Critical Illness As a Supplement to Medical Coverage
Which form of insurance is the most important? Few would argue that comprehensive Medical Expense insurance is at, or at least near, the top of the list. Without this coverage, millions of individuals would be financially devastated by the high cost of treatment when a significant medical event occurs.
Even with medical coverage, many individuals cannot afford the continued rising cost of care when faced with serious illnesses. Whereas medical bills are a contributing factor in more than 60% of personal bankruptcies, 75% of those filing for "medical bankruptcy" had health insurance at the onset of their illness.
Gone are the days of our parents when comprehensive medical coverage had low (or no) deductibles or co-pays for doctor visits, hospitalizations and specialized treatments (including pharmaceuticals). Today, consumers deal with a variety of Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs) and High Deductible Heath Plans (HDHPs). With each of these options, there are significant coverage gaps for the consumer, and new opportunities for insurance producers to help their clients fill these gaps with Critical Illness insurance:
- HMOs charge a fixed monthly rate as a pre-payment for medical treatment. This fee is the same regardless of utilization. Most HMOs provide a wide variety of medical services, from office visits to hospitalization and surgery. Generally, HMO members must receive their medical treatment from physicians and facilities within a defined network.
Marketing a Critical Illness plan to those insured by HMOs is a logical approach. Whereas in-network physicians may be appropriate for the preventative, wellness and minor care more commonly needed, some network physicians and treatment facilities may lack the expertise to successfully treat more serious illnesses such as cancer, heart attack and stroke.
A Critical Illness benefit would be of great value to many HMO insureds when the difference between life and death may be the choice of the local hospital or an international "Center of Excellence.
- PPOs are comprised of a group of doctors and/or hospitals that provide medical service to specific groups and associations. The PPO physicians provide medical services to the policyholders, employees or members at discounted rates and may set up utilization control programs to help reduce the cost of medical care.
Access to funds provided by a Critical Illness policy would provide the PPO insured with greater choice in determining which treatment locations and options are best for them.
- HDHPs have higher annual deductibles than traditional health plans. For 2013 the minimum out-of-pocket deductible is $1,250 for an individual and $2,500 for a family, with maximums of $6,250 for an individual and $12,500 for a family. Some HDHPs offer additional "wellness" benefits that are not subject to the deductible amount.
This “consumer-driven health care” approach makes sense for many people who have the assets available to cover the deductible amount, and/or are in relatively good health. Yet for the majority of working American families, the cost of “fronting” the large deductible could have devastating, and potentially life threatening, consequences. Of course, there are many scenarios where an insured might incur sudden and unexpectedly high medical expenses and cancer, heart attack and stroke would certainly be high on that list.
Important: Many HDHPs are sold in conjunction with Health Savings Accounts (HSAs), and special caution must be taken when designing the Critical Illness benefit triggers to insure that they are HSA compliant.
In closing, the insurance salesperson must understand what types of medical coverage an individual or group has in place and identify the benefits and risks associated with the plan design. In many cases, a Critical Illness insurance offering would be an excellent supplement to the existing medical coverage.