Americans have always been taught to financially plan for their future, but while they may properly save for retirement or for a child’s education, many do not have a financial plan in place for unexpected medical expenses. Accidents and illnesses can happen at any time and alongside these misfortunes come out-of-pocket expenses. So what is the message for health advisors and agents? They need to educate their clients about resources that provide access to money when an unfortunate accident or illness happens.
According to the 2012 Aflac WorkForces Report, an online survey of more than 1,800 benefits decision-makers and more than 6,100 U.S. workers, only 8% of U.S. workers strongly agree that their family would be financially prepared in the event of an unexpected emergency. Yet, the truth is that these unexpected medical crises can happen to anyone, despite a sense of denial among most Americans. For example, the Aflac study showed that 62% of employees think it is not very/not at all likely that they or a family member will be diagnosed with a serious illness, like cancer. More than half (55%) said they were not very/not at all likely to be diagnosed with a chronic illness, such as heart disease or diabetes.
However, the American Cancer Society1 estimates that American men have slightly less than a 1 in 2 lifetime risk of developing cancer. For women, the risk is a little more than 1 in 3. Heart disease is the leading cause of death for both men and women in the United States, claiming approximately 1 million lives annually.2 Clearly, there is a disconnect among Americans between the reality and the perception of contracting these diseases.
Advisors and brokers have an opportunity to dispel these misconceptions and offer clarity to clients and their workers about the real cost of serious illnesses and accidents to workers’ pocketbooks.
The impact of out-of-pocket expenses
Many bankruptcies have been caused due to medical expenses. According to the American Journal of Medicine, bankruptcies resulting from medical expenses increased by nearly 50% between 2001 and 2007. Many Americans who filed for bankruptcy were covered by major medical insurance, which underscores the fact that major medical insurance does not always guarantee a family’s protection from financial devastation.
In fact, many people are uncertain of how to pay for these out-of-pocket expenses:
• 58% don’t even have a financial plan to handle the unexpected.
• 28% have less than $500 (51% have less than $1,000) in savings for emergency expenses.
It would be a financial burden for those who have not set funds aside to cover out-of-pocket costs for surgeries, hospital stays and illnesses. For example, the average cost per hospital stay for heart valve disorders in 2009 was an overwhelming $36,700.3 And according to a Harvard study, families with private insurance reported average out-of-pocket medical bills of $17,749, which can lead families to file for bankruptcy if faced with these costs without a financial plan in place.4
Preparing for unforeseen medical costs
Although these statistics are disconcerting, there are ways people can prepare for out-of-pocket costs. One way is to consider applying for voluntary insurance. Voluntary insurance policies help cover the costs that major medical insurance doesn’t cover. These policies often include critical illness, short-term disability, accident, dental, life insurance and more. The way it works is simple: in the event of an accident or illness, participants receive cash benefits that are often used to help pay for daily living expenses, such as rent, transportation, groceries and other necessities determined by the policyholder.
Some uninformed consumers may have the misperception that supplemental insurance is too costly for their budgets. It is up to health insurance advisors to convey that voluntary insurance providers actually offer a variety of products that accommodate a wide range of budgets. Also, voluntary benefits have no direct cost to employers, making it an attractive solution for companies that want to manage expenses while giving employees more control over their benefits decisions and access to additional coverage.
How else can insurance professionals help?
Health insurance advisors can educate HR managers and business decision-makers on how to incorporate voluntary insurance into existing packages. One way to do this is by adding voluntary insurance policies as a complement to existing employer-paid benefits. Organizations may also add voluntary short-term disability insurance to the employer-paid disability coverage that is already in place. This enhances their current benefit offerings without adding more direct costs and also can satisfy workers’ needs for additional disability coverage.
To avoid eliminating benefits coverage altogether due to cost constraints, employers can replace company-funded insurance with voluntary options. This allows businesses to retain coverage options at no direct cost to the company and, at the same time, help protect workers. For example, many companies that have dental and vision plans as part of their comprehensive plans have found they can cut those benefits options and replace them with voluntary dental and vision plans that interested employees can pay for themselves.
The bottom line
People need to understand that the unexpected can strike, but it doesn’t mean wallets have to go empty. In fact, with the added protection voluntary insurance offers to help offset rising health care costs, people can lessen their worry while they focus on their own health and recovery. Agents should educate clients that, with the right mix of insurance policies in place, they can handle the costs more easily and concentrate on what matters more: getting better.
1. Cancer Facts and Figures 2012, American Cancer Society.
2. The Heart Foundation, Feb. 1, 2011, www.theheartfoundation.org/category/heart-disease-facts/, accessed on March 29, 2012.
3. HCUP: Facts and Figures, “Healthcare cost and Utilization,” March 16, 2012, www.hcup-us.ahrq.gov/reports/factsandfigures/2009/exhibit4_1.jsp, accessed on March 29, 2012.
4. Harvard University, Clinical Research Study, March 16, 2011.