By combining a major medical plan, health savings accounts, company-paid life insurance, voluntary group dental and vision coverage, and the TeleDoc discount plan, the church has saved almost $400 a month per employee, or about $60,000 in the first year, Neil says.

Discount plans: the nuts and bolts

Discount plans, which got started around 20 years ago, are based on a simple idea. For a few dollars per month, per person, plan members get better prices—usually around 30 percent to 70 percent better—at in-network providers. Dental, vision, chiropractic, hearing, alternative care, veterinary care, legal, gym, identity theft help, roadside assistance, entertainment, travel and retail discount programs all exist, in various stand-alone or bundled combinations.

The first discount plans were very regional; today, more are consolidated, national plans. Discount plan providers either build networks themselves or rent networks assembled by other providers. Aetna’s network, for example, rents for about a dollar a day, per person, says Reid Rasmussen, CEO of Benefit Brainstorm, a discount program creator in McKinney, Texas.

Networks don’t pay participants directly. The volume of business the program steers to them compensates them for the discounts they offer.

Response to growing health costs

Some employers offer workers discount plans, either paid or voluntary, as a standard part of their benefits packages. But many more companies are like the Church of the Incarnation, caught in the rising tide of health care costs and in need of ways to make their money go further.

“We’re seeing double-digit increases on health insurance annually,” Rasmussen says. “That’s eaten up money for other benefits. It used to be that most employers would provide medical, dental and vision coverage, but a lot of companies that used to provide full dental and vision insurance for their employees and their families have been pulling back. We hear them saying, ‘We’ll provide medical, but we don’t have $30 a month to spend on dental.’”

In a recent Benefits Selling survey, 53 percent of responding employers said they would drop employee dental and vision coverage if they needed to put the money toward a major medical plan. Other firms that never offered dental and vision coverage now find themselves raising major medical plan deductibles and co-pays every year in order to avoid unworkable premium increases.

“They can’t afford higher premiums, so for many firms, the only way to mitigate the situation is to raise deductibles,” says Joel Gray, CEO of the discount plan firm New Benefits in Dallas.

Employers pay the same, but employees pay more.

Either way, the money isn’t going as far as it once did—a problem that may only get worse after health care reform legislation is fully in effect. A discount plan is a way to bridge the gap, whether that gap is between employer-provided dental and vision plans and no such plans, or between an older major medical plan that required little employee investment and a new plan that’s more expensive for employees.

“It’s not insurance, but at least it’s something,” says Cole Harris, an employee benefit specialist at CBIZ Benefits & Insurance Services of Tennessee in Knoxville, Tenn.

Self-insured companies have similar motives for establishing discount plans.

“It reduces their claim costs and then reduces their renewal costs” for stop-loss insurance, Harris says.

Still other firms realize the money employees pay for group dental and vision coverage would go further in a discount plan. A worker might pay $30 a month for dental coverage, for instance, or $360 a year. But if a dental discount program costs $2 a month—or $24 a year—and lets the employee save 50 percent on dental costs, a population with modest dental care needs might spend less overall by using a discount program instead of insurance.

In any of those situations, discount plans can save both the employer and the employee money, while also raising productivity. They help people get care they might not otherwise receive. An employee who can afford to seek relief from a toothache, for instance, will do better work than one who can’t because his employer doesn’t offer dental coverage.

Discount plans also can help companies that employ large numbers of part-time or low-paid workers.

“You’re helping people who might not be able to have coverage otherwise,” O’Connell says.

The broker’s view

Not every broker sells or wants to sell discount plans, at least in part because discount plans typically yield smaller commissions than fully insured ones.

Those benefits professionals might want to reconsider, O’Connell says.

“As our health care system continues to evolve and we have access issues for primary care providers, discount plans are affordable and provide access to some care. It’s not the end-all and be-all, but it definitely has a market niche and can fill a need”—a need that might increase as health care reform takes effect.

“In the world of insurance, most agents who are selling small and midsized business only ever think of dental and vision as being insurance,” Rasmussen adds. “Either we sold them or we didn’t.”

Voluntary coverage is an alternative to employer-paid plans. Historically, though, smaller-group brokers haven’t sold voluntary coverage, either because the employer paid all premiums or because there weren’t enough potential participants to make the sales process worthwhile.

“You can make money in voluntary, but it takes a lot more time and effort,” Rasmussen says, pointing to the individual meetings that dominate voluntary sales. “Some brokers might not even have a chance to get in front of employees.”

Discount plans offer a third option. Between 70 percent and 80 percent of eligible employees typically decline voluntary coverage, even after individual benefit explanations. With a discount plan, however, “everyone has something,” Rasmussen says—eliminating the need for individual sales meetings.

Although the absolute amount of a discount plan commission can be smaller than on an insurance product, discount plans typically pay brokers larger percentages than insurance does.

“You might get a 10 percent commission on a $30 plan, or you can make 30 percent on a $10 plan. The commission could be exactly the same, but for less time spent,” Rasmussen says.

What’s a good discount plan?

Because many clients have never heard of discount plans, brokers do as much educating as selling around these products. “Discount plans are still relatively unknown,” Harris says. “If I were to go to any random employer and start talking about a dental discount plan, they often would have no idea what I’m talking about.”

The most important educational point, O’Connell says, is that a discount plan is not a substitute for major medical coverage.

“This will never replace major medical coverage. It’s an add-on plan, and it’s important for people to understand that,” he says.

In addition, O’Connell says, “A discount plan is an extra expense. If you’re scraping to afford major medical now, coming up with extra money could be difficult.”

But for employers who can’t afford full coverage but still have a little money to spend on an alternative benefit, a discount plan can help both employer and broker.

The best plans are those that employees will use, that offer access to a variety of local providers, and that entitle users to substantive discounts, experts say.

Harris, for example, likes dental discount plans a lot. Pharmacy plans, he says, “are a dime a dozen,” but are still useful. So are vision plans. “In other areas, I haven’t seen much value—it’s just money spent,” he says. That assessment could vary for individual businesses. A population that frequently needs chiropractic help—at a business where many workers lift heavy materials, for instance—might appreciate a chiropractic discount plan. A workforce with long commutes might use discounted roadside help.

Network size matters, Rasmussen says.

“You need places you can go and money you can save there,” he says.

A discount plan with few associated, local providers isn’t worth much.

Discount size is the final measurement, Rasmussen says, adding that he likes to see 30 percent or better off normal rates. An agent tested one of Rasmussen’s dental discount plans in Ohio, for example, and saw one bill go from $160 to $100. The cost of a tooth extraction dropped from $300 to $125.

Many employers offer more than one discount plan; Harris says he sees more bundled plans than individual products. Paying less for each individual product in a bundle makes sense for employers. It also makes sense for brokers,who can earn larger commissions on bundles but still make a one-time sales presentation and have no claims overhead.

In the future, O’Connell says, he expects to see better-educated employers and employees using more discount plans. “Discount plans have become part of our portfolio, and I think that will continue,” he says.