clients do) this type of recommendation would be not only not in the client’s best interest but also “malpractice.” Query why commission is such a negative yet the majority of the retail industry is based on commission. Would one say all service providers, even waiters/waitresses, could be accused of steering their customers to the highest priced entrees since that will end up with a bigger bill thus higher tip? I’m sure we would agree some do but that doesn’t mean we can not discern what is in our “best interest” and what we would enjoy the most.

According to the Life Insurance Marketing and Research Association (LIMRA), annuity sales in 2022 totaled $310.6 billion, a 22 percent increase from the 2021 sales of $254.9 billion. Taking a layman’s noneconomic inference, 2008 had set the record in annuity sales (which has been far surpassed last year) in part attributed to the severe downtown with the stock market correction due to the dot com companies facing retrenchment. Now, when we are in an era of the baby boomers approaching and entering into retirement, desperate to find safety and security, this has led to massive annuity purchases notwithstanding money managers spending millions on TV advertisements saying to being wary. Todd Giesing, assistant vice president, LIMRA Annuity Research, recently stated the “Fluctuating interest rates in the fourth quarter prompted investors to lock in crediting and payout rates while they were high. Our forecast suggests that protection products will continue to boost growth in the annuity market for the next several years.” Fixed annuities provide downside protection against an unpredictable market whereas sales of variable annuities have suffered for precisely the same reasons when certain policies cannot offer this floor.

I don’t want to tip the scales for either camp since my defense of some annuities could lead certain pure money managers only accusing me of the famous line in Shakespeare’s Hamlet: “The lady doth protest too much, methinks.” (Kind of my pet peeve of not trusting anyone who says to me, “I’m telling you the truth.”) Isn’t that what you should have been already doing without saying you are?

Annuities will have varying degrees of decreasing surrender charges. For those unaware, This means that your money that you set aside into an annuity is held by the carrier who invests the funds and makes their own hedging bets counting on the funds being relied upon for the carrier to make a better spread than what they are offering to the public. The client is not incurring any charges if he/she lets the money grow during this period and allows the surrender charges to go down to zero. A downside is that this money is in a sense not liquid during this period although some carriers allow you to make a 10 percent annual free withdrawal. For qualified funds, if at an age when you have to take annual Required Minimum Distributions(RMDs), these withdrawals are also not subject to any current surrender charges. If you will never be comfortable in not having instant access at any time to all your funds, then annuities are not for you.

So how do you move forward with adding annuities to your overall retirement plan? Naturally, only a portion of your assets should be considered for this investment and the carrier itself ensures that no policyholder has unwittingly tied up the majority of their net worth.

In conjunction with adding another bucket(s) of guaranteed lifetime income for you and your spouse, for those clients I have worked with over the years they will always hear me on my soap box that long term care protection needs to be built into one’s overall retirement plan. (See My Long Term Care Story as an Advisor, Broker World 10/2021.) Obtaining this protection is a gift to your children and/or younger family members who love you. Maybe you have to experience or observe the enormous cost and challenging toll on the caretaker’s time, and emotional wear and tear, to really appreciate the urgency of incorporating this into a plan.

Assuming one’s children volunteer—that there is no worry that they will, of course, take care of you—this loving commitment is unfortunately probably unfair to the younger generation. Outside agency caretaker costs are annually increasing exponentially more than inflation. One client relayed that perhaps I misunderstood his culture. Perhaps so but I doubt it. Walking in on a loved one naked on a bedroom floor having soiled himself might change my friend’s perspective.

Getting one’s affairs in order requires an attorney who can draft a will, set up Powers of Attorney both over you and your property, health directives or trusts as the case may be. Even with my law degree, and multiple security licenses I have held, I usually but not always add annuities with no extra riders attached, include a long term care policy, and life insurance that serves as instant cash to help some estates pay estate taxes without having to sell at less than fair market value other existing appreciated assets. Or, for smaller estates, the life policy’s cash to loved ones is never a bad decision.

This planning is not rocket science. Knowing your advisor, feeling comfortable he/she is experienced, will result in you having peace of mind. Not worrying about the future of your loved ones equates to starting now. Why? I refer you to a book called Still Alice by Lisa Genova about a cognitive psychology professor at Harvard, 50 years of age, who recognizes that she has early stages of dementia and tries unsuccessfully to set her affairs in order before the impairment becomes too severe.

What To Consider When Evaluating If Your Clients Should Convert From Group Health Plans To ICHRAs

From established 3,000-person companies to startups across a variety of industries, you can help your clients embrace the opportunities of the individual health insurance market with an ICHRA.

With renewal rates on group health plans coming out now for your January 1 clients, you’re likely experiencing some larger-than-expected increases. “Looking at our internal analytics, we’re seeing average renewal increases of 15.2 percent, and those rates aren’t going down,” said Merrell Botello, a benefits consultant with Burnham Benefits. “People need something different. We’ve been doing group benefits the same way for decades and we just need to really try something new.”

Of course, the last thing you want to do is relay a major renewal rate hike to your clients, but what can you do if you’ve exhausted your go-to tactics (think: plan design changes and carrier changes) to bring them back down?

Many consultants are finding the answer in an Individual Coverage Health Reimbursement Arrangement (ICHRA). This alternative to traditional group coverage allows employers of any size to contribute tax-advantaged money to their employees for the individual health plan of their choice, all while staying compliant with the Affordable Care Act (ACA).

