There is one big problem with health insurance that continues to get bigger: health care deductibles continue to rise. This poses challenges for both employers who provide benefits and employees as well.

More people may get health insurance under the Affordable Care Act, but, there comes a point when deductibles and out-of-pocket costs are so high people may defer necessary medical treatment. Under some medical plans, an employee’s total out-of-pocket costs for medical care can be as high as 40% — up to an annual maximum of $6,350 for an individual and $12,700 for a family in 2014. People may forgo necessary medical treatment because they just plain cannot afford it. In some cases, conditions may worsen and be more expense to treat in the future.

The ACA requires most people to obtain health insurance and most employers to offer major medical coverage with certain essential benefits. However, the amount consumers pay out-of-pocket through these plans keeps rising as employers and insurers try to control their costs.

One solution to larger deductible and coinsurance amounts may be found in supplemental medical insurance. This is also known as medical gap insurance.

Medical gap insurance comes in many forms. It can be a combination hospital and surgical program that pays up to a certain limit to cover items that health insurance does not pay. Covered items would usually be:

  • Doctors office visits
  • Wellness/preventative care
  • Emergency room treatment
  • Diagnostic testing and x-rays
  • Hospitalization
  • Surgical benefits

Medical gap insurance can be paid for by the employer to give the employees a cushion when they put in a high-deductible health plan. These programs may also be voluntary and paid for by the employee via payroll deduction.
Americans’ poor savings habits make this type of coverage all the more needed. About half of U.S. households have savings of less than $10,000. Meanwhile, the average out-of-pocket medical cost for critical illnesses is $7,575, according to an analysis by Sun Life Financial of its insurance claims data. (Heart attacks incurred a whopping $14,234.) Roughly 60% of all U.S. bankruptcies stem from medical costs, and that number includes many people with health insurance.

Other programs that fill gaps in health insurance plans include accident plans and critical illness plans. These generally pay benefits directly to the insured, and while they do not match up exactly with deductibles and coinsurance, they do help provide cushion to employees with large out-of-pocket costs for medical insurance.

An accident plan will provide coverage for specified accidents, for example:

  • Dislocation/fracture
  • Initial hospitalization confinement
  • Surgical procedures
  • Intensive care
  • Ambulance service
  • Medical expenses
  • Outpatient physician’s treatment

Critical illness coverage is also becoming more popular. These plans will pay a lump-sum benefit if the insured were to be diagnosed with a critical illness or condition. Examples would be if the insured were to have a heart attack, stroke, or certain types of cancer. These are some of the big ticket items that can devastate someone not only physically but also financially.
The need for employee communication

Employers may be concerned that employees might not understand that with the gap insurance program it will be necessary to submit two claims. One claim would be sent to the health insurance company as usual and then also another to the medical gap insurance provider. The best way to communicate this to employees is a combination of group meetings and one-on-one education sessions. Once and employee understands the process, they get the point that money will be coming back to them.

The bottom line is that as deductibles and out-of-pocket cost to grow, both employers and the brokers that help them need to be aware of these medical gap insurance programs and the best way to communicate these programs to employees.

Toth has been in the employee benefits business for more than 20 years and is founder of Reach him at or (646) 526-4290.

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