Filed Under:Health Insurance, Disability

Why the time is right for critical illness insurance

Employees face multiple health-related risks that can adversely affect their financial wellness. Those risks include disability and premature death. And as employer-provided health care benefits continue to evolve for a growing number of Americans, you might be able to add out-of-pocket health care costs to the list, too.

Consider these trends:

  • Health care costs are expected to increase faster than inflation. From 2011 to 2020, health expenditures are projected to grow at an annual rate of 5.3 percent, outpacing expected inflation of 2.1 percent.
  • In response to these rising costs, many employers have been forced to shift responsibility for health care costs to employees, exposing employees to higher out-of-pocket medical costs. As an example, many employers offer high-deductible health plans (HDHPs), which commonly have deductibles of $1,000 or more. Mercer reports that, in 2012, 26 percent of employers that offered health benefits offered an HDHP, up from 12 percent in 2010. Fifty-four percent of HDHP participants have aggregate out-of-pocket family maximums of $7,000 or more, according to the Kaiser Family Foundation.

Many households lack the funds needed to accommodate these higher costs should an unexpected health care event occur. It’s estimated that about half of U.S. households have savings of less than $10,000. While many employees may be covered by disability insurance, the benefit received is often a portion of the employee’s income, making cash outlays in the event of a serious illness difficult for those Americans living paycheck to paycheck.

Filling the coverage gap

Critical illness insurance (CI) may be a solid solution to meet this emerging need for protection against increasing out-of-pocket medical costs and related expenses in the event of a serious illness.

CI helps provide financial protection against direct and indirect out-of-pocket costs associated with a specified critical illness. It is not a substitute for medical or disability insurance. The conditions CI generally covers include heart attacks, cancer and strokes, but employers may have flexibility to customize which illnesses they want to cover in order to meet their employees’ needs.

Claims are usually paid upon diagnosis in a lump sum that employees may use for any medical or non-medical expenses, which may include increased living expenses, such as caregiving, housecleaning, transportation and outside services. The lump sum feature allows employees to decide for themselves how to utilize these funds to best meet their specific needs.

The employer’s perspective

Offering CI as a voluntary group benefit may provide several advantages for employers trying to offer robust benefit packages while containing benefit costs. For example, controlling health insurance costs is a top priority for most employers. CI may help employees pay for increasing out-of-pocket expenses as employers transition to lower cost health insurance plans. CI can also counterbalance the higher out-of-pocket costs borne by employees with any type of health plan. In addition, the provider generally administers CI claims. That arrangement avoids increasing the burden on the employer’s administrative staff, which may already be stretched.

Helping employees improve their financial wellness also helps employers maintain productivity levels because employees’ financial distress can have a negative impact on the workplace. CI allows employees to recover from illnesses without some of the additional financial pressures that may make them unproductive at work.

A growing adoption rate

CI adoption is growing. LIMRA’s research has found that in 2010, 22 percent of U.S. employers offered CI plans, up from 12 percent in 2002. Overall, however, employees and employers know little about CI. Excluding employers that offer CI, only 17 percent are very familiar with it, 35 percent are somewhat familiar, and almost half are not very or not at all familiar, LIMRA found.

Despite the current lack of awareness, several factors suggest CI adoption will continue to increase. Employees are increasingly concerned about health and health care costs. Most surveyed employees who learned about CI liked it and felt that the worksite was the best place to obtain coverage.

Also, brokers are becoming more familiar with CI. In Prudential Insurance Company of America’s 2012 Study of Employee Benefits: Today & Beyond, 41 percent of brokers said CII was expected to increase in adoption — the highest among all voluntary benefit products.

Positioning CI successfully

Simply adding CI to a company’s menu of available voluntary benefits in and of itself may not drive all of those needing protection to select coverage. Benefits advisors may want to recommend their employer-clients adopt practices that make it more likely that those needing protection take advantage of it.

  • Design products to effectively help improve employees’ financial wellness. Simple, flexible designs tailored to the employee population work best.
  • Position CI as a core protection benefit that addresses key universal financial risks. CI may work best when positioned alongside other benefits that are enrolled annually, like health and dental insurance.
  • Educate employees on the increasing need to protect against medical and other related out-of-pocket expenses and how CI may fill these gaps to improve employees’ financial wellness. Non-medical out-of-pocket expenses should be emphasized to help employees understand the flexibility of the protection offered.
  • Communications programs should position CI as a core protection solution. Incorporating a compelling case study may help to make the problem and solutions real and relevant for employees.
  • Partner with a provider to leverage its experience with education, communications, marketing and administration. If employers add CI to their group benefits offerings, they may leverage existing enrollment processes and available tools and access administrative and reporting capabilities offered by their group benefits providers.

A solid business opportunity

CI as a group voluntary benefit offers multiple advantages to employers and employees, and momentum for CI coverage is building in light of the current environment. For benefits advisors and consultants who understand CI’s role in promoting employees’ financial wellness, it’s an ideal time to present the product to employers.

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