Companies that are best suited for an ICHRA can save an average of 20 percent–or more–on their yearly premiums. But how can you be sure an ICHRA is the right option for a company in your book of business?

Consider this your cheat-sheet on how to evaluate if your clients should convert from group health plans to ICHRAs.

Is your client in a high-risk industry or one with ongoing high-cost claims?
If you have clients in construction, manufacturing, agriculture, or similar industries, you know that cost predictability is an issue for these businesses. Their employees work physically demanding jobs and tend to be high plan utilizers, resulting in higher group rates. You can eliminate claims risk from the equation with an ICHRA because direct-to-carrier rates aren’t dependent on claims from a company’s employee population. Instead, they are driven by the stable individual market resulting in more predictable costs.

If large medical loss ratio is a concern, you may also be considering a self-funded option for your clients. While self-funding can lower rates initially, it adds administrative complexity and the need for costly stop-loss insurance. ICHRAs generally provide the same, if not better, savings minus the possibility of unexpected claims or the need for stop-loss insurance. And with the right ICHRA administrative partner, there’s less of a burden on HR teams not more.

Is your client a high-growth startup? Or does it have a remote workforce?
Startups might have humble beginnings, but many find themselves scaling fast and needing to attract top-tier talent to innovate and grow. However, once they reach a certain size, they become classified as Applicable Large Employers (ALEs)–and are subject to the requirements of the ACA.

ICHRAs not only help startups remain ACA compliant and flexible as they scale, but they enable them to provide attractive benefits packages to their valued staff. Because ICHRAs make it possible for employees to access local, in-network coverage, startups and companies with geographically distributed workforces can offer health coverage regardless of where anyone on their team calls home.

Is your client a business with Medicare-eligible employees?
Healthcare, education, and nonprofit businesses tend to have a significant number of Medicare-eligible employees in their workforce, especially those that are mid-market or larger in size. According to the Bureau of Labor Statistics’ estimates from 2020, 19.5 percent of Americans 65 or older are either working or looking for work. That means there’s a good chance your clients across many industries have workers who are eligible for Medicare.

ICHRAs are a powerful alternative to group health plans for these workers. Medicare is considered an individual plan under ICHRA, meaning premiums are eligible for tax-free reimbursement. This can save employees thousands of dollars annually, while employers can see significant savings by avoiding the claims risk and higher premiums associated with enrolling older employees in group plans.

Additionally, employers are strictly prohibited from offering incentives to Medicare-eligible employees to enroll in Medicare rather than a group health plan. As a result, employees often use the group plan as their primary coverage. Offering an ICHRA eliminates the unnecessary double coverage for the employee and the potential compliance burden for the employer.

Does your client have a high turnover or a seasonal workforce?
Many of your clients in high turnover or seasonal industries, such as retail, staffing, or hospitality, have likely voiced the challenges that come with having an ever-changing workforce. Benefits offerings, particularly health coverage, factor significantly into employee satisfaction ratings. However, traditional group plans can be costly and difficult for employers in these industries to offer when they require 75 percent employee participation. And with plans tied to their employer, employees in high-turnover industries can suddenly find themselves without the coverage they need to care for their health.

ICHRAs can make a significant impact for both employers and employees in high-turnover or seasonal industries. Unlike group plans, ICHRAs don’t mandate a set rate of participation, giving employers much more freedom in the coverage they can offer. Plus, with an ICHRA, employees own their plans, ensuring health coverage even when they leave the company. For the employer, this also means virtually eliminating the need for COBRA, which is a huge win for their often stretched HR teams.

ICHRAs Can Revolutionize Healthcare Benefits for Your Clients
No two companies have the same business needs, but the ever-rising costs of group healthcare rates are a shared concern across organizations of different sizes and industries. As a trusted advisor to your clients, they’re turning to you to help navigate these choppy waters. ICHRAs can be an innovative solution for many different business types across your book of business.

There are 3.1 million individuals (about the population of Arkansas) enrolled in an ICHRA today. By 2025, 11 million are projected to be enrolled in ICHRAs and 800,000 employers (about half the population of Idaho) are predicted to offer them according to the Department of Labor. This is an increasingly popular alternative to group plans that businesses are strongly benefiting from, and your clients will want to know the ins and outs of how they can benefit, too. Stay ahead of the curve and provide your clients with the insights they need on ICHRAs–the future of healthcare benefits.

Play In The Same Sandbox As Investment Advisors, Even If You Don’t Have Your Series 65/66

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Originally, IOVAs, or Investment Only Variable Annuities, were developed to help financial professionals play in the same sandbox as advisors with a Series 65/66, or a designation that allows them to conduct investment advisory business. The insurance companies wanted a platform that looked, walked, talked, and acted like an investment advisory platform without having the need for an investment advisory license to sell it. This is when the Investment Only Variable Annuity was born and, due to the nature of the product, not only did it compete with the investment advisory platforms that money managers out there had to offer but it also had the added advantage of tax deferred growth when conducting non-qualified business. The reason there is this advantage with the IOVA is because it is an insurance product and, although we are playing in the same sandbox as advisors, our sand is different.

