The current health insurance pool situation is that not enough healthy Americans are participating, leaving many health insurance companies with financial deficits. This is causing businesses to lose billions of dollars. An even balance of healthy people and those with immediate healthcare needs is needed to keep the market stable. The White House is aware of this and has begun making efforts to strengthen the marketplace.
The federal government released a proposal June 8 that would limit short-term health insurance plans to three months with no renewal option. I’ve broken down how the change could affect consumers and health insurance companies, but let’s now talk about the possibility of losing policies that cover unexpected critical illnesses should the government decide to eliminate that as well.
First Short-Term Insurance, Now Critical Illness Insurance?
While the proposal intends to keep short-term insurance as a temporary option to regular health insurance (just with stricter guidelines), another part of the White House’s efforts to clean the risk pool is possibly banning health insurance companies from selling critical illness (CI) policies to consumers. Why? Similar to people incorrectly using short-term health insurance in lieu of replacing traditional health insurance plans, it appears that critical illness insurance is also mistakenly being used as a substitute to a major medical Affordable Care Act (ACA) policy.
Because of the misuse, the IRS, U.S. Department of Health and Human Services and the Employee Benefits Security Administration say they are uncertain as to whether types of indemnity insurance should qualify for excepted benefits status. That means that under excepted benefits status, insurers have the opportunity to offer supplemental policies to consumers. Without the status, insurers may not be able to offer CI insurance policies.
Why Eliminating Coverage for Heart Attack, Cancer and Stroke is a Bad Idea
The solution should not be to get rid of CI insurance policies altogether. Supplemental coverage for cancer or other specific diseases, in addition to your health insurance coverage, holds a lot of value. I agree that critical illness policies should not be interpreted as a substitute for a major medical ACA policy—it simply does not provide minimum essential coverage. But to eliminate those plans would do the consumer a disservice.
The lump sum cash benefits that’s paid directly to consumers can help pay for health expenses outside of your health insurance coverage or help offset personal expenses, including the following:
Out-of-network services for specialized treatment
Travel costs if treatment is away from home
Help pay deductibles
Plane tickets for family members to help with the kids
Replace income if unable to work
A Solution to Keeping CI Insurance Policies Available to Consumers
To ensure that people aren’t misguided about using critical illness insurance as their primary source of coverage, one solution would be requiring consumers to confirm enrollment in a traditional health insurance plan. If they do, then the CI plan is truly supplemental rather than a substitute and consumers have better coverage in the event of an illness.
Say you have health insurance and you were recently diagnosed with cancer. Without supplemental CI insurance, you would be left to pay for any medical expenses within your deductibles, copays and copayments. Not only that, but all other expenses outside of medical could lead you to file for bankruptcy. But, if you signed up for a CI insurance policy, which can provide a lump-sum cash benefit ranging from $10,000 to $100,000 for covered conditions you could take time off of work to focus on getting treatment. This benefit is especially helpful when some workplaces don’t compensate for extended leaves of absence. And best of all, buying a policy is inexpensive. For less than a dollar a day, you can get thousands of dollars’ worth of coverage.*
If the best treatment is hundreds of miles away from your home, and the specialist for that treatment is out of your network, that’s okay, because the lump sum cash benefit can go toward your lodging and covering the cost of the doctor. You can also fly Grandma and Grandpa over to watch the kids, so they won’t miss any school. What about any prescription drugs that your health insurance doesn’t cover? A CI insurance cash benefit can be used toward that as well.
Remember, critical illness insurance should not be used as a substitute for traditional health insurance. Rather, using health and critical insurance together can help with expenses, so you can focus on your health.
*The Chesapeake Life Insurance Company Critical Illness Direct plan (Policy Form CH-26113-IP (01/10). Administrative offices are located in North Richland Hills, TX. Exclusions and limitations apply. Products are marketed through independent agents/producers. Insurance product availability may vary by state.
Michael Z. Stahl is Senior Vice President and Chief Marketing Officer at HealthMarkets, one of the largest independent health insurance agencies in the United States.