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A lackadaisical economy. Ever-rising healthcare costs. Health care reform … maybe.

These and other factors are contributing to a sense of financial unease for businesses. Higher-deductible health plans can help employers control costs, but they leave employees at increased financial risk.

Most Americans don’t have much in savings to help cushion their wallets from the impact of a major health issue. And nearly two-thirds of U.S. bankruptcies are the result of medical expenses, according to the American Association for Critical Illness Insurance (AACII), Westlake Village, Calif.

Combining voluntary benefits with high-deductible health plans is an effective way for employers to provide employees more coverage. Brokers and employers recognize that critical illness coverage, in particular, is the perfect complement to high deductible health plans, higher co-pays and Health Savings Accounts (HSAs).

The market for critical illness insurance is showing consistent, significant growth. In 2010 Eastbridge Consulting reported that sales of critical illness have doubled since 2007. And as a leading provider of critical illness insurance, Unum has experienced 20% growth each of the past four years. AACII estimates that about 1 million Americans are covered by a critical illness policy.

Sales and claims information from my company, Unum, can help shed light on the product’s growth and how consumers are using critical illness insurance.

Understanding the need and the coverage

Even with medical coverage, out-of-pocket costs for serious health conditions can be high. In a study by Duke University Medical Center and Dana-Farber Cancer Institute of cancer patients, 30% of respondents said their expenses were a “significant burden” and 11% described them as a “catastrophic problem.” These are the kinds of concerns critical illness coverage is designed to mitigate.

In the past five years, Unum has approved more than 6,000 critical illness claims and paid about $70 million in critical illness benefits.

Cancer is the top condition cited, affecting 55% of Unum’s critical illness claims. Heart-related claims are second, involving 28% of claims. Yet, the leading condition differs by gender. Women are more likely to file cancer claims, while men are more likely to file heart-related claims.

Many critical illness policies have a wellness benefit that helps pay for covered health screenings such as a colonoscopy, Pap smear or mammogram. In the past 12 months, Unum has seen an increase of 5% to 10% in use of the wellness benefit. This benefit is an excellent way to encourage employees to take proactive steps toward prevention and early detection. The benefit pays a set payout per calendar year per insured individual if a covered health screening is performed.

Critical Illness Payouts

Critical illness insurance offers a lump sum payment at the diagnosis of a covered illness which can be used for any purpose. Policies typically pay 100% of the benefit amount for heart attack, stroke, major organ failure, permanent paralysis due to accident and end-stage kidney failure and cancer. Some of the newer critical illness plans also can pay abenefit for such conditions as coma as the result of a brain injury, blindness, benign brain tumor, and occupational HIV.  Dependent coverage is typically available. And critical illness policies pay in addition to any existing health, disability or life insurance coverage.

The market seems to have shifted more to group-based critical illness products over the last five years.  Advantages of group critical illness coverage are that it allows for more flexible funding options and it simplifies benefit education and implementation for employers with employees in multiple states.

Group plans may include portability features similar to typical individual plans, so that even if the employer drops the plan, employees can continue their coverage.

Keeping employees engaged

Unum research shows that employees value critical illness and other voluntary coverages. More specifically, it shows an 18-point improvement in employee satisfaction with their benefits package when working for employers that offer voluntary plans compared to employers offering no voluntary benefits – even when employees pay for them. And, according to a 2012 Unum survey on employee education and enrollment, when it comes to comparing employee satisfaction with the employer, there is a nine-point advantage for employers offering voluntary benefits. Studies have also shown that workplace satisfaction is a key driver of employee engagement.

Critical illness insurance is a product designed to meet the needs of employees facing significant out-of-pocket costs due to a serious illness. Further, it blends well with health care plans to provide employees with a more complete benefit package while not adding to employers’ benefit costs.

Critical Illness Insurance: What to look for 

A number of insurance providers offer critical illness plans with an array of features and benefits. Here are some ideas to keep in mind when you’re helping consumers compare plans:

  • Select policies that are HSA compatible, which best complements high-deductible health plans.
  • Some plans pay on a simplified lump sum basis rather than a more complex expense reimbursement arrangement. This saves consumers from having to collect and maintain receipts for medically-related expenses.
  • Seek providers that offer automated guarantee issue enrollment for spouses, which helps to simplify the overall enrollment experience for families.
  • To better match health care coverage, look for policies that cover dependent children to age 26.
  • To help encourage employees to become smart health care consumers, make sure critical illness plans include a wellness benefit for health screenings.
  • Look for a carrier that offers a broad portfolio of coverages that work seamlessly together and offer portability at the same rate if an employer terminates the plan with no replacement coverage offered.