When looking at the IOVA and Managed Money options in terms of total cost to the client, the cost is similar but who the client pays it to is different. For example, on average the IOVAs cost (ME&A) can range from .95 percent to 1.30 percent (plus investments) depending on the carrier you use, and if you use a five-year surrender or completely liquid contract. This total cost is paid to the insurance company and the insurance company pays the financial professional. With a managed account, I would say on average the client is paying a third-party money manager around .4 percent to .5 percent for their platform (plus investments), and then the advisor is charging a fee to manage the accounts. Typically, I see around a one percent charge on fee-based accounts, so that would take the total cost to the client to 1.4 to 1.5 percent (plus investments) depending on the size of the account. At first glance this is more expensive than the IOVA account, but the advisor can lower the fee he/she charges the client on the fee-based account, and they may be able to get investments at a lower cost than the investment options available within the IOVA account. So, the IOVA could be a little less expensive or a little more expensive than the managed account depending on the moving parts listed previously. It all depends on how each is designed.

Although the costs have stayed pretty similar for IOVAs and managed accounts, over recent years the IOVA contracts have added additional features that give them more advantages over managed-money accounts depending on the particular circumstances of the client. One example could be if death benefit protection was a concern at all and the client would like more of a guarantee than just an account value death benefit. Many of these IOVAs have the feature of a standard death benefit (the greater of premiums less distributions or contract value) included in their product, and many others allow you to add it on as an additional feature.

Although there are many IOVA products on the market, there are two that I think are worth mentioning here: Jackson’s Elite Access and Equitable’s Investment Edge contracts.

Jackson pioneered the IOVA in the broker-dealer channel launching Elite Access in 2012 and has led the way in terms of production in this space for most of its life. This is due to a very robust investment platform consisting of 130 investment options that provide the opportunity to grow your client’s money in any market cycle or economic condition. What do I mean by that statement? There are generally four phases of the economic cycle to consider when investing and building portfolios. They are a rising market, falling interest rates, falling or choppy market, and inclining interest rates. Under the Elite Access investment platform, you not only have your traditional way of investing client assets (stocks, bonds, cash) available, you also have access to alternative strategies and alternative asset classes that can help you create better risk-adjusted returns as well as the ability to grow your client’s money in any market cycle or economic condition. Elite Access accomplishes this by incorporating alternative assets such as absolute return strategies, infrastructure, global real estate, and hard assets in declining or choppy markets as well as alternative strategy investments such as long/short strategies, floating rate, arbitrage, and managed futures that are designed to work well in a rising interest rate environment. The biggest issue we have when doing this is that it is hard to predict when the economy is going to slow down or speed up. That is why it is important to have access to an investment platform that is equipped to navigate through each of these economic cycles. With Elite Access, we can build portfolios that address each of the market conditions, thus creating better risk-adjusted returns, or we could build portfolios that address the current market conditions and pivot at any time if those conditions change.

The second contract is Equitable’s Investment Edge contract. In my opinion, one of the top things that Equitable has done is provide a way for your clients to take tax advantaged distributions from their non-qualified annuity account. Rather than their distribution being pulled from earnings first, and then from principal, you get a proportionate amount pulled from each, which in turn lowers your client’s tax liability on their distribution and puts more money in the client’s pocket. Another thing that Equitable has done is add “RILA like” investment options. Many of us have recently become familiar with the RILA market and how you can choose a level of protection on your investment that provides a “buffer” against losses. Equitable has brought that world into the Investment Only Variable Annuity space by providing investments within the annuity that allow you to invest in a specific index or indexes with a “buffer/protection” against losses.

I have talked a bit about how the IOVA space gives financial professionals the ability to “play in the same sandbox as investment advisors,” but in closing I would like to also mention why IOVAs could be a great alternative to direct mutual fund business. Many financial professionals utilize a select group of fund families they favor for most of their client portfolios. When looking at mutual fund business versus IOVAs, think of creating an “all-star” investment lineup with the IOVA. What I mean by this is that typically mutual fund families are known for being really good at one thing, so you use them for that one thing and are forced to build the rest of the portfolio around that “star player.” For example, when you think about bonds, you may think about PIMCO or Franklin Templeton. When you think about equities, you may think about American Funds or T-Rowe Price. When you think about tactical strategies, you may think about BlackRock or Ivy. These are your mutual fund family “teams” that excel in a specific area, so you use that specific fund family for that specific need or “star player” and are forced to use their other investment options (equity or tactical) to build the rest of that client’s portfolio. What IOVAs do is put all these teams (fund families) together under one roof so you can pick the best players from each team in order to create your “all-star” investment lineup.

So, whether you are competing against managed money or mutual funds, IOVAs can provide a competitive investment platform especially when dealing with non-qualified money. However, when dealing with non-qualified money, since IOVAs are an insurance product you will want to consider if the client will need this money before 59 ½. Since these contracts are filed as annuity contracts, they would carry the premature distribution penalty of 10 percent for non-qualified distributions prior to 59 ½. This is where our sand is a little different.

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Enhancing Executive Retention Strategies Through Indexed Universal Life Insurance

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Businesses serve as the lifeblood of our economy, driving innovation and progress. In the intricate landscape of business, cultivating and retaining top-level executives is pivotal for sustained growth and success. As a financial advisor, you’re well aware of the multifaceted challenges businesses face in attracting and keeping valuable talent. In this article we’ll delve into a strategic approach that combines the power of life insurance with executive retention, offering you a dynamic tool to enhance your client’s corporate structure.

