The Value of Supplemental Health Insurance

Filed under: Benefits

Supplemental health insurance refers to policies purchased in addition to basic health insurance. They can be a valuable addition for people who are at high risk for certain conditions, such as a family history of cancer or heart disease. They also can be helpful if their basic health insurance features high out-of-pocket costs such as a deductible, co-pays and co-insurance amounts.

Be aware that while basic health insurance is no longer subject to extensive medical underwriting, supplemental policies may require applicants to answer medical history questions. Premiums can be based on past medical claims and lifestyle risk factors, like smoking. Supplemental policies may even decline coverage to those with certain pre-existing medical conditions.

Some policies may impose upper age limits, generally between 60 and 70 years old. For people interested in applying for supplemental insurance, premiums tend to be lower at younger ages. Also, women tend to pay more than men for comparable coverage.

Applicants may be able to select the level of coverage they want, with higher coverage yielding higher premiums. Policies do not all pay out the same way; some pay a fixed amount while others cover a percentage of incurred medical expenses.

Many policies cover only specific services or conditions, while others offer payouts specifically designed to eliminate financial hardship while undergoing serious medical treatment. In this scenario, a lump sum is paid directly to the patient and can be used at his discretion to pay for medical treatments, household expenses, or anything else.

 Accident Insurance

This policy is payable in the case of an accident. The money can be used to pay any expenses the recipient sees fit (e.g., insurance deductible or copays, hospital bill, childcare, rental car). It generally offers a lump sum payout irrespective of how much the patient has received from any other insurance policies. Typical premiums range from $6 to $50 per month. Accident insurance plans may be appropriate for people who tend to frequent the emergency room, are not very proficient drivers, or may have accident prone children.

Hospital Indemnity Insurance

Also known as hospital insurance, this policy specifically pays out to help cover the costs of hospitalization. The distribution is generally made as a direct lump sum upon admission, then as a per-day amount to reduce the total cost of a hospital visit. Typical premiums are $10 to $50 per month. The target demographic for this type of insurance includes people with chronic health conditions or a family history of heart disease, cancer, or another serious illness.

Critical Illness insurance

In the case of a diagnosed critical illness, this policy typically offers a lump sum payment for specific conditions listed in the policy contract. Also known as specific disease insurance, most policies offer the option to choose the benefit amount, generally ranging from $5,000 to $75,000 or more. The beneficiary can use the money however he pleases. Typically, premiums range from $10 to $130 per month, with the ability to add various riders for additional benefits.

Cancer insurance

A cancer policy usually distributes multiple payments directly to the patient after a cancer diagnosis, which he can use for treatment-related expenses such as screenings, hospitalization, surgery, therapies, accommodations and home care. Premiums are typically $10 to $50 per month, and the policy may appeal to people with a family history of cancer, who’ve tested positive for a cancer gene, or who have had significant exposure to a cancer-causing agent (e.g., smoking, radon gas, asbestos, certain pesticides).

Individual Disability Insurance

While many employers offer disability insurance, the payout is generally a percentage of salary over a limited period of time. Coverage kicks in when the insured becomes disabled and cannot work due to injury or illness. Premiums for an independent policy generally cost 1 to 4 percent of the insured’s annual income, paid in monthly installments. The policy generally pays out between 50 and 100 percent of the policyowner’s income for a set period, which may continue up to several years. The target demographic for an individual disability policy are workers who need more coverage than their employer offers, or who are self-employed/independent contractors who have no other coverage.

Policy Considerations

Workers can often purchase a supplemental health insurance plan through their employer. However, if not offered, they may be able to purchase supplemental policies directly from insurance companies. Applicants should consider factors such as their health (as well as family members), their financial circumstances, their age and the cost of premiums.

They should also consider whether they want long or short-term coverage. Longer coverage periods generally mean higher premiums. When assessing a policy, consider factors such as the waiting period (also known as elimination period) – which is the length of time required before benefits begin after the triggering incident. Longer wait periods generally reduce premiums.

Note that some people present higher risks, and therefore the applicant may be charged higher rates or denied coverage. People with higher-risk jobs include construction workers, miners, law enforcement officers, pilots and flight crew. Also, people with high-risk hobbies may be deemed uninsurable for accident insurance, such as skydivers, extreme sports participants, or mountain climbers.

Compatibility with HSA

As a general rule, people are able to contribute to a health savings account (HSA) when they are enrolled in an HSA-qualified high-deductible health plan (HDHP) and do not have any other major medical coverage – which may include supplemental health insurance. However, some supplemental policies do not disqualify HSA contributions, such as specific-disease insurance, accident insurance, and hospital-indemnity coverage.

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