In today’s market, a hospitalization or trip to the emergency room can leave behind mounting out-of-pocket costs—even with employer or individual health insurance.
In 2018, the median in-network deductible was nearly $1,500 for employee-only coverage and almost $3,000 for family coverage, according to a study by the International Foundation of Employee Benefit Plans. It’s no surprise that Americans say their biggest concern is healthcare, according to a recent Consumer Reports’ survey.
With this in mind, brokers should be talking with their clients about the benefits of various supplemental products during every sale.
In the past few years, the high cost of health insurance has moved some big employers to offer high-deductible and coinsurance employee benefit packages to make coverage more affordable. Individual insurance is similar, with high deductibles, copays, and out-of-pocket costs. But if your client develops a catastrophic illness such as cancer, the costs could be devastating.
People are asking their employers for options (e.g. hospital indemnity or critical illness plans) that can help limit or lower their out-of-pocket expenses. However, only about 25 percent say they understand how hospital indemnity or critical illness insurance works, according to a recent survey.
This presents an opportunity for brokers to share information about these policies when they sit down with their clients.
How to Talk With Your Clients About Supplemental Products
Before meeting with your clients, think about why a conversation about hospital indemnity or critical illness plans might come up.
A few reasons include:
- They or someone they know has recently paid significant out-of-pocket costs for an emergency room visit, hospitalization, or services pertaining to cancer treatment.
- Their health has declined, and they are concerned about the financial burden they may face.
- Their husband, wife, partner, or healthcare advocate asked them to find out more about an insurance plan.
Brokers should develop a benefits strategy of their own, working with carriers that offer ancillary products able to address their clients’ financial concerns. Many brokers have the misconception that supplemental products are complicated, expensive, and hard to get issued. The reality is that brokers can count on a steady market, cross selling opportunities and continued income year over year.
Before you talk to your clients about supplemental products, make sure you fully understand the scope of this coverage.
What Are Supplemental Products?
Supplemental products are not new. For decades, various insurance policies that are not health insurance plans per se, have been sold alongside health insurance. Insurance can be confusing for the consumer, and also for the brokers who sell the plans, especially since insurance carriers and brokers refer to many of the plans in various terms. Depending on the carrier, the broker working with the product, and the client, products may be referred to in many ways. A list of common product names are ancillary plans, complementary plans, indemnity and reimbursement plans. These include plans like hospital and critical illness, cancer plans, home healthcare plans, recovery care plans, accident plans, dental, vision and final expense.
Some refer to these plans interchangeably. But, to eliminate confusion, you should distinguish them by one name. I prefer to call these “supplemental” products.
Keep these two things in mind:
- Never market or sell indemnity plans as “gap” coverage.
- Indemnity is a type of insurance plan. It pays out a pre-determined amount of money for qualified services or conditions. In many cases, these types of plans provide a cash benefit paid directly to the client, which can help with out-of-pocket expenses.
What Is Hospital Indemnity Insurance?
Hospital indemnity insurance pays a lump-sum benefit that can be used for out-of-pocket costs including hospital stays, skilled nursing facility charges, accident-related services, inpatient rehabilitation, and plan deductibles or copays. Many hospital indemnity plans have additional riders that can be added for doctor or wellness visits, ambulance services, and outpatient surgical services. Since there are no networks, the client isn’t limited to seeking services only from certain providers.
Hospital indemnity insurance is also necessary to create a more permanent solution to the inpatient-versus-observation status issue afflicting millions of Americans. (I wrote at length about this issue in January 2018.) Because of the loopholes addressed in the Medicare Outpatient Observation Notice (MOON) program, which was an effort to correct the problem, brokers should continue advising their clients of the importance of hospital indemnity insurance.
Studies show that the desire to limit out-of-pocket healthcare expenses, such as copays, deductibles, and medical travel-related expenses, has driven growth in supplemental health products over the past few years, with hospital indemnity being No. 1.
Hospital indemnity sales were up 16 percent year-over-year compared to a 13 percent increase in critical illness sales, according to an Eastbridge report. Because hospital indemnity insurance is growing more rapidly than critical illness or accident care sales, brokers should have a value statement to present to clients.
What Are Critical Illness Insurance Plans?
Critical illness coverage is a type of supplemental plan that may provide financial protection against illnesses such as a heart attack, cancer, stroke, Alzheimer’s, and Parkinson’s disease. Depending on the carrier and product, it may also cover injuries from accidents such as paraplegia, major burns, and brain damage.
Critical illness insurance has many different names.
Here is a list of common names for critical illness insurance plans:
- Cancer Plans
- Dread Disease Plans
- Cancer, Heart Attack and Stroke
- Critical Illness
- Specified Disease Plans
Like hospital indemnity, critical illness plans are also called ancillary, supplemental, and complimentary plans. However, they are not “gap” plans, so do not sell or market them as such.
Through critical illness insurance, in many cases the plan pays a lump-sum cash payment if the policyholder is first diagnosed with one of the specific illnesses on a predetermined list.
For example, some plans have replenishing benefits and pay cash benefits (depending on carrier) after the beneficiary is discharged from the hospital or submits a pathology report stating a cancer first diagnosis to the carrier.
The contract terms contain specific rules that define when a critical illness is covered. The diagnosis may need to be determined by a physician who specializes in that illness or condition. Or specific tests (e.g. EKG changes of a myocardial infarction) might be necessary to confirm the diagnosis.
There are alternative forms of critical illness insurance to the lump sum cash payment model. These critical illness insurance policies directly pay health providers for the treatment costs of critical and life-threatening illnesses covered by the policyholder’s insurance policy.
Working with your client to understand their needs and what kind of solution is best for them is essential. Make sure you’re telling your clients about their hospital indemnity and critical illness options, including challenges they may face if they don’t have one of these policies in place.