For business owners, fostering an environment that attracts, retains, and empowers top executives is a cornerstone of success. Traditional benefits like 401k plans, healthcare, and remote work options are common incentives. However, the integration of indexed universal life insurance (IUL) introduces a novel dimension to the spectrum of executive benefits. Recent studies1 by the Life Insurance Marketing Research Association (LIMRA) reveal that 29 percent of Americans with life insurance felt underinsured, while a staggering 59 percent lacked any insurance coverage altogether. This indicates a growing awareness of the value of life insurance in today’s ever-evolving economic landscape. While conventional policies such as term insurance are familiar, our focus rests on the dynamic potential of IUL.

Indexed universal life policies offer more than just a death benefit. They serve as a robust platform for retirement planning and house a range of tax advantages, including tax-deferred growth, tax-free distributions, and even provisions for long term care benefits. These features set the stage for our strategic framework, known as the Executive Bonus 162 plan.

The term “162 bonus plan” derives from IRS guidelines that permits employers to provide employees with bonuses in the form of life insurance policies. This innovative approach presents a winning formula for both employers and executives. Imagine a graph titled “Never Lose Another Employee.” It’s as straightforward as it sounds—an employer identifies a top executive for insurance coverage and, once approved, premium payments flow from the employer. In the event of the executive’s passing, the death benefit seamlessly transfers to beneficiaries free from income tax implications. The beauty of an IUL lies in its multifaceted utility. Executives can access the accumulated cash value and tax advantages, creating a comprehensive financial solution tailored to their needs.

Employers stand to benefit significantly from integrating the Executive Bonus 162 plan. Notably, this strategy serves as a powerful retention tool. By offering a comprehensive benefits package that includes tax advantages, retirement income planning, and a death benefit for their families, employers demonstrate a genuine commitment to their executives’ well-being. This personalized approach differentiates them from competitors and showcases their dedication to fostering a nurturing work environment. Moreover, the premiums paid into the policy are fully tax-deductible for the employer, creating a mutually beneficial arrangement. The plan’s implementation is streamlined, particularly in today’s climate. With accelerated underwriting programs, clients can secure substantial coverage without cumbersome medical exams or extensive documentation.

One of the most striking advantages of the Executive Bonus 162 plan is its customization potential. Unlike the blanket insurance advice often associated with group insurance, IUL policies can be meticulously tailored to suit each executive’s unique needs. This approach recognizes the individuality of each executive and resonates with the overarching philosophy of providing personalized financial solutions. One of the most compelling aspects of the Executive Bonus 162 plan is its pre-approval by the IRS. This solidifies its legitimacy and effectiveness, assuring employers of a strategically sound approach. While employers stand to gain substantially, let’s not overlook the advantages for the executives themselves. Executives can enjoy customized plans that can include grossed-up bonus payments to offset potential tax liabilities. Owning their policies provides them with control and flexibility, enabling them to harness the benefits of cash value growth, death benefits, and even optional long term care coverage.

As a financial advisor, you have a unique opportunity to guide businesses toward enhanced executive retention strategies. The Executive 162 Business plan, coupled with the dynamic capabilities of IUL, can reshape corporate dynamics by empowering businesses to attract, retain, and reward their top talent while securing the future financial well-being of their executives.

I encourage you to reach out to business owners to connect and explore the potential of integrating the Executive Bonus 162 plan into their corporate structure. By fostering collaboration and steering businesses toward strategic innovation, you play a pivotal role in shaping the landscape of executive benefits and ensuring enduring success.
Reference:
Life Insurance Sales To Match Pre-Pandemic Growth By 2022: LIMRA – Insurance News | InsuranceNewsNet.

Whole Life: The Foundation Of A Successful Plan For Retirement And Legacy

Most families are concerned about retirement and what they will leave behind for their loved ones when they are gone. Will they have enough income to maintain their standard of living in retirement? Will they have to work into their 70s to afford retirement? Will they ever be able to retire? Will they be able to leave something to their family or favorite charities? If you are helping families to navigate retirement and legacy, how can you help them feel more confident and worry less about their financial plan? More guarantees! Adding whole life insurance to a retirement plan can reduce your clients’ risk of outliving their retirement income, while providing a higher standard of living in retirement and ensuring they will leave a legacy for their loved ones and/or favorite charity. Whole life insurance has some of the strongest guarantees in the life insurance industry. Guaranteed premiums, guaranteed cash value growth, and guaranteed death benefits can provide a foundation on which to build a solid retirement and legacy plan. In this article we will discuss how the attributes of whole life insurance can help to achieve retirement success, address the limits of Social Security and dangers of market volatility, along with the threat of becoming disabled.

