The Role of Critical Illness in Today’s Healthcare Benefits
      A case for Critical Illness Insurance

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Today’s article is written by Guest Author Jay Power, Principal at benefitsContinuum.  Please contact Jay at 203-256-0835 with your questions on Consumer Directed Health Plans or Critical Illness Insurance.

In reaction to rising healthcare costs, employers big and small are considering Consumer Directed Health Plans (CDHP) as the next step along the healthcare benefit continuum.  If organizations haven’t offered CDHPs as an option, they certainly have increased copays and deductibles to keep pace with medical inflation.

The promise of CDHPs is that workers with a financial stake in the game and access to comparative pricing and treatment information will behave like true consumers.  Lower costs will result through lower and more effective utilization of medical care.  The jury is still out regarding the relative effectiveness of CDHPs, but early results are encouraging.  Nay sayers suggest that CDHPs will actually encourage workers to forego routine medical care in order to save money, which will ultimately lead to higher costs down the road.  Some consider CDHPs as just a fancy method of additional cost shifting to employees.

What does this ongoing debate have to do with Critical Illness Insurance and its role in today’s health insurance programs?  Consider it a fact that most employers have no choice but to increase deductibles and copays in order to continue offering affordable healthcare benefits to their employees.  Doing so results in a shift of risk to the employee, especially the heavy users of medical care.  So it is a COST SHIFT after all!  It’s just that this form of cost shift is selective, as it more negatively affects potentially sick or unhealthy individuals.  In every group health insurance plan there are always winners and losers.  In the new paradigm the losers are simply more condensed.  These are the unfortunate individuals that suffer a major unforeseen illness or accident.  This group of losers will also change from year to year, as it is impossible to predict who or which family member will be diagnosed with a life threatening illness.  The reality of winners and losers is what worries most employers and HR managers.  There is a way to address this concern – purchase or let employees purchase a form of reinsurance against such unforeseen risks.  Once form of such reinsurance coverage is Critical Illness Insurance (CII).

Critical Illness Insurance was originally conceived by Marius Barnard, who assisted his brother Christian on the first successful heart transplant back in 1969.  The program is designed to address the financial burden associated with saving a sick person’s life.  Critical Illness Insurance provides covered individuals with a lump sum cash payment upon diagnosis or onset of a serious illness.  There is no requirement for survival in order to receive payment.  In fact, the odds are very good and improving that you will survive a serious illness, thanks to vastly improved medical and therapeutic technology.  It’s this same technology that’s driving the bulk of medical cost inflation in the US.  An economic case can be made for an employer to purchase some amount (i.e. $10,000) of CII for all employees willing to participate in the company’s high deductible health plan (HDHP).  Let’s assume that the annual plan cost differential between the traditional healthcare plan option and the high deductible plan is $1,000 on average.  This means that the plan saves $1,000 for every worker that enrolls in the high deductible plan.  Conversely the cost for $10,000 of CII is under $100 when purchased on a group basis.  Assuming 15% of employees within a 1,000 life company currently participate in the high deductible plan option, the employer could fund a CII benefit for all high deductible plan enrollees on a cost neutral basis if only 17 more people join the high deductible plan option as a result of being provided employer paid CII.  The following illustrates the point:

In addition to getting a better unit price when CII is non-contributory, the coverage is also usually offered on a guaranteed issue basis, which eliminates the chance of someone not qualifying for CII.  Given that some employees may want more than $10,000 of coverage there is no reason why the employer can’t make additional amounts available to all employees on a purely voluntary basis.

CCI can play a significant role in any employer’s healthcare strategy by providing additional protection for employees and families facing higher and higher healthcare deductibles and out of pocket expenses.  CII is an approved coverage under HSA regulations and is fully portable.

The advent of CDHPs and high deductible health plans is giving rise to an array of new specialized benefit offerings designed to augment the migrations towards high deductible plans.  There are products designed to protect against accidents or cover some of the upfront costs of hospitalizations.  CII is part of a growing group of insurance vehicles aimed at today’s healthcare consumer.