As health care cost increases show no signs of abating, employers continue to seek new and creative ways to control their benefits costs. Pairing self-insurance, where an employer funds its own medical expenses, with stop-loss coverage is an increasingly popular option to help employers gain more control over these costs.
While self-insurance provides greater control as well as financial and regulatory protection for employers, it does not help employees who may also be faced with increased deductibles and other out-of-pocket costs. Employers should consider extending a modest level of critical illness coverage — perhaps $2,000 to $5,000 — to their employees, so when a catastrophic claim occurs, both the employer and employee are financially covered.
Another important factor that cannot be overlooked is the benefit to you — the financial professional. The critical illness benefit can generate commissions — typically structured as level commissions for the life of the plan — for the benefits broker.
Meeting an employee need
According to the Bureau of Labor Statistics' 2011 Consumer Expenditure Survey, Americans' average annual household income was $63,685, with expenditures eating up $49,705 of that income. While some expenses, such as entertainment, can be easily trimmed with some resolve, many expenses are fixed, especially over the short term. In addition, a 2011 National Bureau of Economic Research paper found that nearly half of Americans are "financially fragile," meaning they could not access $2,000 easily for an unexpected expense. Given these statistics, it is easy to see how a critical illness can put a family on the financial brink.
With this troubling backdrop, employees are facing increased deductibles and other out-of-pocket expenses. These costs are likely to rise as Patient Protection and Affordable Care Act (PPACA) requirements for services — such as experimental therapies and the "essential benefits package," a set of health care service categories that must be covered by certain plans — are implemented and employers look to fix their expenditures on health insurance. Also, consider that most employers want to provide a well-rounded benefits plan for their employees, and they want that package to be valued.
Unlike more traditional employer-paid offerings, such as life insurance, critical illness insurance — a limited benefit policy designed to supplement medical plans with fixed payments on a covered diagnosis — can benefit employees by providing stop-loss type coverage for employees for infrequent, catastrophic diagnoses. Typical critical illness coverage packages include coverage for such things as heart attack, stroke, paralysis or cancer.
For an employee or family faced with a diagnosis such as this, a lump sum, tax-free (when premiums are paid with post-tax dollars) benefit can provide the cash necessary for them to continue to make mortgage or rent payments, pay for child care, or otherwise pay regular household bills. Or critical illness insurance can cover deductibles, co-pays or coinsurance not covered by a medical plan. This is especially beneficial since disability coverage typically only covers 60 percent, on average, of pre-disability income — and that benefit is taxable.
Many carriers have structured their critical illness offerings so employers can pay for coverage for the employee only and allow the employee to purchase coverage for his or her spouse and/or children. In addition, employer-paid critical illness premiums are typically very competitive because insurers get a better spread of the risk than with purely voluntary coverage offerings.
