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Supplemental healthcare policies may relieve some worries

Health InsuranceHealthcare Policies and LawsDiseases and IllnessesInsuranceAFLAC Inc.
Unlike health insurance that pays medical bills, supplemental policies may be used for a variety of expenses
The best-known seller of supplemental insurance is AFLAC, thanks to its marketing campaign with a talking duck

Nicholas Lazzarini has a pretty good health insurance policy. But as a self-employed dancer, he says he worries about becoming sick or injured and incurring extra costs. "Unless you're on a TV show, you don't have coverage," says the 29-year-old from Van Nuys.

For extra protection against unforeseen medical costs, Lazzarini decided to buy two additional policies to supplement his health insurance plan. He bought a critical illness plan, which will pay a lump sum if he becomes sick with a serious ailment like cancer or a severe burn, and an accident plan that will put cash in his pocket should he injure himself.

"If I'm working at a dance studio where I have to cover myself, it's smart to have that extra protection in case I can't work," he says.

When it comes to buying supplement policies for accidents and critical illnesses, experts urge consumers to shop around, make sure they're getting only what they need and know how the policy works. Every insurance plan is different.

By far, the largest and best-known seller of this kind of insurance is AFLAC — thanks to its huge marketing campaign fronted by a talking duck.

These supplemental policies are among a growing menu of voluntary benefits offered by employers and insurers to help consumers pay their bills in case of a catastrophic medical event. And they can be used to offset the cost of out-of-pocket medical expenses.

Unlike health insurance that pays medical bills, supplemental policies may be used for a variety of expenses such as baby-sitting, car payments, mortgages and transportation.

Critical illness plans offer a set cash benefit that is triggered by a diagnosis such as cancer or heart attack. The cost of an average individual plan is about $25 per month and cash benefits commonly range from $5,000 to $50,000.

If you have a heart attack, for example, you might receive a lump-sum payment of $20,000.

A mid-range accident plan costs $21 per month for an average individual. Policyholders could receive $350 for each day of hospitalization and $150 for an ambulance ride required by an accident. The loss of fingers could yield a lump-sum payout of $5,000.

Many accident plans also have a life insurance benefit: If a policyholder dies because of an accident, a payout of, say, $50,000 may be made to his or her family.

Sales are on the rise. "Accident and critical illness are two areas of growth," says Anita Potter, research director with LIMRA, an insurance and financial services research organization. Her firm estimated that sales of critical illness plans jumped 28% and accident plans rose 14% in 2013 over the year before.

The increased popularity of supplemental benefits is partly the result of employers and insurers cutting back on benefits to keep costs low, experts say, while medical costs are going up.

"People get worried about the high deductibles and look to supplement their health insurance policies with accident and critical illness plans," says Carrie McLean at eHealth.com, an online health insurance exchange.

At the same time that medical costs are rising, Americans seem less able to shoulder the burden. A recent report by AFLAC found that nearly 50% of workers surveyed said they could afford less than $1,000 if faced with an unexpected serious illness or accident.

Supplemental insurance products enable employers to offer people additional financial protection without much additional cost, says Michael Thompson, principal with PricewaterhouseCoopers' Health and Welfare Practice.

"Employers are interested in offering a suite of options to employees to embellish their benefit programs without adding significant cost to the company," he says.

Experts say these policies can be useful but aren't for everyone, and offer a few suggestions before buying these policies.

•Know what you're buying … and what you're not. Critical illness, cancer-specific, accident and hospitalization policies, which provide cash payouts if you're hospitalized, are not comprehensive health insurance. "They are intended to supplement, not take the place of major medical insurance," says Matthew Owenby, a vice president with AFLAC.

The cash payouts can be used to cover the cost of health plan co-payments and deductibles. Typically, though, they are used to cover daily living expenses, such as gas or groceries, mortgage or car payments. If you're hospitalized a distance from your home, the money can be used for child care or a daily fund for family lodging.

"It gives you an extra layer of coverage to help recover from the financial pressure of cancer or an accident," Owenby says. Finally, he adds, look into how quickly the insurer pays claims and how easy or difficult it is to collect.

•Consider alternatives. "If your health insurance plan is eligible for use with a health savings account, that's a great way to set aside money tax-free to use toward your deductible or other medical expenses," McLean says. For some people, it may make more sense to fund an HSA than buy an additional insurance policy.

However, HSA money can only be used for qualifying medical expenses. "If you receive a payout from one of these [supplemental] plans, you can use the money for whatever you need. That could mean paying off your deductible, but it could also mean paying other household and family expenses while you're in the hospital or unable to work," McLean says.

•Shop smart. Experts say to pay close attention to plan details before you buy.

For example, dollar-limit payouts vary from one plan to the next. "I wouldn't go under $750,000," McLean says. Any major illness or injury requiring hospitalization can easily lead to hundreds of thousands of dollars in expenses, she says.

Also, check the list of illnesses covered by critical illness policies. If you're at high risk for Parkinson's disease, for example, make sure that your policy covers it.

Lazzarini, the professional dancer, says injuries are a reality in his work, so he'd rather be safe than sorry.

The extra coverage provided by his accident and critical illness policies give him peace of mind, he says. "For me, insurance is a precautionary thing."

healthcare@latimes.com

Zamosky is the author of the book, "Healthcare, Insurance, and You: The Savvy Consumer's Guide."

Copyright © 2014, Los Angeles Times
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