Supplemental Health Insurance

TA | January 1, 2010

Contents

 

Overview

Supplemental health insurance has increased in importance as employers move toward providing catastrophic insurance only under the range of consumer-driven health plans. The intention of consumer-driven health plans is to pay non-catastrophic expenses outside of insurance. In effect, the surge in individually purchased supplemental insurance indicates that the transition is not going smoothly. Employers have not adequately funded Health Savings Accounts (HSA) and Health Reimbursement Arrangements (HRA) as policymakers had previously hoped. Many believe that employers will continue this long term trend of "getting out of the health care business". Individual consumers usually do not have the financial resources to cope with the risks of everyday medical costs. An typical household has, on average, $200 to $500 out-of-pocket medical bills yet budgets less than $100 per month for thee expenses. Supplemental health insurance helps even the cash flow through a budgeted premium bill and provides protection for costs that are greater than expected.

Supplemental health insurance is also known as "defined benefit insurance" because the maximum specific benefits are presented in dollars for various types of covered medical expenses. For example, a policy may provide $1,000 per day for hospitalization. In contrast, major medical polices cover a non-specific "ordinary and necessary medical expenses" up to the policy limit; typically $1 million or more.  The major medical coverage may actually be stronger, but is vague and subject to misinterpretation by doctors and consumers. This vague definition of benefits is the underlying reason for the numerous controversies that health insurance companies face today. Supplemental insurance largely avoids this debate. This difference in defining benefits also tends to make supplemental insurance more predicable and stable in long term pricing.

The second major distinction is that supplemental insurance benefits are paid directly to the individual policyholder in addition to any other insurance benefits that are usually paid to the doctor or hospital. Benefits payments do not need to be used only for medical expenses but are commonly used to offset income lost due to illness or injury. Unlike major medical insurance, supplemental plans do not use a subjugate claims; meaning that benefits are not reduced due to other coverage.

The primary advantages of supplemental insurance are that it is: 1) easy to understand, 2) affordable, 3) stabile, and 4) benefits are paid in cash to be used at the policyholder's discretion.

The primary disadvantage is that it may leave consumers unprotected for larger catastrophic claims. The avoid this risk, combine supplemental insurance with another major medical policy.

Price

Supplemental health insurance policies are generally less expensive than regular health insurance. The lower cost is directly attributable to the lower benefit amounts that are offered as compared with traditional health insurance. For example, a traditional medical coverage might pay up to $1 million in total medical costs where a supplemental policy might cap benefits, for example, at $50,000. The actual dollar limit of benefits is listed in the policy.

In some cases, this is the only health insurance that an applicant can find or can afford; in these cases it is better to have some limited coverage than having no health insurance at all.

Combining policies without co-ordination of benefits

Traditional major medical health insurance policies have a provision that allows the insurance company to reduce benefits for expenses that are paid by another health insurance policy. For example, if you break your arm in an auto accident, your regular health insurance usually does not pay because the auto insurance covers all of the medical costs.

Supplemental health insurance works in the opposite way. Using the same example, supplemental insurance would pay a cash benefit even though all of the medical bills had already been paid by the auto insurance company. The cash might be used to pay deductibles on other policies, offset lost wages due to the medical problem or might simply be used as "mad money" just help lessen the suffering of the broken arm. It does not matter what other insurance is available nor how the benefit payment is used.

This provision makes it possible to overlap coverage and essentially allows buyers to buy as much or as little insurance as they wish or can afford.

Coverage for pre-existing medical conditions

One of the attractive features of supplemental health insurance is that it provides payment for pre-existing medical conditions when many other types of insurance exclude this benefit. Typically a waiting period of six to twelve months is required before payments are available for pre-existing medical conditions on a newly issued insurance policy.

None of the supplemental insurance plans provide for payment of pre-existing prescription drug costs. If you are paying retail price for uncovered prescription drugs, consider the Competitor Rx Discount Drug Card  as an inexpensive way to lower out-of-pocket costs for uninsured drug costs.

Most popular brands

The least expensive and most minimal type of supplemental insurance is Basic Health Insurance. This policy is available to almost anyone in the states where it is approved. This policy is designed to help cover the most commonly incurred medical charges - things like doctor's office visits and lab tests. There are no deductibles or co-payments, so this is a nice benefit to combine with other high deductible health insurance plans. The policy pays a fixed dollar amount for each doctor's visit, lab test or other listed procedure. More information is available at www.BasicHealthInsurance.net . Keep in mind that the low cost reflects the relatively low level of benefits provided by this insurance.

At the opposite end of the range of cost and benefits, Core Health Insurance provides the highest level of benefits but at a higher price. This policy is guaranteed issue in available states so prior medical history is not an issue. The waiting period for coverage is twelve months for hospitalization benefits and six months for other types of coverage. This liberal provision makes it the most popular insurance plans for people who have pre-existing medical conditions. Some people have compared Core Health Insurance to AFLAC plans. AFLAC is a reputable brand name of supplemental health insurance that almost everyone recognizes but the insurance is over-priced relative to the benefits provided. This coverage is offered only through employers or sales agents and does not offer direct online pricing to individuals so this insurance is not covered by MedSave.com.

The most recent supplemental health insurance policies to be offered in most states are the Value Benefit Plans which is actually a group of five supplemental insurance policies that can be used individually or collectively to add additional coverage. Value Med Insurance and Value Health USA. These two work together in the same way as Blue Cross (BC) outpatient coverage integrates with Blue Shield (BS) hospitalization coverage. The differences that these supplemental plans provide benefits up to a stated dollar amount of coverage and are not intended to cover the entire amount of the medical bills. As a result, the Value Benefit plans are priced at a fraction of the price of BC/BS plans. Value Health covers hospitalization expenses while Value Med covers outpatient expenses. Value Hospital Insurance provides additional hospitalization coverage, Value 24 Hour Accident Coverage provides accident protection and Value Emergency Room Insurance provides exclusively emergency room care. But because of the reduced level of benefits, the combined cost of the Value plans is usually about 1/3 of the cost of a full coverage Blue Cross/Blue Shield policy. These policies are widely available in most states and available to most people although Value Med does have some medical eligibility requirements (Value Hospital, Value 24 Hour Accident and Value ER are universally available without regard to medical history).

Keep in mind that not all of these policies are available in all states, however after a policy is issued it can be renewed regardless of where you may live or travel. We expect that states with restrictive laws will eventually liberalize the process to allow these low cost supplemental insurance plans to be offered in the future.

More supplemental insurance policies will be introduced nationwide in 2008, so check back with the state listing pages at MedSave.com from time to time.

 


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