Social Security provides a supplement to retirement income, but it was not meant to stand alone. According to the National Institute on Retirement Security, full Social Security benefits replace about 40 percent of the typical retiree’s income. Therefore, many financial planners recommend what is known as the three-legged stool for retirement success. The three-legged stool consists of Social Security, a pension plan, and private savings. Unless you work for a government entity, you are unlikely to have access to an employer funded pension plan. For those families, private savings becomes even more important for retirement. Whole life insurance may be a great place to allocate some of those funds. The guaranteed cash value growth and non-guaranteed dividends in a whole life policy grow income-tax deferred, and can be accessed income-tax free. Whole life insurance cash values may be accessed prior to retirement age for any reason and without a penalty. Cash values in a whole life policy could be used to reduce the gap left by disappearing pension plans. Additionally, the current age to receive full retirement benefits is 67. Those who wish to retire a little earlier than full retirement could use whole life cash values to bridge the gap. Indexed universal life can serve as another option for an income-tax free retirement supplement. Both whole life insurance and IUL have the same advantages regarding income tax treatment. IUL provides the opportunity to capture higher cash value growth in the long run by tying the interest earned each year to a stock index like the S&P 500. The potentially higher returns in the long term could be used to provide a larger pool of cash value to bridge the gap between early retirement and full Social Security benefits and supplement retirement income. While there is room for both, whole life guarantees, and the resulting predictability, are what could make it a great foundation for a financial plan. IUL insurance is still tied to movements in the stock market. The guarantees in whole life insurance means the cash values are more predictable and consistent. These can be important qualities to provide a true buffer against market volatility. This buffer against volatility becomes increasingly important as your client approaches and enters retirement.

Many clients approaching or in retirement will continue to invest in volatile assets like stocks. You might have heard the investing rule of thumb that states that the percentage of a client’s retirement investment portfolio that should be invested in stocks equates to 100 minus their age. For example, 100 minus 55 years old means 45 percent of their investment portfolio is recommended to be invested in stocks. Many close to and in retirement continue to invest in stocks because they tend to produce higher returns over the long term than less risky assets like bonds, savings accounts, CDs, etc. Assets that are able to produce returns that potentially outpace inflation are a necessary part of many portfolios well into retirement to reduce the risk that a retiree will outlive their personal savings. However, when a client is close to or in retirement, they are susceptible to “sequence of returns risk.” This means a substantial decrease in the value of a client’s stock portfolio can dramatically impact or derail their retirement plans. Remember the “dot com bubble burst” in 2000 and the financial crisis in 2008? The market recovered in both cases, but it took time and delayed or derailed retirement for many Americans. Wade Pfau, Ph.D.,CFA is a professor of retirement income at The American College of Financial Services. He authored a white paper titled Integrating Whole Life Insurance into a Retirement Income Plan. In his paper, Dr. Pfau demonstrates how adding whole life insurance and income annuities to a retirement income plan can help retirees have a higher standard of living in retirement, leave a bigger legacy, and increase the likelihood their retirement savings will last a lifetime. Since whole life guaranteed cash values grow, regardless of movements in any other markets including stocks, whole life can help protect clients from sequence of returns risk. By taking a retirement income distribution from, or loan against, a whole life policy’s ever growing cash values, the more volatile assets like stocks can recover more quickly and support a higher income distribution throughout retirement. While sequence of returns risk is of great concern near and into retirement, the threat of becoming disabled is a life-long risk.

Life insurance can serve to replace an insured’s income if they die prematurely. However, we are more likely to become disabled for a period of time than we are to die. This is true every year of our working lives. According to the Social Security Administration, a worker between the ages of 20 and 67 has a 25 percent probability of becoming disabled. During the same period, the probability of a worker dying is 13 percent. The probability of becoming disabled during working years is about the same for men and women. The possibility of becoming disabled is an obvious threat to a successful retirement. Products like disability insurance are designed to replace the income lost during a disability. However, there may be additional costs associated with being disabled. According to the National Disability Institute, a family household containing an adult with a disability that limits their ability to work requires, on average, 28 percent more income to maintain the same standard of living as a similar household without a member with a disability. The living benefits of whole life insurance can help with those additional expenses. Living benefit riders on life insurance products have become more common and popular in recent years. The guarantees of whole life make these riders a reliable added benefit for no additional premium in some cases. The chronic illness rider generally allows an insured to accelerate the death benefit on their whole life policy if they are unable to do two of the six activities of daily living (feeding, bathing, transferring, dressing, toileting, and continence), or suffer severe cognitive impairment requiring substantial supervision. The critical illness rider provides an accelerated death benefit payment if certain health issues occur. Qualifying health issues may include certain types of cancer, heart attack, stroke, etc. The funds from these living benefits riders can be used to cover additional healthcare costs that can come with a disability and help to keep a client’s plans on track. But what about the whole life insurance itself? If whole life is used as the foundation of a successful retirement plan, isn’t it important to protect it from the possibility of the insured becoming disabled? Waiver of premium riders ensure that premiums for a whole life policy will continue to be paid if the insured is unable to work due to a disability. If the insured qualifies, the carrier will continue premium payments on the insured’s policy as if they were paying out of their own pocket. That means guaranteed cash values continue to grow and death benefits are maintained.

Adding whole life insurance to your clients’ retirement and legacy plans can help them feel more confident about having a successful retirement while leaving a bigger legacy. The guaranteed cash value growth provides a predictable source of income-tax-free distributions to potentially bridge the gap from an early retirement to full Social Security benefits. Whole life insurance can help to supplement income in retirement with income-tax-free distributions. These distributions can be taken when other volatile assets in a retiree’s portfolio, like stocks, have suffered a substantial downturn. This strategy can help those important, but volatile, assets recover more quickly and support a higher distribution rate of those assets throughout retirement. Whole life living benefits riders can provide an added source of funds in case of a disability. These funds can help to cover the higher costs of becoming disabled and keep a plan on track. Waiver of premium riders can protect the whole life policy itself by ensuring the premiums are paid if the insured loses their job due to a disability. The powerful guarantees and attributes of whole life insurance make every component of a retirement and legacy plan work better.

