Consumers struggling with rising out-of-pocket health costs are turning to supplemental health policies to protect against major medical expenses. Insurance firms are seeing strong growth in sales of critical-illness policies, which provide peace of mind for employees and individuals who would face a heavy financial burden in the case of a major illness.
Employers and insurers are transitioning more financial responsibilities to patients via higher deductibles and co-payments. The increasingly popular high-deductible health plans (and some traditional PPO and HMO plans) leave patients responsible for thousands in costs before coverage kicks in.
Voluntary health benefits address costs not covered by conventional plans, typically by paying out a lump sum to policyholders when they are injured or — as in the case of critical illness coverage — when they are diagnosed with a serious ailment such as cancer.
One-fifth of Americans struggle to pay health bills, creating rising demand for alternative payment methods. In response, insurance agents are strengthening voluntary health offerings and targeting marketing efforts toward consumers who would benefit from supplemental coverage.
Some top US insurance companies have reported double-digit annual sales growth of critical-illness policies, and a number of carriers are expanding their presence, entering, or exploring the market. Companies selling disability and long-term-care policies are also beginning to see modest growth, after years of stagnating sales.
People with large out-of-pocket health care costs, high expenses, and little savings might benefit most from critical-illness insurance, according to health policy experts. However, critical-illness policies may not be for everyone. More conventional options such as health savings accounts, long-term-care insurance, disability coverage, and mortgage insurance may be more financially feasible or cover more than health costs in the case of serious illness.
Critical-illness policies are relatively new, arriving on the market about 30 years ago, but have expanded rapidly, especially in the group and worksite segments. According to a recent study from Gen Re, new business premiums from critical-illness policies totaled $381 million in 2014. Total in-force premiums top $1 billion and cover more than 3 million lives. Some 60 insurance carriers control about 95% of the critical illness market, and many of those providers indicate that they will increase their focus on the high-growth industry.
Industry Impact: Insurance carriers, agencies, and brokerages facing lagging sales in traditional life and health lines may benefit from spending more time and effort marketing supplemental policies. Demand is driven by customer response to high out-of-pocket health care costs associated with traditional health plans.
Anne Law has been a member of the D&B editorial department for more than a decade, providing content for the Hoover’s and First Research products. She currently covers the health care and insurance industries for First Research. For industry news, follow Anne on Twitter.