Insurers push policies for coverage gaps

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

The coverage pays a lump sum of cash 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 for consumers in those trends.

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 and 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.

About 81 percent of workers in employer-sponsored health plans faced a general annual deductible last year, according to a survey from the Kaiser Family Foundation. The average deductible for single coverage was $1,318, 40 percent higher than during 2010, Kaiser reported in September.

Deductibles are sums that 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 per 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, up from 22 percent in 2011, according to the Society for Human Resource Management.

Though individuals can 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, which has 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 are administering.

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

While cancer, heart attack and stroke are the most common triggers for payouts, United's policies cover 12 base conditions and can be expanded to another six advanced conditions such as Alzheimer's disease and Parkinson's disease, said the company's Harger.

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

Securian started developing its critical-illness business less than three years ago, and is now 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.

Consumers should shop around for the best deal, and be clear about when and how benefits are triggered.

Jost, of Washington and Lee, said potential buyers also must realize critical-illness policies don't provide full health plans that satisfy coverage requirements under the Affordable Care Act.

"Virtually everybody would be better off with a major medical policy, with lower cost-sharing, rather than a critical-illness policy that probably won't cover the vast majority of things they're going to need," Jost said.