Helping Clients Ease The Pain Of High-Cost Specialty Drugs

There is no denying the pain high-cost specialty drugs are inflicting on employers and employees alike. The 24th Annual Willis Towers Watson Best Practices in Health Care Employer Survey found that “increasing health care affordability for employees, while controlling costs for the organization” was cited by 93 percent of employers surveyed. When cast against the projection that employers’ savings and pharmacy benefit managers’ (PBMs) profits are declining, the need to effectively address the high costs of specialty drugs becomes even more evident. This is particularly true since these costs have continued to increase.

In its analysis of IQVIA National Sales Perspective Data, the Assistant Secretary for Planning and Evaluation (ASPE, the principal advisor to the Secretary of the U.S. Department) found that the percent of spending for retail specialty drugs had increased by 22 percent and the percent of spending for non-retail specialty drugs had increased by 20 percent over the period from 2016-2021. While helpful in leveraging their purchasing power gained through extensive pharmacy networks, PBMs have not been able to drive a solution to this problem. There are, however, some strategies and technologies that are making a difference. A look at these solutions in the context of today’s specialty drug landscape is a sound step toward achieving lower costs. For insurance brokers and agents, learning about these strategies and solutions and sharing them with clients is another way to demonstrate your value as a trusted advisor.

Today’s Specialty Drug Landscape
To gain perspective on just how high specialty drug costs are, consider the following:

  • The ASPE reported that the cost of specialty drugs has increased by 43 percent from 2016 to 2021 climbing to $301 billion in 2021.
  • The ASPE’s analysis of IQVIA National Sales Perspective Data also found that by 2021, specialty drugs represented over 40 percent of all retail drug spending and almost 70 percent of non-retail drug spending.
  • According to GoodRx research, the top three most expensive specialty drugs, Zokinvy, Myalept, and Mavenclad, all cost over $60,000 for the typical monthly supply. AARP’s Public Policy Institute’s Rx Price Watch noted that the most expensive specialty drugs have annual costs as high as $750,000 annually.
  • Cited by the AARP Public Policy Institute, which has been reporting on prescription drug price changes since 2004, in its latest Rx Price Watch was that between 2019-2020, the average annual increase on specialty drugs was 4.8 percent or over three-and-a-half times higher than that period’s general inflation rate which was 1.3 percent.

The lack of competition among specialty drug manufacturers is one reason they have been able to continuously raise their prices. This has caused employer groups, the AARP, and other public groups to lobby Congress to develop new legislation. Those efforts have been productive in part and have prompted the inclusion of new requirements on manufacturers imposed by the Inflation Reduction act of 2022 and signed into law by President Biden August 16, 2022. This legislation includes provisions that:

  • Lower prescription drug costs for people covered by Medicare that would cap out-of-pocket costs incurred by older adults, enable Medicare to negotiate the prices of brand name and biologic drugs without generic counterparts, as well as biosimilar equivalents covered under Medicare Part D,which are among the highest-spending Medicare covered drugs and are nine or more years for small molecule drugs, or 13 or more years for biologicals from receiving FDA approval.
  • Require drug manufacturers to pay rebates to Medicare if they increase prices faster than inflation for drugs used by Medicare beneficiaries.
  • Cap Medicare beneficiaries’ out-of-pocket spending under the Medicare D benefit by eliminating coinsurance above the catastrophic threshold in 2024 and then by adding a $2,000 cap on spending in 2025.

Employers Take Additional Measures
To address the high costs, employers/plan sponsors and their covered employees/members are pressuring PBMs to be more transparent by providing reports detailing their pharmacy expenses and employees/members utilization. They are more readily contracting with medical case management firms for their utilization management services. The utilization management services encompass the review of individual employees/members’ treatment plans to determine the medical appropriateness of those plans by applying evidence-based data reflecting URAC standards pertaining to different protocols. Where specialty drugs are deemed unnecessary or not appropriately utilized, the case manager will flag that transaction enabling their costs to be eliminated or reduced.

What many employers/plan sponsors may not be as familiar with are newer ways that can help them contain and reduce their specialty drug costs. Among these are:

  • Alternative funding, which 14 percent of employers and seven percent of health plans currently use, according to PSG Consulting, but which many regard as not being sustainable.
  • Value-based contracting, a performance-based reimbursement agreement which, to date, has not been validated by enough evidence, and is associated with various obstacles including difficulty agreeing on and tracking outcomes, lack of resources, and low buy-in.
  • Specialty rebates which PSG Consulting reported that 66 percent of health plans currently receive for specialty drugs, but only 27 percent of employers receive.
  • Patient assistance programs which enable patients to receive their drugs even if alternative funding is not available by tapping into drug manufacturers assistance dollars for patients in need on a case-by-case basis. Providers of these services leverage their negotiating strength, as well as clinical expertise, to provide a patient-centered service.
  • Advanced pharmacy benefit administrative (PBA) services which enables plan sponsors to better manage their specialty drug costs by giving patients access to a national network of at a minimum 68,000 retail pharmacies with mail order capabilities. Additionally, these PBA services leverage online technologies featuring easy-to-use and navigate online platforms with intuitive functionality. Through a user-friendly dashboard, PBA service portals provide 24/7, real-time access to drug and other health care information including educational videos on various drugs, along with patient alerts regarding prescription refill reminders. PBA services, used in concert with utilization management, specialty drug rebates and reimbursement cost management programs, can achieve drug costs savings of up to 40 percent and also lower medical stop loss insurance costs.

