Supplemental Health Insurance

What Is Supplemental Health Insurance?

Supplemental health insurance supplements your primary health insurance coverage. Some supplemental health insurance policies cover certain events, like hospital stays or disability. Others cover specific health conditions, like cancer, a major organ transplant, or kidney failure. It can also help with out-of-pocket costs like deductibles and prescriptions and may even pay for nonmedical expenses such as lost income or childcare.

Supplemental coverage encompasses many kinds of policies — from dental and vision insurance to critical illness insurance. There are even standalone supplemental policies for seniors that were created to meet the unique needs of older Americans, that are not part of Medicare. Supplemental insurance is an important component of financial planning for all age groups, especially if you think you may not have the assets to pay for unexpected medical bills.

Who Needs Supplemental Health Insurance?

Many individuals would benefit from the protection that a supplemental health insurance policy provides, depending upon their age, health condition, and finances. Seniors and individuals with serious health conditions are the most likely candidates for this kind of insurance, but anyone with health insurance that leaves them with serious gaps that could cause financial problems should consider supplemental coverage. If your annual deductible and out-of-pocket maximum for your health insurance plan is greater than your savings, you may not be able to afford your medical expenses and would benefit from supplemental coverage.

Likewise, if you have children and will need extra childcare expenses if you are ill or injured. If you don’t have sufficient savings to cover your expenses while you’re off work for an illness or injury, you may want to consider supplemental health insurance. Any savings you’ve been accumulating in a HSA or FSA account would also impact your decision to purchase supplemental coverage.

Not everyone may qualify for every available supplemental insurance product. Some supplemental health policies only accept applicants from particular age groups. For example, you may need to be 65 years old to qualify for supplemental insurance plans written specifically for seniors. If the supplemental policy is created to cover a specific illness or condition, you may need to have a medical diagnosis for that condition, although a prior diagnosis is not always required to qualify. Some policies may have a waiting period before coverage commences or impose a benefit suspension period between recurrences. Others may reduce coverage once the policyholder reaches a certain age. Some products are only available through employer-sponsored coverage.

How Does Supplemental Health Insurance Work?

Most supplemental health insurance policies work like other health insurance plans: the policyholder receives care and submits a claim for reimbursement. If your primary insurance covers part of a healthcare cost, the supplemental policy should cover the remaining amounts. Supplemental plans may pay benefits directly to the insured, but sometimes benefits are paid to your provider.

Many supplemental policies pay benefits in a lump sum, while others provide a daily, weekly, or monthly cash benefit. the amount paid and the way it’s paid out will depend on the provisions of your policy. Most supplemental policies are not sold through the federal health insurance marketplace, but are offered by many employers and can also be purchased directly from insurance companies.

Examples of supplemental health insurance policies and the different ways they work include:

  • Accident Insurance covers accidental injuries that need treatment, urgent care, or hospitalization upon the submission of a claim.
  • Critical Illness Insurance provides a lump-sum benefit for the diagnosis of major, chronic, and debilitating illness such as heart attacks, diabetes, stroke, Alzheimer’s and Parkinson’s disease.
  • Cancer Insurance covers treatment for a cancer diagnosis and related procedures, treatments, and screenings upon submission of a claim.
  • Dental Health Insurance covers dental treatments for individuals over 18 years old upon submission of a claim.

Supplemental Health Insurance Benefits

Supplemental health insurance policies will pay the out-of-pocket cost that applies to a traditional health insurance policy, such as deductibles, copayments, and coinsurance. These policies may also pay for the medical services that health insurance doesn’t cover at all, such as dental and vision costs.

Still other supplemental policies may provide a cash benefit that is paid out over a period of time, while the benefits under other policies are paid in a single lump sum that can be used at the insured’s discretion for things like lost wages, transportation related to your health condition, food, medication, and other unexpected expenses. This flexibility is an important benefit of supplemental health insurance. Furthermore, some supplemental coverage, such as critical illness plans, may carry tax advantages for policyholders.

