Nowadays high inflation is seemingly impacting most Americans at every turn, and it is no wonder folks are looking for expenses to cut to balance their household budgets. We have many insurance broker partners and participants utilizing our services, expressing the concerns and challenges today with making ends meet. If you are one of them, you are not alone. Many Americans may become tempted to look at their supplemental benefits as an area to cut expenses in an attempt to balance their family budget. While this may give some immediate relief, it can create devastating exposure and vulnerability to families following an unexpected (otherwise covered) loss.
Simply put, insurance is a gamble, the insurance companies rely on aggregated numbers and have a good idea of how often a loss will occur, but they don’t know WHO exactly will be effected. When an insurance company agrees to issue an insurance policy, they are betting the loss won’t come to that participant, at least not for a while. When the participant (insured) purchases insurance they are betting that it could be them that a loss effects so they are transferring that risk should the loss occur. That is why many explain insurance as a gamble. If the insurance company pays out, the participant wins, when the insurance company does NOT have a claim to pay, the insurance company wins. That said, there is some sense of peace of mind in knowing if a covered loss does occur, the financial impact will be softer than not having the coverage at all. As we get older (and hopefully wiser) we start to realize we aren’t bullet-proof anymore and start to seek those protections in the form of voluntary benefits, also known as supplemental benefits.
What are supplemental benefits?
Supplemental benefits generally fall into two categories, they are either designed to pay first dollar expenses that will help cover the first out of pocket expenses associated with an accident or illness such as copays, coinsurance, out of pocket maximums to name a few which are paid directly to the providers; or supplemental benefits may be designed as an indemnity plan that pays the insured directly against a schedule of losses, for example it may pay $X,XXX per 24 hour period in the hospital or $XX,XXX for a cancer diagnosis and treatments, or $XXX following wellness check ups.
In leaner economic times, consumers may be tempted to cancel those supplemental benefits, considering the coverages as an extra expense, especially if they have not used the plans before or for some time. Families need to carefully consider their unique situations and make these decisions for themselves, that said, knowing what we know in this industry we think it is important that consumers carefully consider the whole situation and that they make this decision carefully with the consequences/rewards in mind. It is our estimation, that as a general rule for most Americans, supplemental benefits should be one of the last areas to cut for budgeting and here are some reasons why and some considerations for you to look at.
What are the advantages of supplemental benefits?
While expenses around us seem to be skyrocketing, many, if not most, supplemental insurance benefits are rate-stable, meaning they generally do not get re-rated (prices tend to be fixed), once you establish that insurance you can typically rest easy that your premiums are locked-in for some time if not for the entire duration of the policies. Having rate stable insurance is agreeable to most insureds today because it is one less variable in their budget they need to contend with as daily living cost increase.
As a general rule, if someone cannot afford the premiums to supplemental insurance, they, in most situations, would be in real financial trouble without the insurance should a covered event cause a loss to themselves or their family. Since most families do not have months of expenses saved in reserve for a rainy day, supplemental insurance policies that pay out first dollar expenses or indemnify policyholders with payments directly to them, supplemental benefits are more than just peace of mind should something happen, they can be the one thing that protects a family from bankruptcy. In other words, supplemental insurance can be the saving grace for a family without extensive savings, should an unexpected loss occur.
Benefits directly paid to the policyholder for a loss are generally able to be used for any expenses they deem fit. These monies could go to offset co-pays, coinsurance, or out of pocket maximums, but more importantly they can go to pay rent or mortgage, or other personal expenses such as gas, cell phones, electricity, or even offset lost income from a caretaker taking time off work to care for a loved one who has become sick or injured. (especially important when no disability is available to the caregiver.)
Don’t just take our word for it.
According to Kaiser Family Foundation, 41% of Americans carry some sort of medical debt and 24% were considering bankruptcy due to lack of proper health insurance coverages. Most health insurance policies come with high deductible and co-pays along with other out-of-pocket expenses which can add up to tens of thousands of dollars that the policyholder is responsible to pay following a significant medical event, or when the primary insurance falls short of the family’s needs. Supplemental health insurance helps with that exposure by paying policyholders directly to help cover these deductibles, co-pays, and out-of-pocket expenses. But as mentioned above, many policies pay the participant and they are free to prioritize those payouts to cover whatever expenses they are facing. Indemnity insurance payments generally are not required to be paid to medical providers. Most common types of supplemental health plans people buy are mini-medical or MEC (minimum essential coverage), accident, cancer, critical illness & hospital to cover most catastrophic, as well as some routine medical events.
Without full knowledge of your individual situation, we cannot tell you if you should retain or cancel your supplemental insurance benefits. But what we can say is that generally speaking, if you cannot afford to continue to pay the insurance premiums, then you very likely cannot afford NOT to have these coverages, should a covered event come to you or your loved ones.
Are supplemental benefits affordable?
If you currently have supplemental health insurance and are considering canceling your policies to make room in your budget for the increasing obligations you are facing, ask yourself if you can afford tens-of-thousands of dollars in medical bills from a major medical event. Most people cannot afford those unexpected expenses and those that have elected to keep their coverages are sure glad they didn’t cancel when life throws them a curveball with a covered medical event. Insurance brokers also need to advise their policyholders the financial risk they are exposing themselves to by not being prepared with having supplemental health insurance to help cover their existing health insurance deductible and co-pay exposure. If you are one of the many that do not have several months of living expenses saved, you may appreciate being encouraged to look at Voluntary Benefits as one of the last places to shave expenses.
In our opinion, times like these are not the times to do away with important protections that secure households in the event of a loss, it is more appropriate to lean in, fully comprehend your coverages, and look to utilize your coverages while looking to trim other expenses that don’t provide the level of security and peace of mind that these plans tend to provide.
In the interest of saving money, we want to provide you with a link where you can utilize discounts to stretch your dollar. Simply create your log in and enjoy free access to the many ways to stretch your dollar on the discounts page. Accessing this system and it’s many discount programs is free for friends of PIOPAC. We hope you got something out of this blog post.