Insurers push policies for coverage gaps

Call it insurance for your health insurance. As deductibles get bigger, insurers are pushing extra coverage that can help people with certain serious health problems cover out-of-pocket costs.

These "critical illness" policies have been around for years, but Minnetonka-based UnitedHealthcare and St. Paul-based Securian Financial Group are among the insurers making recent moves in the growing market.

The coverage pays a lump sum of cash if a policyholder is diagnosed with cancer, stroke or one of several specified illnesses. More employers are offering the coverage, with workers typically paying the full premium cost.

"As health care costs have risen, more and more employers have been going to high deductible plans," said Gary Harger, vice president of voluntary products with UnitedHealthcare. "As they go to high deductible plans, that does leave a gap where now there's more annual out-of-pocket [costs] for a consumer."

Some see trouble in those trends for consumers.

Administrative costs with what used to be called "dread disease" policies tend to be high, with a relatively small share of the premium dollar being paid out in benefits to consumers, said Timothy Jost, an emeritus law professor at Washington & Lee University.

"They're not a very high-value product to consumers, and are probably a much higher-value product to the people who are selling them," said Jost, who advises the National Association of Insurance Commissioners on consumer issues. "They're profitable for insurers, and profitable for insurance agents and brokers."

About 81 percent of workers in employer-sponsored health plans faced a general annual deductible last year, according to a survey from the Kaiser Family Foundation.

The average deductible for single coverage at the time was $1,318 — 40 percent higher than during 2010, the foundation reported in September.

Deductibles are sums that consumers must pay out of pocket before most coverage begins. Their structure with family coverage can be twice as high in some cases.

In the individual market, where people buy coverage outside of employer groups, more consumers are purchasing "bronze" plans with annual deductibles that can run about $6,000 per person.

Those trends help explain the growth in critical illness policies, insurers say. About one-third of employers surveyed in 2015 offered critical illness coverage, which was up from 22 percent in 2011, according to the Society for Human Resource Management.

While individuals can buy critical illness policies directly from insurance companies, people buying through an employer typically see lower rates, said Michael McGuire, an insurance agent with AFLAC, a Georgia-based insurer that's sold the coverage for years.

Traditionally, companies that don't sell health insurance have sold the most critical illness policies, McGuire said. But health insurers see this as a growth area, he said, since they can offer it to employers as a supplement to the group health plan they're administering.

"This part of the industry is continuing to grow — there are new players every day," McGuire said.

UnitedHealthcare launched a new version of its critical illness policies in 2011, and has added new benefit features in the past year.

While cancer, heart attack and stroke are the most common triggers for payouts, United's policies cover 12 base conditions and can be expanded to another six advanced conditions such as Alzheimer's disease and Parkinson's disease, said Harger, the company official.

Premiums vary based on a number of factors, but buyers in their early 40s might pay about $60 per year for a $5,000 policy, Harger said.

Securian started developing its critical illness business less than three years ago, and is now selling policies in almost all states, said Elias Vogen, the insurer's director of group voluntary products.

The ratio of payouts to premiums with the policies has been relatively low with some critical illness insurers, Vogen acknowledged. But he said Securian has designed products to have ratios that are among the highest in the industry.

While consumers with high deductible health plans might be drawn to the policies, there's no requirement that payouts be used for that purpose.

"You can use this money for … any type of expenses, for whatever reason — related to, or not related to, the incident," Vogen said.

Consumers considering critical illness policies might want to look at whether their needs might be better met with a good disability insurance policy, or money in a Health Savings Account, said Roger Feldman, a professor of health policy and management at the University of Minnesota.

The Minnesota Department of Commerce says consumers should shop around for the best deal, and be clear about when and how benefits are triggered.

While the federal Affordable Care Act requires that health insurers spend at least 80 percent or 85 percent of premiums on specified health care costs, Commerce says the minimum "loss ratio" for critical illness policies in Minnesota is 50 percent, with an actual ratio in the state during 2014 at 68 percent.

Vogen of Securian argued that the comparison is "apples and oranges," since critical illness insurers run a bigger risk of "anti-selection," meaning only those at higher risk for needing the coverage will buy it.

Jost of Washington & Lee University said the difference in loss ratios is one reason consumers should be cautious. Potential buyers also must realize that critical illness policies don't provide full health plans that satisfy coverage requirements under the federal health law.

"They are a product that may be beneficial for people in terms of income replacement," Jost said. "If you come down with cancer, you're not going to be covered for lost income by your health insurance policy."

But he added: "Virtually everybody would be better off with a major medical policy, with lower cost-sharing, rather than a critical illness policy that probably won't cover the vast majority of things they're going to need."

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck