Not only is it painful for an employee to hear the news that their loved one has suffered a heart attack, but the unforeseen costs of health care will soon take a physical, emotional and financial toll if they are not prepared.

"With the lack of personal savings that exists in this country, if they (employees) can't turn to insurance, they may have no other financial alternative and end up losing their homes or declare bankruptcy. Brokers and advisers have to think about critical illness as a great voluntary benefit because it allows an employer to provide an option that acts as a safeguard for an employee's financial welfare," says Kevin McNamara, vice president of client services for Innotech Benefit Solutions, a unit of Willis Group Holdings.

McNamara explains that there are two different types of products currently in the marketplace to help a plan participant in need: lump-sum CI programs and indemnity based products.

One of the main differences between the two is that indemnity has triggers based around treatments. For example, with a cancer policy a common payout would be for surgery, chemotherapy, etc., but after every procedure the plan participant would have to file a claim. CI covers the same conditions but instead of having payouts based on treatments, payments are based on the diagnosis of the condition.

McNamara and Jodi Anatole, vice president of health risk products for MetLife, recommend CI over indemnity because in the case of cancer "it gets the claim benefits to the insured sooner so they can make decisions on their treatment, knowing that he or she will have cash on hand to cover their out-of-pocket expenses," McNamara says.

"Employers tend to think that medical and disability covers most of their needs, but the reality is there are gaps in those products and there's a need to fill them in," Anatole adds.

New innovations

CI programs have been rapidly evolving. As a result, Willis and MetLife are adding more conditions to the roster of conditions that are covered. At Willis these include: cancer, heart attack, stroke, benign brain tumor, permanent paralysis, Alzheimer's and many more. At MetLife, cancer, heart attack, stroke, major organ transplant, coronary artery bypass, kidney failure are generally being offered.

According to both McNamara and Anatole, although there are more offerings with the CI programs, more than 80% of claims are for cancer, heart attack and stroke.

MetLife is introducing a wellness benefit that would provide plan participants with payment for certain types of wellness tests. X-rays and other tests will also be included in the product.

Anatole adds that the carrier is also moving forward with eliminating a waiting period since they notice employees need access to benefits quickly.

"It's a good balance between what consumers need and how we want to structure our product," she says.

McNamara says some of the best innovation has come from larger groups because when the product is group underwritten it is generally guaranteed issue with no health questions asked for these products, which can provide upwards of $20,000 or $30,000 of lump-sum benefits to an employee.

McNamara explains that spouses and children of a deceased policy holder are also offered a limited amount of guarantee issue, and that's important for people that have a family history of these conditions because they're more prone to experience a critical illness in their lifetime as well.

Another innovation he shares is some of the ways carriers have weaved the administration compatibility with health savings account medical plans and consumer-driven health plans, knowing that some of those conditions were traditionally more treatment-based, such as a major organ transplant.

Sales questions

A decade ago McNamara started talking about the programs and fielded questions surrounding CI policies from explaining how they work to what exactly they will cover.

"There's a much greater understanding from employers and employees alike. It's not a program that's no longer not heard of and even in the large employer space, it's being sought after as the deductibles with the medical plans get higher and higher," says McNamara. "I think employers are taking a hard look at these plans as a way to create a safety net for those employees who aren't comfortable with having to pay out a large deductible and other out-of-pocket medical costs."

In general, he says that "sales have been great; this is one insurance product that has gained ground and acceptance by employers."

"Employers are not thinking of it from a simple 'What can we do from a voluntary standpoint?' It's becoming a part of their overall health and welfare strategy as well," adds McNamara.

According to a November 2010 MetLife survey, 75% of employees who don't own a CI insurance policy or have never heard of it actually find it somewhat appealing after the product is explained to them.

The survey, "Critical Times Require Critical Solutions," exposes the gaps in personal financial safety nets that a health situation may create, despite having medical and disability income coverage. The survey found that the average financial burden associated with recovering from a critical illness is $35,500, most of which is linked to lost income. The survey further found that only 16% of those surveyed feel confident they could pay for a medical emergency.

Exclusions, limitations and other FAQs

McNamara thinks plan participants should be weary of the guarantee issue, one of the major exclusions in CI policies.

The guaranteed issue product first started appearing five or six years ago, McNamara says, and it was a common limitation but, because of pressure within the employer market and from brokers and consultants, he's seen carriers remove that as well.

"A good adviser can negotiate a pre-existing condition limitation to be removed through their underwriting discussions with the carriers," McNamara adds.

Another limitation he shares is defining what constitutes cancer. He thinks there are many forms of cancer which may not pose a life-threatening situation, for example skin cancer is typically excluded. When plan sponsors think of cancer benefits, it's usually invasive, malignant and life threatening cancers that come to mind, says McNamara.

With older cancer policies a typical payout would be for chemotherapy, but there are many cancers now that don't require chemotherapy as the first line of treatment because there are new drugs available.

If carriers want to continue to offer cancer benefits they have to constantly evolve their benefits to adjust for the treatments that are associated with cancer. With that being said, he thinks this is why there's something magical about lump-sum CI policies because a diagnosis is a diagnosis.

Other questions McNamara fields include: "Is this compatible with my health savings account/consumer-driven health plan?" and "What are my obligations toward ERISA and COBRA with these types of plans?" McNamara says depending on how the carrier files this plan there are different answers to the questions.

When it comes to loopholes in the offering McNamara hasn't seen employers make adjustments or reduce coverage because they're offering CI. He feels with the rise in health care costs employers are faced with a decision and have to make changes to those plan designs where they put more responsibility back to the employee.

"I think [plan sponsors] see this product as something they can offer on a voluntary basis, as a good supplement to anything that an employee would perceive as a take-away," McNamara says. "With all insurance plans there are exclusions and limitations, but I think this is where a good broker or a consultant can really provide valuable insight and advice to an employer by comparing these provisions across different plans."

Adviser's role

MetLife's Anatole shares three things advisers should keep in mind when helping plan participants choose this benefit offering:

1) They need to establish what the need is for the employee;

2) how the product can fill that need; and

3) they must realize now there is a shift to voluntary benefits to keep costs low in the workplace.

"Education to the employer really is the first step," says Anatole, who feels that this product is well positioned near the major medical offering when employees sign up for workplace benefits.

McNamara can't express how important this policy is for employers to offer.

"Brokers and advisers have to think about [CI] as a great voluntary benefit, something that is attractive but it's also something good for the employer to offer; keeping the financial welfare of their employees in mind and giving them some additional protection to choose from."

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