A growing number of employers are offering additional insurance policies to workers that pay out a lump sum if they get cancer or another serious illness.
These policies, which are voluntary, are proliferating at a time when employees are having to shoulder increasingly high deductibles and out-of-pocket costs.
Some 45% of employers with 500 or more workers offered so-called critical illness plans last year, up from 34% in 2009, according to benefits consultant Mercer. Generally employees are responsible for the cost of the plans.
“More employers are looking at the reality of pulling back on the value of health plans, but looking to offer something else that would make people feel a little more comfortable about taking on that additional risk,” said Barry Schilmeister, a principal in the health and benefits practice at Mercer.
Some 46% of workers covered by insurance on the job faced a deductible of at least $1,000 in 2015, up from 22% in 2009, according to the Kaiser Family Foundation’s annual survey of employer sponsored coverage.
Critical illness policies typically provide a predetermined lump sum amount if someone is diagnosed with cancer, heart attack, stroke, kidney failure or needs a major organ transplant. They may also pay benefits for other medical problems, such as loss of vision or paralysis. In addition, some employers offer a policy that pays only in the event of a cancer diagnosis.
Nine out of 10 critical illness policies are sold through the workplace, according to Gen Re, a company that offers insurance to insurers to help manage the risk from underwritten policies. These plans provide an average $15,000 payout to workers diagnosed with one of the conditions covered under the policy.
The average national premium was $283 annually for $25,000 worth of coverage in 2013, according to financial services research company LIMRA.
In addition to deductibles and cost sharing for pricey drugs and treatment, the payments can be used to help cover many expenses associated with serious illness that even generous employer health plans don’t cover. These include travel costs to see a specialist, time off from work and extra charges for out-of-network doctors or hospitals.
But benefits from the critical illness policies can be limited by very specific requirements, so it’s important to understand the coverage before you buy. Here are some of the details to look for:
Pre-existing conditions
If you’ve had cancer or a heart attack in the past, check to see whether the plan will cover those conditions in your case or impose a waiting period before doing so.
Excluded benefits
“Understand that maybe not every cancer and heart attack is covered,” said Stephen Rowley, vice president at Gen Re. For example, non-invasive prostate or breast cancers may be excluded from some policies.
However, a growing number of critical illness insurers are covering such early stage cancers, said Karen Terry, assistant managing director for insurance research at LIMRA.
Partial payouts
Rather than excluding coverage altogether, plans may make a partial payout for things like non-invasive cancer, heart bypass surgery or angioplasty.
One-time vs. repeat payouts
If you get cancer a second time, will the plan pay out again, in full or in part? Does it matter if the second incidence is the same or a different type of cancer?
Unrestricted vs. specified schedule of benefits
Critical illness policies typically pay out a lump sum to use as the policyholder wishes. Cancer policies may do the same or pay set amounts for hospitalization, chemotherapy or radiation treatments, for example.
Age-related benefit reductions
Some plans reduce how much they pay out after policyholders turn 65 or 70.
As people’s financial exposure for medical care has increased, “they’re really spooked, especially when they’ve had a serious illness in their family and they know all that goes along with that,” said Bonnie Burns, a long-time consumer health advocate and a policy specialist with California Health Advocates, which assists Medicare beneficiaries. “I think these [coverage] holes are going to proliferate and people are going to fill them where they can.”
Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.
