Supplemental health insurance basics

by Tony Novak   March 12, 2011

Consumer requests for supplemental health insurance have grown each year in tandem with cutbacks in benefits provided through employer health plans. Health plans that formerly had a $500 per person deductible, for example, may now have a $5000 family deductible. Likewise, doctor co-payments that used to be $3 per visit are often $25 or more. Total family out-of-pocket costs are now more than a typically family can pay through normal household budgeting. The passage of the Patient Protection and Affordable Care Act is expected to further increase the demand for supplemental insurance when the health insurance exchanges reduce the number of health plan options in 2014.

Primary considerations

There are three things every consumer should consider first when shopping for supplemental insurance:

1) Am I eligible? Supplemental policies are available in approved states; no policy is available everywhere. Although most supplemental health insurance polices are available to everyone without regard to medical history, a few of these plans do screen medical history for healthier applicants.

Tip: If you qualify for a medically underwritten coverage then this may offer a better value and stronger benefits than a guaranteed eligibility plan.

2) Does it pay in addition to all other coverage? One of the primary benefits of supplemental insurance is that it pays the stated benefit in addition to other coverage. This allows the total coverage to be more than the total of the medical bills so there is extra cash to cover lost wages and other bills. Some supplemental insurance policies coordinate coverage, which means that the benefits are reduced so that the total does not exceed 100% of a medical bill. If this feature is your primary objective, make sure the plan you select offers this feature. On the other hand, a policy that coordinates benefits is less expensive than a policy that pays cash regardless of any another coverage.

Tip: Look for policies that use language like "pays cash benefit in addition to other insurance".

3) How much coverage do I want? Unlike traditional major medical health insurance, supplemental policies are available in every level of benefits and price range. It is not uncommon for supplemental insurance to range from less than $10 per week to more than $200. In short, you get exactly what you pay for. The objective is simply to balance the level of benefits desired and the amount of premium cost that is acceptable.

Tip: Have a specific price in mind before going online to search for options. Your budgeted price might be expressed as a fraction of the cost of your major medical insurance. For example, a supplemental insurance may be priced at 1/3 of the cost of major medical coverage. If the major medical insurance premium is $600 per month then the supplemental insurance might be $200 per month.

Insurance choices

Aflac is the nation's most popular provider of supplemental health insurance offered through an employer, those who buy coverage on an individual basis prefer other specialty insurers who offer coverage directly online. Core Plus Health Insurance from United States Fire Insurance Company has been the most popular choice of individual online purchasers. Basic Health Insurance from Markel Insurance Company has been the least expensive option. Both are guaranteed issue plans. Value Access Guarantee, a group member benefit program (not an insurance plan) from Value Benefits of America may be the best offering for those healthier applicants who qualify by answering "no" to the three medical questions on the application.

Other key points about supplemental insurance

Once these three basic issues are resolved, scan this short checklist of additional items you should know about supplemental insurance:

• A waiting period applies to some benefits, especially hospitalization and surgical benefits. Do not expect to enroll shortly before a scheduled surgery and expect the full policy benefits to be available.
• Supplemental medical policies do not cover prescriptions, dental or eye care expenses. The policy may be combined with a discount plan. A discount plan offers some advantages, it is not insurance.
• Health reform law provisions generally do not apply. Do not assume that the policy covers anything other that what is specifically listed in the schedule of benefits.
• HIPAA laws, including the continuation of coverage and Certificate of Creditable Coverage provisions, do not apply.
• May be combined with a Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA).
• In some cases a life insurance policy with "living benefits" provides better value than health insurance. For example, some life insurance policies provide a pool of money that can be used for long term care or may be paid upon diagnosis of certain medical conditions. Because these policies vary widely and little information is available online, speak with an insurance adviser in person.

Freedom Benefits lists popular supplemental health insurance plans on a state-by-state basis. Select your state on the U.S. map on the Web site's home page to get started. OnlineAdviser offers personal assistance with additional questions through a secure online support system. Click here to open a support request.