Often the benefits paid by a primary medical plan cover only a fraction of the true cost of a major illness or injury. For example, an individual suffering a severe heart attack can expect to experience a lengthy hospital stay, followed by a period of recuperation at home or in an extended care or rehabilitative facility. While a primary medical plan will cover a portion of the hospital and physician costs, the insured is likely to be responsible for some expenses; depending on the terms of the plan, and these may be substantial.
Furthermore, an individual experiencing a health event such as a heart attack can expect to be unable to work for some time. A disability plan usually replaces only 60%-70% of wages, and not everyone has disability coverage. This disruption in a person’s expected income stream, along with the added medical expenses, can devastate a family’s financial security, and force tough decisions about treatment options.
The prospect of experiencing a severe health event is not as remote as one might think. According to the American Heart Association, 1.2 million new and recurrent cases of heart attack occur in the U.S. each year, along with 700,000 strokes. The American Cancer Society predicted more than 1.3 million new occurrences of cancer in the U.S. in 2003.
Fortunately, insurance products are available that supplement a primary medical plan. Typically available to employees on a voluntary basis and at group rates, these insurance products can fill gaps in traditional health insurance and cover the indirect costs of an illness or injury, which in some cases can outweigh the direct cost of medical care.
The following provides an overview of the types and benefits of supplemental medical insurance products. Remember that different carriers may market similar products under various names, and that the specific benefits provided may vary.
Critical illness insurance generally pays a cash benefit upon diagnosis of a life-threatening disease or condition, such as cancer, heart attack, stroke, or the need for an organ transplant. The benefit can be used as the insured—or survivors—see fit. For example, the benefit might be used to pay for health care from an out-of-network provider under the primary plan; experimental treatment not covered by the primary plan; indirect costs associated with medical treatment, such as transportation, lodging, and child care; and lost income.
Some carriers offer disease-specific insurance. Probably the most widely known of these is cancer insurance. Depending on the way the policy works, specific disease insurance may pay a cash benefit upon diagnosis, and/or may provide coverage beyond the primary medical plan for treatments associated with the disease, such as radiation and chemotherapy in the case of cancer insurance. Some cancer insurance carriers provide disease management services through a health care professional with expertise in oncology.
Catastrophe medical insurance provides coverage that kicks in after the primary medical plan has been exhausted. Although many primary medical plans have high lifetime limits, some do not, especially those purchased with economy of premium in mind. Catastrophe plans have a high deductible, but typically all medical expenses paid both by the insured and the insured’s primary plan count toward the deductible. Given the high cost of health care, a low-limit primary plan can easily be exhausted; consider the medical costs associated with a prematurely born child or the trauma of a major motor vehicle accident. Catastrophe insurance provides much needed benefits for these types of occurrences.
Hospital indemnity insurance supplements the primary medical plan if an illness or injury requires a hospital stay. Depending on the policy terms, benefits may be paid for specified hospital procedures or on a cash per diem basis.
With today’s high cost of medical care prompting employers to examine how health insurance is offered to employees, voluntary supplemental medical coverage may be an appropriate offering for your workplace. Adding supplemental medical coverage to an umbrella of voluntary benefit offerings can add flexibility to your employee benefit package. Remember that coverages vary by carrier, and by state.