Distinction from health insurance
The primary purpose of vision insurance is to defray the potentially high costs associated with eye examinations and prescriptive eyewear.
Vision insurance is typically viewed as supplementary to traditional health insurance. Health insurance plans protect against financial loss stemming from an unexpected eye disease or injury. Alternatively, vision insurance is a wellness benefit designed to reduce costs associated with eye exams, eyewear and other select procedures.
Industry carriers largely provide two broad plan types: vision benefits packages and discount vision plans. Vision benefits packages provide free eyecare services and eyewear within fixed dollar amounts for an annual premium and copay for each service use. Alternatively, discount vision plans provide eyecare and eyewear at discounted rates after the payment of an annual premium.
Vision Insurance industry operators primarily compete on the basis of price, quality and comprehensiveness of service, network scope and reputation.
With respect to price, vision insurers that are better able to manage risks and pass lessened costs onto consumers are more competitive. The industry's primary plans can differ in price substantially. Additionally, operators that do not require large deductibles are also more competitive, as it lowers the amount an individual must pay out-of-pocket before the insurance benefit takes effect.
With respect to quality, industry operators compete on the accessibility of their services and the quality of their customer representatives. Moreover, the number of services covered by an insurance plan is an important factor in a consumer's quality determination.
Finally, an operator's scope and reputation are also important characteristics on which vision insurers compete. Larger insurers benefit from economies of scale, as increases in policy volumes do not necessarily come with identical increases in operating expenses. In turn, these operators can pass cost savings onto their policy holders, further increasing their policy volumes. Moreover, larger insurers generally have reputational advantages, as their national networks and marketing expenditures make them better known in the marketplace.
The Vision Insurance industry is marked by several companies that specifically focus on eye care and have a national network and presence.
The largest companies include VSP Global, Davis Vision (owned by Met Life) and EyeMed. However, the industry also includes several massive insurance companies that predominately provide vision coverage as a supplement to their health insurance offerings. These companies include UnitedHealthcare and Anthem, each of which earns more than $70.0 billion annually from its aggregate health and medical insurance operations.
Many employers purchase vision insurance plans for their employees, with employer-sponsored group plans accounting for an estimated 45.5% of industry revenue in 2021.
Vision insurance rates are generally lower for group plans because the risk for the insurance company is spread out across several employees. According to the Henry J. Kaiser Family Foundation, vision benefits are on the rise among large employers. Large companies (200 or more employees) are more likely than small companies (3 to 199 employees) to offer or contribute to a separate vision care benefit. According to MetLife, vision benefits experience both popularity and utilization in group plans. More specifically, vision benefits are ranked in the top five most important benefits by a third of surveyed employees.
Demand for the Vision Insurance industry is influenced by a variety of demographic, social and economic factors, including the aging population, coverage costs, employment and disposable income levels.
Employment is an important demand determinant because growth in the total workforce increases demand for vision insurance through employer-sponsored group coverage. Employer-sponsored plans are the largest market segment for the industry, making this demand determinant particularly important and highlighting the generally procyclical nature of industry revenue. Employment also influences disposable income; an increase in per capita disposable income enables individuals and households to purchase additional insurance coverage, which is particularly important for supplemental policies like eyecare, since employers may not always offer group policies for employees to participate in. Moreover, the prevalence of employers offering group policies is an important demand determinant because as group-sponsored policies offered through employment become more standardized, vision insurance becomes more affordable to the average worker and therefore enrollment increases.
While the primary purpose of vision insurance is to lower eye care costs, the associated price tag remains a barrier for many individuals. According to a recent survey by the Centers for Disease Control and Prevention, 39.8% of visually impaired individuals aged 40 and over cited the cost of policies or the lack of insurance as their primary reasons for not seeking eye care.