Critical Illness Can Spell Financial Problems

Steven L. Beumer, Executive Vice President, National Benefit Service Center

Aug 25, 2015

Critical Illness Can Spell Financial Problems

 Healthcare reform has been the buzz word for several years and will remain a hot topic for many years to come. However, as employers have struggled to keep healthcare costs in check, more of those costs have been shifted to employees. Many employers and employees saw this trend as an inevitable outcome of the growing cost and some took action by adding voluntary plans that helped shoulder a portion of the costliest medical expenses. Health insurance has become essential in today’s world, but the out of pocket costs from a major critical illness such as a heart attack stroke or cancer can be financially devastating. 

            The incidence of critical illnesses has become increasingly survivable with the development of advanced medicine. Harder to survive than the medical trauma can be the negative financial impact to people. The facts are not in dispute—two-thirds of the more than 1.5 million Americans that filed for bankruptcy were due to medical bills. Many millions of Americans are left to struggle for years paying off lingering debts.  

            A growing method of addressing this issue comes in the form of a critical illness insurance policy. This type of program is designed to pay a lump sum upon the diagnosis of any of the named critical illnesses. The plans can be employer paid or voluntary through payroll deduction with premiums ranging from $10 to $50 a month. The dollar amount of the benefit can be preselected by the employer or designed by the employee so that an appropriate level of coverage is taken. The plans typically include the option to cover dependent family members. A recent survey found that 62 percent of employees, when given the option of having critical illness coverage to cover out of pocket costs, were interested. Unfortunately this number is much higher than the number of employers that actually offer the plans. When reviewing the plan options between the group employer sponsored and individual plans, the clear winner for benefits and costs are the group model.    

            The need for critical illness insurance is heightened by the frequency of major critical illnesses today. Decades ago these illnesses were often fatal. Treatments and the advance of medical science have resulted in many people outliving the onset of these major conditions. To put the numbers in perspective, an American suffers a coronary event every 25 seconds, a stroke every 40 seconds and men have a one-in-two lifetime risk of developing some form of cancer and women have a one-in-three chance.

            The annual picture looks even more frightening. Approximately 1.4 million Americans receive a new diagnosis of cancer; 785,000 Americans have a first heart attack and 600,000 Americans suffer a first time stroke. 

            Critical illness plans have evolved over the past 50 years. There are still some general assumptions you can make; they generally are available in the 18 to 65 year old age range, they are guaranteed renewable, most plans have a 30 to 90 day waiting period after the effective date when no benefits are paid, most plans have a pre-existing look back of 12 months and will not pay benefits for claims related to illnesses that were treated during that time frame. 

            Critical illness plans may have several riders available that make them even more attractive. The most popular is the wellness rider that pays $50 to $100 for an insured that has a screening test done. Typically those screenings relate to the covered illness, so a cancer screening test would be covered for example. Other riders may include return of premium (this would refund the premium if no claims were made during a specific period) and waiver of premium (this will waive the premium if a policy holder becomes disabled from a covered illness).

            One advantage to critical illness plans that bears mentioning is that the premiums can be paid from a Health Savings Account. These are accounts set up to house funds used along with a high deductible health plan. This provides an extremely attractive method to pay the premiums with tax free dollars. 

            These plans are filling an important void as out of pocket costs raise. Make certain that you select a well-qualified carrier, one with extensive experience and underwriting capabilities, and rest easy knowing that those financial surprises can be minimized. 

About the Author

Steven L. Beumer, RHU, REBC is Executive Vice President of National Benefit Service Center, providing benefits nationally for over thirty years.  The firm is based in Central Florida.  Beumer was recently given an award at the White House as a faith leader, Champion of Change for the environment.    He can be reached at NationalBenefit@aol.com.