Taking the Right Steps Now
Helping clients tackle the high costs of specialty drugs demands a strategic and integrated approach which utilizes all viable measures. Critical to this approach is a completely transparent contract with a PBM with comprehensive reporting which highlights those specialty drugs being used by covered individuals and their associated costs. Employers/plan sponsors should also be confident that their PBM is applying any and all manufacturer rebates, reimbursements, and drug discounts. Also important are utilization management services to ensure that specialty drugs are being used in accordance with clinical evidence and proper protocols. PBA services too should be given serious consideration for use along with these and other measures suitable to the employer/plan sponsor, based on the extent to which they are insuring individuals with chronic and/or catastrophic illnesses requiring specialty drugs.

The Peterson KFF Health System Tracker found in 2019 that almost 50 percent of all health spending was attributed to just five percent of the U.S. population. This five percent group averaged $61,000 in annual expenses with the top one percent averaging over $130,000 annually. The double-digit growth trend in specialty drug utilization is a function of both the increased incidence of complex, chronic conditions like cancer, rheumatoid arthritis, multiple sclerosis, cystic fibrosis, Chron’s and hepatitis C virus, coupled with new, expensive therapies for prevalent conditions such as migraines and asthma. Formulary Watch reported that inflammatory disorders rank first in health plan costs at 35 percent of the 2021 specialty drug expense followed by oncology at 26 percent and multiple sclerosis at seven percent. Biosimilar drug use accounted for 22.5 percent of the 2021 specialty drug spend and is expected to have a significant impact on lowering costs in the years ahead as more of them are introduced. In 2023 alone, an estimated 12 biosimilars could become available. Staying informed on the latest developments in specialty drugs, biosimilars and related trends is also important for employers and plan sponsors striving to control their costs particularly those related to specialty drugs.

Closing Remarks
High-cost specialty drugs are an integral element in today’s healthcare landscape, and there has been some progress toward controlling their rising costs. By raising clients’ awareness of new strategies and technologies available to them and helping them access and screen qualified providers of related services and technologies, insurance brokers are themselves becoming part of a much needed multi-prong approach to gaining control over specialty drug costs and their effect on both employers/plan sponsors and their employees/members.

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Artificial Intelligence And Insurance: Why Uncovering And Preventing Bias Is Critical

The introduction of artificial intelligence (AI) into the insurance industry is transformative, heralding a new era marked by improved efficiency, accuracy and personalization. However, with this technological shift comes a significant yet often overlooked concern—AI bias. This issue is particularly pertinent in the life insurance sector, where it is crucial to understand and address AI bias.

Understanding AI Bias
AI bias occurs when an AI system’s decisions are unfairly influenced by prejudices. Prejudices can shape the data from which the AI system learns or drive programming choices that favor one protected class over another.

AI systems learn and predict based on data. Unfortunately, if this data represents societal prejudices and bias, AI can inadvertently continue such bias. Historical data on life insurance can often reflect such biases. Certain demographics, such as people from specific minority communities or those within lower income brackets, may have been unfairly categorized as high-risk applicants based on pre-existing socioeconomic disparities and systemic prejudices.

In practical terms, these unfair high-risk labels could lead to disproportionately steep insurance premiums, or even denial of coverage, which has profound implications for these individuals. Without this understanding, an AI system might continue to unfairly categorize these groups as elevated risk based on the historical bias embedded within the data.

The Domino Effect of AI Bias in Life Insurance
Life insurance, at its core, is designed to provide a financial safety net for individuals and their families in the face of life’s unpredictability. It is a mechanism to ensure financial stability and peace of mind, enabling individuals to safeguard their loved ones against potential future adversities. As a result, the principles of fairness, equity, and impartial risk assessment are not just ideals, but foundational tenets that underpin the entire life insurance industry.

The presence of AI bias directly threatens these core principles. It introduces an unjust imbalance into the system, with certain societal groups shouldering a disproportionate burden. The problem is twofold. First, the individuals directly affected by the bias bear an increased financial strain due to higher premiums or a lack of coverage. Second, the insurance industry itself faces a risk in its fundamental mission of providing equitable access to financial security.

Consequently, AI bias not only creates an unequal playing field but also undermines the societal role of life insurance as a safeguard against life’s uncertainties. This impact of bias underscores why a committed, proactive approach toward recognizing and addressing AI bias is not just recommended, but essential.

Why AI Bias Matters to Regulators
It’s also paramount to address AI bias in the context of regulatory compliance. As AI takes on a growing role in the insurance industry, the regulatory scrutiny around it intensifies. Regulatory bodies are now demanding more transparency and accountability in AI’s decision-making processes. Without robust bias mitigation strategies, life insurers risk breaching these regulations, leading to potential legal penalties and financial repercussions.

