Employee Benefits: Supplemental Health Plans

Imagine that you just started at a new job and HR hands you a document outlining your employee benefits. There is a section of the benefits package called Supplemental Health Plans. These include a number of options with scary sounding words relating to your health and well-being such as Critical Care Illness, Accidental Death and Dismemberment Insurance, Hospital Indemnity Policy, etc. These plans are usually available to you at an additional cost. But what exactly do these plans cover and should you sign up for these? Let’s take a look.

Dental & Vision Insurance

These are both pretty straightforward, and often employees are automatically enrolled in these with the employer paying the premiums. However, if you have to pay the premium for them, it is good to know how useful they may really be.

Dental insurance may have a bad reputation. And rightfully so because dental plans usually have high premiums, a high deductible, and a low annual maximum. In a good year, when you only have standard maintenance required for your teeth, you may end up paying more in premiums than you receive in benefits. In a bad year, when you may have multiple requirements, your plan may not cover the total expenses due to its annual maximum. You should be aware that these plans may also have a waiting period for certain procedures.

Vision insurance is not as expensive as dental insurance and can help you get discounts on eye exams, frames, and contacts. Depending on the plan, some may also offer discounts on treatment for eye surgery. These plans cover laser-eye correction surgery if required; however, they typically do not cover elective Lasik surgery.

Overall, both dental and vision supplemental health plans may not be as beneficial as you would expect, and you should consider running a simple cost-benefit analysis for yourself before signing up,

Supplemental Life Insurance

Companies usually offer 1 or 2 times your salary as basic life insurance. Sometimes they may also offer supplemental life insurance at little or no cost to you. However, we recommend you consider purchasing a private policy outside of your employer rather than a supplemental policy through your employer. Group life insurance purchased through your employer is typically offered at a lower premium and without any medical exam. However, this is also tied to your existing employer and is limited in terms of coverage. Instead, a private term policy with a 20- or 30-year term may be better suited to meet your life insurance goals. This way, you are not dependent on your employer for coverage, have locked in a rate for the term, and are no longer worried about any medical issues that may render you uninsurable in the future.

Accidental Death and Dismemberment Insurance

Although this is a life insurance policy, an AD&D policy only pays out at accidental death or dismemberment of body parts and/or loss of function of body parts. Thus, if the insured were to pass away due to an ailment or illness, the AD&D policy does not pay out the benefit. Although good to have, an AD&D is not an acceptable substitute for term life insurance and should not be purchased to cover the gap between existing coverage and required coverage.

Accident Insurance

This plan pays a lump sum benefit after a covered injury or illness due to an accident. Benefits under this plan are paid directly to the insured, allowing him/her to use this to pay for a number of expenses such as deductibles on the health insurance policy, other out of pocket costs, or even to replace lost wages. A supplemental health plan for accident insurance is typically inexpensive but also offers a relatively small benefit and may be most useful if you have a high deductible on your health plan. As is true with all insurance policies, make sure to read through the policy to fully be aware of all its terms and conditions.

Critical Illness Protection

Just as the name suggests, this supplemental policy pays a lump sum benefit if you are diagnosed with a critical illness. Similar to accident insurance, the benefits can be used to pay for any expenses you may incur such as high deductibles, other out of pocket medical expenses, or even simply rent or mortgage. A critical illness protection plan can be inexpensive but will cover only a narrow range of illnesses. The more illnesses covered, the higher the premiums. The premiums are also determined based on your health history, age, and gender. The policy may also be subject to other limitations such as “a simple diagnosis of stroke may not enough to trigger a benefit payment, unless damage persists for more than 30 days” or “a second stroke/heart attack” may not be covered, etc. These plans typically also include age reduction schedules – so the older you get, the more the benefit shrinks. Overall, this may be an appropriate policy for you to buy if the premiums are low and benefits are reasonable. But more often than not, they turn out to be cost-prohibitive.

Hospital Indemnity Plan

A hospital indemnity plan makes a lump sum payment to the insured for going to a hospital for any reason. This includes in-patient services, out-patient services, doctor visits in the hospital, etc. The lump sum payment can be used to meet any expenses such as deductibles, prescription drug costs, etc.

Most plans have a fixed benefit attached to a service. For example, let’s assume a plan states that it pays $200 for emergency room, $1,000 for hospital admittance and $9,000 for 3 days in the hospital. Assuming you use all three of the above services, you would then receive $10,200 in a cash payment. Like all insurance, these policies also have nuances, and the plan description must be carefully read to understand details.

A hospital indemnity policy is separate from your health insurance. It can be a pricey supplemental insurance policy to purchase and sometimes it may make more financial sense to save the premium to a cash account instead. If you have a high deductible health plan, you could choose to invest the amount of premium into an HSA account, which could help pay for some that out-of-pocket cost. An adequate emergency fund could also help fund some of these unexpected health costs. Ultimately, whether a hospital indemnity plan is worth buying will depend on a number of factors such as your health insurance deductible, your copay, your age, etc.

These are the basic Supplemental Health Plans offered by employers.

In addition to the primary employee benefits being offered by your company, should you buy into these supplemental plans? The answer to that question may be pretty straightforward for some but may depend on the number of individual factors for others. Now that you know the basics of what these plans entail, run through a cost-benefit analysis, and make sure to read through the policy booklet so you have the most information available before you make your choice. As always, if you have any additional questions, we’re here to help with all your Employee Benefits needs.