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Supplemental health insurance: Who should buy gap coverage?

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If you have health insurance, you may be wondering what supplemental health insurance is and if it’s something that would be good to have. If you don’t have health insurance, you might like to know how supplemental insurance can protect you against the excessive medical costs associated with accidents and illnesses.

Let’s look at what supplemental health insurance is, what it covers, how much it costs, and more. You’ll then be in a position to make an informed decision if it’s coverage you need to have.

What is supplemental health insurance?

Supplemental health insurance, also known as gap insurance, is an added layer of protection that pays for some of the charges stemming from an accident or illness that you’re responsible for after your health insurance pays the providers of your medical services. These charges can be deductibles and co-payments, or procedures or services that your health insurance may not cover.

But, supplemental insurance goes beyond just benefitting you by helping you pay for medical expenses. The lump-sum payment you received from some policies can be used for non-medical costs associated with an accident or illness- things like lost income, childcare costs, or food and lodging if you have to travel due to a health-related event.

Types of supplemental health insurance plans

There are numerous supplemental health insurance plans on the market provided by top-rated insurance companies.

Critical illness insurance

Also known as critical care insurance, this type of plan provides you with payment for covered illnesses. These policies have a very specific list of illnesses that trigger a payout.

Critical illness policies commonly cover:

  • Heart Attack
  • Coronary artery bypass surgery
  • Angioplasty
  • Stroke
  • Invasive cancer
  • Non-invasive cancer
  • Kidney (renal) failure
  • Major Organ Transplant
  • Advanced Alzheimer’s disease
  • Paralysis
  • Coma
Curious what critical illness insurance costs? Check your rate here.
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Hospital indemnity insurance

Also known as hospital confinement insurance, these policies provide you with payment if you’re confined to a hospital due to a severe injury or accident.

Payment can be in a lump sum or a specified amount for various inpatient and outpatient services. For example, a policy may specify that it will pay $350 for a chest x-ray or $250 to have a broken leg set.

Hospital indemnity plans are meant to supplement your regular health insurance plan, not replace it. These plans are not nearly as comprehensive as stand-alone health insurance plans, and they can expose you to unlimited out-of-pocket costs in the event of a serious medical event.

Dental and vision coverage

Dental and vision care aren’t generally included in employer-sponsored health insurance or individual major medical policies. To get these covered, you need to enroll in a separate plan. Many employers will offer supplemental dental and vision coverage to their employees as an option, with the employer sometimes paying a portion of the premiums.

Cancer insurance

Cancer insurance isn’t meant to replace benefits and payments provided by your primary health insurance policy. It’s intended to be a supplement and help you pay for some of the expenses associated with cancer and cancer treatment, such as:

  • Visits to out-of-network specialists
  • Various tests, treatments, and procedures
  • Child care
  • Dietary assistance
  • Travel, lodging and meals if treatment is far from home

Some health insurers will decline your application for coverage if you currently have cancer or have had it in the past. As with any policy you buy, be sure to read the fine print.

Accident insurance

Accident insurance, also called accident expense insurance, pays you or your beneficiaries cash directly if you are injured or killed due to an accident not excluded in your policy.

When you buy an accident or accidental death and dismemberment policy, it’s as important to know what isn’t covered as it is what is covered. Things not covered by accident insurance include pre-existing conditions, drug coverage, and injuries suffered while committing a crime.

Coverage is not guaranteed to be issued when you apply, and each insurer will have specific dollar limits on their coverage.

Medicare supplement insurance

Before people turn 65, they usually are under the false impression that once you are “on Medicare,” everything is paid for if you get sick. Unfortunately, that’s not accurate.

Medicare Parts A and B are known as Original Medicare. Medicare Part A covers hospital stays and treatment in a hospital. Medicare Part B primarily covers doctor’s office visits. Neither plan covers prescription drugs. For that reason, most people covered by Medicare will buy a supplemental health insurance plan known as a Medicare Supplement.

Medicare supplement plans don't work like most health insurance plans. They don't actually cover any health benefits. Medicare supplement plans cover the costs you're responsible for with Original Medicare.

These costs can include:

  • Your Medicare deductibles
  • Your coinsurance
  • Hospital costs after you run out of Medicare-covered days
  • Skilled nursing facility costs after you run out of Medicare-covered days

Like other insurance coverage you have, you pay a monthly premium for your Medicare supplement plan. In return, the plan pays most of your out-of-pocket expenses. For example, when you go to the doctor, you don't have to pay the 20 percent coinsurance required by Medicare; your Medicare supplement plan covers that charge.

How much does supplemental health insurance cost?

There are no set prices for supplemental plans. Prices will vary according to the plan type, as well as from insurer to insurer. For example, medicare supplement plans can cost a little as $50 per month to as much as $300 or more per month, depending upon how rich the benefits are.

You can find relatively inexpensive cancer insurance from AFLAC, and Mutual of Omaha is well known for its accident insurance.

Who should buy supplemental health insurance?

The answer depends on a policy’s affordability, how much additional coverage you need, what you wish to be insured for, and your risk factors.

For example, if you have active young children or ski frequently, an accident policy may be helpful if a mishap occurs. Or, if you suspect your kids are going to require orthodontic care in the future, a dental policy might be a good investment.

Your savings account balance is also a significant determinant if you need supplemental health insurance. If you were hospitalized for several weeks or longer, would you have enough money to pay for deductibles, copays, and coinsurance? How about lost wages if you have cancer and can’t work for eight weeks? Do you have money accessible through an HSA or FSA?

If you’re on the fence and can afford an inexpensive supplemental policy, will buying it help you feel more secure? If so, it just might be worth having.

Having grown up in upstate New York, Bob Phillips spent over 15 years in the financial services world and has been making freelance writing contributions to blogs and websites since 2007. He resides in North Texas with his wife and Doberman puppy.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

Published May 12, 2021