As I discussed in my types of underwriting offers employees can get at work article, employees just can’t go to their insurance agent and get life insurance without any medical questions. In order to get a policy, they have to go through what is called the underwriting process. If they have a history of any medical problems, they will either get turned down or have to pay a much higher premium than someone who doesn’t have any medical problems.
An employer group is in a great position to negotiate insurance for their employees without any medical questions and to get the same rate for all employees. The ability to get medical questions waived is the real “benefit” of insurance provided through the employer.
So why is it that an employer group can negotiate this kind of offer for their employees and employees just can’t walk in and get it on their own?
Why Do Insurance Companies Waive Medical Questions For Insurance Purchased At Work But Not When Purchased Outside Of Work?
There are two reasons why insurance companies will eliminate medical questions when insurance is purchased at the workplace.
- Spreading the risk The first reason reason is that the employer group can help the insurance company spread the risk of insuring those with medical problems by also helping those who don’t have medical problems.
- Payroll deduction The second reason is because they know if employee’s pay their premiums through payroll deduction, the chances premiums are going to get paid is much higher than if employee’s pay it any other way. After all, there is a reason why taxes are also collected this way.
Whenever I work with an employer group, I basically have to negotiate two things with the employer. One is the collection of premiums through payroll deduction and the other is getting the offer heard by the employees. While both are sometimes significant hurdles to cross with an employer, getting the offer is heard is the more challenging of the two.
Employer groups often think that just because they ARE an employer group, that the mere fact they are a group should be enough to get guaranteed issue for their employees. But it’s not. A guaranteed issue offer’s most important component is insuring that risk is spread across the whole group of employees – not just the unhealthy ones.
Two Ways Insurance Companies Spread Risk Across Employees
In order to insure this happens, insurance companies will provide guaranteed issue using one of two methods. Those are:
- A participation requirement Insurance companies will waive medical questions if a certain percentage of the eligible employees purchase coverage. A common participation requirement is a 20 percent participation. In that case, if 20 percent of the eligible employees sign up, then all employees get coverage regardless of health. If less than 20 percent of the employees sign up, then either no one gets coverage or only the healthy employees do.
- A presentation requirement Insurance companies will waive participation requirements and waive medical questions if they know that all employees will at least hear the guarantee issue offer.
Of the two methods, a presentation requirement is the best method for getting guaranteed issue because I can not only get the medical questions waived, but I can also eliminate the requirement that a certain number of employees have to buy the insurance as well.
This is a key point. The reason is because employees need to know any offer presented to them will be backed up and followed up on. Otherwise, if it isn’t, everyone looks bad. Nothing is more disappointing to an employee who has health problems than finding out they can’t have insurance because enough people didn’t buy coverage. You can’t let that happen.
Access To Employees In A Face-To-Face Enrollment Secures The Best Underwriting Offer For Your Employees
But the insurance company also can’t promise everyone they’ll get a policy without any kind of consideration in return. That consideration is making sure that risk is spread across the greatest numbers of employees. When everyone at least hears the offer in a face-to-face enrollment, this facilitates that.
When risk isn’t spread, the quality of offers goes down for everyone in all groups. But when risk is spread properly, the best possible offers show up. And the bottom line is that’s what you want for your employees, the best possible offers – especially for your employees with medical problems.
So the tricky part is fulfilling requirement number two – spreading the risk – with an underwriting process everyone can live with it. And that’s where I come in, because I am very skilled in helping make sure that can happen in the best possible way and therefore getting the best possible offer for your employees.
If you have any questions, let me know in the comments or feel free to contact me.