Insurers push policies for coverage gaps

As deductibles get larger, insurers are pushing extra coverage that can help people who have certain serious health problems cover their out-of-pocket costs.
As deductibles get larger, insurers are pushing extra coverage that can help people who have certain serious health problems cover their out-of-pocket costs. Tribune News Service

Call it insurance for your health insurance. As deductibles get bigger, insurers are pushing extra coverage that can help people with certain serious health problems cover out-of-pocket costs.

These “critical illness” policies have been around for years, but UnitedHealthcare and Securian Financial Group are among the insurers making recent moves in the growing market.

The coverage pays a lump sum if a policyholder is diagnosed with cancer, stroke or one of several specified illnesses. More employers are offering the coverage, with workers typically paying the full premium cost.

“As health care costs have risen, more and more employers have been going to high deductible plans,” said Gary Harger, vice president of voluntary products with UnitedHealthcare. “As they go to high deductible plans, that does leave a gap where now there’s more annual out-of-pocket (costs) for a consumer.”

Some see trouble in those trends for consumers.

Administrative costs with what used to be called “dread disease” policies tend to be high, with a relatively small share of the premium dollar being paid out in benefits to consumers, said Timothy Jost, an emeritus law professor at Washington & Lee University.

“They’re not a very high-value product to consumers and are probably a much higher-value product to the people who are selling them,” said Jost, who advises the National Association of Insurance Commissioners on consumer issues. “They’re profitable for insurers, and profitable for insurance agents and brokers.”

About 81 percent of workers in employer-sponsored health plans faced a general annual deductible last year, according to a survey from Kaiser Family Foundation.

The average deductible for single coverage at the time was $1,318 — up 40 percent from 2010, the foundation reported in September.

Deductibles are sums consumers must pay out of pocket before most coverage begins. Their structure with family coverage can be twice as high in some cases.

In the individual market, where people buy coverage outside of employer groups, more consumers are purchasing “bronze” plans with annual deductibles that can run about $6,000 a person.

Those trends help explain the growth in critical illness policies, insurers say. About one-third of employers surveyed in 2015 offered critical illness coverage, which was up from 22 percent in 2011, according to the Society for Human Resource Management.

While individuals may buy critical illness policies directly from insurance companies, people buying through an employer typically see lower rates, said Michael McGuire, an insurance agent with AFLAC, a Georgia-based insurer that’s sold the coverage for years.

Traditionally, companies that don’t sell health insurance have sold the most critical illness policies, McGuire said. But health insurers see this as a growth area, he said, because they can offer it to employers as a supplement to the group health plan they’re administering.

“This part of the industry is continuing to grow — there are new players every day,” McGuire said.

UnitedHealthcare launched a new version of its critical illness policies in 2011, and has added new benefit features in the past year.

While cancer, heart attack and stroke are the most common triggers for payouts, United’s policies cover 12 base conditions and my be expanded to six advanced conditions, including Alzheimer’s disease and Parkinson’s disease, said Harger, the company official.

Premiums vary based on a number of factors, but buyers in their early 40s might pay about $60 a year for a $5,000 policy, Harger said.

Securian started developing its critical illness business less than three years ago and now is selling policies in almost all states, said Elias Vogen, the insurer’s director of group voluntary products.

The ratio of payouts to premiums with the policies has been relatively low with some critical illness insurers, Vogen acknowledged. But he said Securian has designed products to have ratios that are among the highest in the industry.

While consumers with high deductible health plans might be drawn to the policies, there’s no requirement that payouts be used for that purpose.

“You can use this money for ... any type of expenses, for whatever reason related to, or not related to, the incident,” Vogen said.