Understanding Intended and Unintended Bias
Recognizing and managing AI bias, both deliberate (intended) and accidental (unintended), is the key. These biases have significant implications, especially in sectors like life insurance that greatly influence people’s lives.

To illustrate this, consider an insurance company that utilizes an AI system to sell new life insurance policies. This AI system considers various factors, including gender, to determine premium rates for these policies. However, if the company uses a higher representation of males in the data used to train the AI model—also known as training data—without adjusting for the gender imbalance, it becomes an instance of intended bias. The biased training data, with a higher representation of male policyholders, skews the AI system’s recommendations, resulting in higher premiums being recommended for females. This biased outcome is not reflective of the individual risk profiles or needs of female policyholders and can lead to unfair treatment. Such intentional bias can attract regulatory scrutiny, as it can be perceived as mis-selling or discriminatory practices.

Unintended bias can arise when an AI system is trained primarily on a specific type of data and scaled to multiple groups or when model features act as proxy bias. Suppose a company uses this AI system to generate personalized product recommendations for both urban and rural customers but only used data from urban ZIP codes. If the system lacks diverse data representing rural customers, it may inaccurately classify their preferences and needs. As a result, rural customers might receive recommendations that do not align with their actual needs, leading to decreased sales and customer dissatisfaction. This unintentional bias could also damage the company’s reputation and prompt regulatory scrutiny. To mitigate these biases, a comprehensive approach is crucial, including gathering sufficient and representative data from both urban and rural customers to ensure accurate recommendations for all customer segments.

Mitigating AI Bias
Once insurance companies are aware of AI bias, they can take steps to mitigate that bias. This involves proactive steps to ensure representative and fair data, regular audits, the use of explainable AI and robust bias mitigation strategies.

First, companies must ensure they are using diverse and representative data for training AI systems. If certain demographics or regions are underrepresented, the company should undertake additional data collection efforts or employ alternative strategies like data augmentation or synthetic data generation.

Second, regular audits of AI systems should be conducted to ensure they are functioning as intended and not producing biased outcomes. This auditing process involves testing the AI system under different scenarios and ensuring it performs equitably across diverse demographics and situations.

Third, investment in explainable AI, which enables human understanding and interpretation of AI decisions, is vital. If a decision appears biased, the transparency provided by explainable AI can help in identifying the cause and correcting it.

Fourth, companies should establish robust bias mitigation strategies. This includes setting clear guidelines for handling intended bias, continuously monitoring for unintended bias, and having a responsive action plan if bias is detected.

How the Life Insurance Industry Can Navigate AI Bias
Understanding some key techniques used for identifying and mitigating bias in AI can offer insight into how the life insurance industry can navigate this complex issue. Here are a few examples:

  1. Fairness through Unawareness: This technique essentially means “what an AI system doesn’t know, it can’t misuse.” Here, potentially sensitive characteristics like gender, race, or socioeconomic status are purposely excluded from the data that the AI system uses. By doing this, we are trying to prevent the AI system from making biased decisions based on these attributes. However, this approach may not always work, especially if there are other variables indirectly linked to the sensitive attributes.
  2. Fairness through Awareness: This is the opposite of the previous technique, which involves consciously including sensitive attributes in the AI’s data but instructing the system to ensure fair treatment across all groups. For instance, the AI system might be programmed to ensure that people from various income brackets have equal access to life insurance policies, even if their income levels were part of the data the system learned from.
  3. Counterfactual Fairness: This approach involves the use of “what-if” scenarios to test the AI system’s decisions for bias. Basically, the system’s decisions are evaluated based on hypothetical situations where a particular attribute is changed. For example, if changing a person’s residential area in a risk assessment scenario significantly alters the risk prediction, it may indicate a bias in the AI system that needs to be addressed.
  4. Adversarial Debiasing: In this method, a second AI model (adversary) is developed to challenge the primary model. The second model’s job is to predict sensitive attributes based on the primary model’s predictions. If the adversary can accurately predict these attributes, it means the primary model’s decisions are likely influenced by those attributes, indicating bias. The primary model is then adjusted to make it harder for the adversary to make these predictions, helping to reduce the bias in its decisions.

Overall, the significance of addressing AI bias in the life insurance industry cannot be overstated. As the industry becomes increasingly reliant on AI to streamline processes and enhance decision-making, it is crucial to ensure these systems do not perpetuate societal biases or unfair practices.

Bias in AI systems can lead to detrimental effects on customers, particularly marginalized groups who may be unfairly categorized as substantial risk based on outdated or skewed data. This undermines the industry’s foundational principles of fairness, equity, and the commitment to provide a financial safety net to all segments of society.

Regulatory bodies are intensifying their scrutiny, requiring greater transparency and accountability in AI-based processes. Companies that do not actively mitigate AI bias might face potential legal and financial repercussions, damaging their reputation and customer trust.

Implementing techniques that can statistically quantify the bias can help insurers identify and rectify biases in their AI systems. However, technical fixes alone are not enough. There needs to be an organizational commitment to ensure that AI systems reflect and uphold the principles of equity and fairness that the industry is built upon.

Tackling AI bias is not just an ethical imperative for the life insurance industry but also a strategic necessity for building a sustainable, inclusive, and trusted industry in the age of AI.

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