Supplemental insurance is extra or additional insurance that you can purchase to help you pay for services and out-of-pocket expenses that your regular insurance does not cover.
Some supplemental insurance plans will pay for out-of-pocket medical expenses, such as deductibles, copayments, and coinsurance. Other supplemental plans may provide you with a cash benefit paid out over a period of time or given to you in one lump sum. The cash can be used to cover lost wages, transportation related to your health condition, or used to pay for food, medication, and other unexpected expenses you have due to an illness or injury.
A Dr. Mike Tip: Supplemental insurance is just that – a supplement, or add-on. It is not a replacement for regular health insurance!
Medigap – Medicare Supplemental Insurance
One of the most common types of supplemental insurance is Medigap, which can be sold by private insurance companies to people enrolled in Medicare.
Original Medicare (which includes Part A Hospital Insurance and Part B Medical Insurance) pays for many, but not all, health-related services and medical supplies. You can purchase a supplemental insurance policy to cover the “gaps” that are not paid for by Medicare, such as copayments, coinsurance, and deductibles. These can add up to a lot of out-of-pocket expenses, especially if you are hospitalized or need skilled nursing home services.
Some Medigap policies also will pay for certain health services outside the United States and additional preventive services not covered by Medicare. If you are in Original Medicare (Parts A and B) and you have a Medigap policy, first Medicare pays its share of the Medicare-approved amounts for your covered health care costs. Then your Medigap policy pays its share of the cost.
Most Common Types of Supplemental Insurance
Aside from Medigap policies, three other types of supplemental health insurance are widely sold in the U.S. These supplemental policies may be available as a voluntary benefit from your employer or you can purchase one directly from an insurance company.
Critical Illness Insurance
Critical illness insurance (also known as disease-specific insurance) is meant to ease the financial burden of a serious illness, such as cancer. These policies may provide a lump-sum cash benefit to help you pay for additional costs that are related to your illness but not covered by your regular health plan or disability coverage. Depending on the specific policy, the coverage can be used to pay for:
- out-of-network specialists
- travel and lodging when treatment is far from home
- experimental treatment, usually related to cancer therapy
- child care and household help
- normal living expenses, such as your car payment, utility bills, and groceries
Accidental Death Policies
There are two kinds of accident policies, including Accidental Death and Dismemberment Insurance (AD&D) and Accident Health Insurance. They are often combined and sold together. The benefits vary from state to state due to local insurance regulations.
An accidental death and dismemberment policy will pay you a lump-sum cash benefit if you are the named beneficiary of someone who died in an accident. These policies may also pay smaller amounts if the person did not die in an accident but lost a limb, eyesight, or suffered permanent paralysis. AD&D insurance does not pay for any deaths related to illness, suicide, or natural causes.
Accident health insurance (also known as an accident hospital indemnity policy) may pay for medical costs resulting from an accident that are not covered by your regular health insurance. Some of these policies may also pay for extended homecare services, and travel and lodging expenses for family members.
Hospital Indemnity Insurance
Hospital Indemnity Insurance (also known as Hospital Confinement Insurance) provides a cash benefit if you are “confined” to a hospital due to an illness or serious injury. The cash benefit – doled out in one lump sum or as daily or weekly payments – may not start until after a minimum waiting period. Similar to other types of supplemental insurance, the additional coverage is meant to help you pay for services and needed items not covered by your regular health plan.
Buyer Beware – You May Not Need the Extra Coverage
Supplemental health insurance plans are heavily promoted in direct-to-consumer advertising. Many Americans are familiar with the Aflac duck, an advertising symbol that has helped Aflac become the largest provider of supplemental insurance in the U.S.
Although many supplemental policies are not overly expensive, duplicate coverage may be unnecessary. If you are over 65 and have Medicare, you can get the full health coverage you need by purchasing a standard Medigap policy or enrolling in a Medicare Advantage plan.
Your first step is to make sure that you and your family are protected with a regular health plan. If you think you need supplemental insurance, you should ask yourself the following questions:
- If I or a family member gets into an accident or develops a serious illness, will my current health plan cover the costs of treatment?
- How likely is it that I or a member of my family will be in a serious accident or develop a major illness?
- Does the extra cost of the supplemental insurance policy make sense over time?
Additionally, before purchasing a supplemental policy, it is important to understand the limitations and benefits of such insurance. For example, your supplemental policy may not cover all the expenses you expected; it may impose waiting periods before payments start; or, contain limit on how much you paid and for how long.
Before signing on the dotted line, make sure you fully understand the benefits and limitations of the insurance. And, beware of duck poop!
A Dr Mike Suggested Resource
The National Association of Insurance Commissioners has an excellent online brochure: A Shopper’s Guide to Cancer Insurance.