Supplemental insurance can help take the sting out of health care costs
Amid the push to cover every U.S. citizen with health insurance, average insurance premiums continue to increase.
The trend continues during an economic downturn that has many clients opting for lower monthly premiums and higher deductibles.
When people face deductibles that amount to hundreds and even thousands of dollars, they also weigh whether they’ll be able to pay those deductibles comfortably should a health problem arise.
For people whose employers help pay for insurance, the situation can be disconcerting. For those who pay the entire freight for their insurance, the situation can present a full-blown problem.
Such concerns bode well for the supplemental insurance industry, which offers coverage that goes beyond that provided by traditional health insurance companies. “You could say, ‘This is a perfect storm,’” said Bill Brown, a Grand Junction insurance agent and associate for AFLAC insurance.
Supplemental plans offer payments that clients collect directly. Consequently, they decide how those dollars are spent. They could be used to help pay a $2,500 deductible bill that’s due before the client’s health insurance takes effect. Or they could be used for utility or grocery bills that might pile up while a client is out of work due to surgery or other medical procedures.
Even businesses that still help pay for employee health insurance are looking for ways to trim costs these days. That might mean changing the company coverage to a plan with a high deductible.
“Most of these plans were tied to the golden hook,” said Brown, alluding to the term many companies use when they offer plans that entice employees to remain with their businesses instead of searching for another job. “But many employers said, ‘I can’t pay for everything.’”
Employers make all kinds of payments beyond a worker’s salary. The extras include not only health insurance, but also worker’s compensation insurance, unemployment insurance and Medicare and Medicaid payments.
Whether paid for by employers or employees, costs for health insurance continue to rise. An employer might consider coughing up a 2 percent increase. But a 10 percent hike can present a different picture.
In addition to providing backup cash for clients, supplemental insurance can be deducted from an employee’s gross pay, lowering the real premium a worker might pay. Businesses can set up such a pre-tax deduction in the workplace without being forced to contribute to the supplemental plan.
For example, an employee earning $1,000 a month with 30 percent in FICA and other deductions would see $300 deducted from gross pay, resulting in a net of $700. A $100 supplemental insurance payment deducted from that $700 would leave the employee with $600 for other bills. However, if the supplemental premium is deducted on a pre-tax basis, the $100 would be subtracted from the $1,000 gross, so the 30 percent in deductions would be based on $900 pay. The 30 percent in deductions would result in $630 in take home pay.
Because employers share the costs of FICA, employers can also realize a reduction in FICA payments due to the pre-tax deduction.
Supplemental insurance offers an economic advantage that standard health coverage does not — monthly payments remain the same as long as the client retains the same policy. Such payments can run as little as $26 a month for accident coverage for an individual under age 50. The payoff can be as high as $12,000.
Payments increase rapidly for family coverage or for older policyholders. For example, a two-parent family might pay more than $50 a month if the parents are over age 50.
There’s also coverage for cancer treatment, which can run as little as $16 a month for individuals or $62 a month for a family with parents above age 55.
For many plans, dependent children as old as 25 years can retain coverage under a family plan.
And payments received from supplemental insurance do not count as taxable income.
Should employers offer to help pay supplemental insurance, they can offer pieces that might fit with their budgets and still help retain good employees. Coverage for dental, vision or lost income due to hospitalization are examples of individual policies that employers can offer or that employees can choose to pursue on their own. There’s an important distinction under some of these pieces, however. Under the dental plan, payments go directly to the dental office and not to the patient, so the dollars can’t be used for anything other than dental work.
The myriad of choices helps clients understand they have plenty of options. But for the employee who suddenly loses employer-assisted coverage, the choices also can make things more complicated.
“A lot of times, Americans don’t know what they want,” Brown said, adding that many people trusted their employers to provide insurance that was best for the employees.
“Everything in our society is now pushing us away from that. There are certain efficiencies, but also certain deficiencies (in the system whereby people choose coverage that’s best for their situation),” Brown said.
The end result is that people need to do diligent homework about current plans and government regulations or find an agent they can trust.
Many people urge clients to distrust their agents, Brown said. But in the final analysis, he said people must trust someone with answers about insurance coverage. He said an insurance agent is no less trustworthy than a doctor in the sense they can benefit financially from their advice.