How You Can Fill the Benefits Gap

In the past ten years, employers have faced skyrocketing costs for their employee health plans. If you have employer-sponsored health coverage, your share of costs has probably risen as a result.
According to the Kaiser Family Foundation’s 2014 Employer Health Benefits Survey, premiums under group health insurance plans have increased an average of 69 percent over the last 10 years. As a result, employers are requiring employees to bear a larger share of their healthcare costs.

In 2014, average annual employee contribution for group health insurance reached $1,081 for individual coverage and $4,823 for family coverage. Employees’ costs don’t end there, however. The annual deductible averaged $1,271, with insured workers at small firms generally having higher deductibles than those at larger firms.

If you have employer-sponsored coverage, your other out-of-pocket costs have probably also increased. Plans with coinsurance require the insured to pay a certain percentage of all covered services. The plan might pay 80 percent of a covered service, for example, and the insured must pay the remaining 20 percent out of pocket. Sixty-two percent of covered workers have plans with coinsurance for hospital admissions, up from 55 percent in 2011.

Your plan might also require you to pay a flat fee every time you use a covered service, called a copayment. Seventy-three percent of covered workers have plans with a copayment. Every time you see an in-network doctor or other healthcare provider, you will pay $25 or whatever your plan designates.

If you actually use your health insurance, these costs can add up quickly. The Affordable Care Act provides some protection. It requires non-grandfathered* health plans to pay 100 percent of covered charges after your out-of-pocket spending reaches a certain maximum. For 2015, these maximums will be $6,600 for an individual and $13,200 for a family. They do not include premiums, balance billing amounts for non-network providers and other out-of-network cost-sharing, or spending for non-essential health benefits.

Unless you have substantial sums tucked away in a health savings account or other savings, a medical emergency or diagnosis of a serious or chronic disease could seriously strain your budget. Medical inflation has made several types of supplemental policies increasingly popular in recent years. These policies help you pay medical expenses that your major medical plan does not cover, such as deductibles, copayments and certain hospital expenses and outpatient surgery services.

These policies work differently from health insurance plans. Called indemnity policies, they pay a specified benefit, such as a lump sum or daily benefit, only when a specified occurrence happens. Your health insurance plan, on the other hand, will pay benefits when you need medical treatment for any medical condition, unless specifically excluded in your policy.

Under your health insurance plan, a network provider will typically submit a claim for you when you receive treatment. The insurer will pay any benefits directly to your healthcare provider, and your provider will bill you for any difference. Indemnity plans work differently—they will pay any benefits to you, so you decide how to use them. They do not provide comprehensive coverage, but help you fill gaps in your major medical plan.

Indemnity policies available include:

Hospital indemnity insurance: Hospital indemnity insurance will pay a flat amount when you are confined to a hospital. Some will also pay when you need outpatient surgery or emergency room care. Policies pay on a daily, weekly, monthly or per-visit basis.  If your plan pays $150 per day, for example, and your stay lasts five days, your policy will pay $7,500. Most plans will impose a waiting period before they’ll cover certain conditions, such as pregnancy, cancer or appendicitis.

Critical illness insurance: Critical illness insurance pays a lump sum directly to the policyholder if he or she receives a diagnosis of one of the covered conditions. Payouts for critical illness policies average around $25,000, but you can find policies that will pay as much as $100,000.

Critical illness policies typically cover cancer, heart attack and stroke. Some policies might cover a wider range of conditions, including Alzheimer’s, paralysis, coma, multiple sclerosis and loss of hearing.

Cancer insurance: Few diseases cause the devastation to health and finances that cancer does. Depending on the type of cancer, treatments can include surgery, radiation, chemotherapy and even transplants, all of which are costly. Cancer insurance helps policyholders cover these and other costs by paying a lump sum benefit when a policyholder receives a cancer diagnosis.

Accidental death and dismemberment insurance: Technically a form of life insurance, AD&D will also pay a benefit when an insured loses a limb, vision, speech or hearing as a direct result of an accident. When an illness causes any of these serious consequences, you generally have some time to prepare yourself and your family. But when an accident occurs, it’s sudden and unexpected, making the loss all the more traumatic. You can buy accidental death and dismemberment (AD&D) coverage on a standalone basis or as an addition to a term life policy. For the cost of a couple of espresso drinks every month, an individual under age 65 can get coverage of up to $250,000, although you can buy limits of up to $10 million.

Accident insurance: Accident insurance covers policyholders who are injured due to accident and require medical treatment. As with other indemnity policies, it pays a benefit only when you have an injury or condition specified in the policy, such as fractures, sprains or broken teeth that require a doctor’s office or emergency room visit.

Most indemnity policies cost very little, but the protection they provide is invaluable if you ever need it. For more information, please contact us.

*A grandfathered health plan is one written before March 23, 2010, when the Affordable Care Act was signed. A grandfathered plan is exempt from certain requirements under the Affordable Care Act. Non-grandfathered plans must comply with all provisions of the Act.