Supplemental Health Insurance Coverage

Available coverage under a supplemental health insurance policy generally pays for the healthcare costs and related expenses that are not usually covered under a traditional health insurance policy. There are many kinds of supplemental insurance policies, and the coverage afforded differs according to the type of policy.

Some examples are:

  • Critical Illness or Disease-Specific Insurance, which pays a cash benefit to cover treatment for certain diseases, such as cancer that can be used at the policyholder’s discretion (also Cancer Insurance)
  • Accidental Death and Dismemberment Insurance, which reimburses for medical costs that result from accidents, including auto accidents and those that occur elsewhere; death benefits are paid to named beneficiaries
  • Hospital Insurance, which covers out-of-pocket expenses when the insured is hospitalized, such as deductibles, prescriptions, and other costs not covered by health insurance
  • Hospital Indemnity Insurance, which covers a predetermined payment to the insured or the provider in the event of illness or injuries covered by the policy
  • Disability Insurance, which covers a portion of the income the insured fails to earn when he or she gets too sick or severely injured to continue working
  • Long-term Care Insurance, which covers the cost of nursing home and other long-term care
  • Dental and Vision Insurance, which covers the cost of dental and vision care that is not included in traditional health insurance policies
  • Supplemental Insurance for Seniors, which covers the unique needs of older policyholders, including medical treatment not covered by Medicare; other senior-specific insurance includes dental, vision, and final expense insurance

Supplemental Health Insurance FAQs

What are some examples of a supplemental health insurance policy?

Some examples of supplemental health insurance policies are:

  • Critical Illness or Disease-Specific Insurance
  • Accidental Death and Dismemberment Insurance
  • Hospital Insurance
  • Hospital Indemnity Insurance
  • Disability Insurance
  • Long-term Care Insurance
  • Dental and Vision Insurance
  • Supplemental Insurance for Seniors

How much does supplemental health insurance cost?

The cost for supplemental health insurance depends on several factors and amounts will vary greatly. In general, factors influencing the cost of coverage include the following:

  • Where you live
  • The insurance carrier providing the coverage
  • The type of plan
  • The benefit level you select

Average monthly premiums for a supplemental health insurance policy for seniors can range from $150 to $200 per month. Long-term care insurance can range between $1,500 and $2,700 per year, depending upon your age and health condition. Dental insurance can cost between $15 and $50 per month, depending upon the coverage level selected. Medicare Plan G cost between $199 and $473 per month in 2020, although there is a wide range of prices for Medicare supplement policies since each insurance carrier uses a different pricing method for plans.

What are supplemental benefits?

Supplemental benefits vary according to the type of policy at issue. Examples of supplemental benefits are:

  • Deductibles and co-pays
  • Hospital costs such as private rooms and private duty nurses
  • Emergency room visits and outpatient surgery
  • Child care and lost wages
  • Services and expenses associated with an accident
  • Dental and vision services

What are some examples of supplemental health insurance plans?

Medigap Plans are well-known supplemental health insurance policies that help pay for healthcare costs that Medicare Parts A and B do not cover. The availability of this coverage varies by state and Medigap plans are subject to federal and state laws and regulations. Medigap Plans F and G were the most popular Medicare Supplement plans during 2021.

Is supplemental health insurance right for seniors?

Seniors are perhaps the largest target market for supplemental health insurance and many of these products are created specifically with seniors in mind. Because the likelihood of serious illness and the need for long-term care increases as a person ages, supplemental health insurance is a necessary aspect of financial planning. In fact, without Medigap or some other supplemental coverage like an employer-sponsored plan or Medicaid, there is no cap on how high original Medicare out-of-pocket costs can get. Most seniors accordingly maintain some type of supplemental coverage. And while deductibles under these supplemental plans tend to increase from year to year, those amounts remain far lower than the costs uncovered medical services and related expenses.

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