Should I Buy Supplemental Health Insurance?

A great idea for some but not for others

Supplemental insurance is extra or additional insurance that you can purchase to help you pay for services and out-of-pocket expenses that your regular insurance does not cover.

Some supplemental insurance plans will pay for out-of-pocket medical expenses, such as deductibles, copayments, and coinsurance. Other supplemental plans may provide you with a cash benefit paid out over a period of time or given to you in one lump sum. The cash can be used to cover lost wages, transportation related to your health condition, or used to pay for food, medication, and other unexpected expenses you have due to an illness or injury.

Medigap: Medicare Supplemental Insurance

One of the most common types of supplemental insurance is Medigap, which can be sold by private insurance companies to people enrolled in Original Medicare. (Medigap plans cannot be paired with Medicare Advantage plans).

Original Medicare, which includes Part A hospital insurance and Part B medical insurance, pays for many, but not all, health-related services and medical supplies. You can purchase a Medigap policy to cover some or all of the out-of-pocket costs you'd otherwise incur under Original Medicare, include copayments, coinsurance, and deductibles. These can add up to a lot, especially if you are hospitalized or need skilled nursing home services.

If you have Original Medicare but lack Medigap coverage, there is no limit to how high your out-of-pocket costs can be. By contrast, Medicare Advantage plans cap out-of-pocket expenses without the need for supplemental insurance.

Generally speaking, Medigap only picks up the out-of-pocket costs for services that are otherwise covered by Medicare. The plans do not pay for things that Medicare doesn't cover. Some Medigap policies will also pay for certain health services outside of the United States that are not otherwise covered by Medicare.

If you are enrolled in Original Medicare (Parts A and B) and have a Medigap policy, Medicare will first pay its share of your covered health care costs. Your Medigap policy will then cover the rest.

While there are Medigap plans that cover all out-of-pocket expenses for all covered services, those plans will no longer be sold after December 31, 2019. From January 1, 2020, the Medicare Part B deductible will no longer be covered in any Medigap plan.

Currently, Medigap Plans C and F do include coverage for the Part B deductible. People who have these plans at the end of 2019 will be allowed to keep them. New enrollees will only be able to purchase the adjusted plans from 2020 and beyond.

Common Types of Supplemental Insurance

Aside from Medigap policies, three other types of supplemental health insurance are widely sold in the U.S. These supplemental policies may be available as a voluntary benefit from your employer or you can purchase one directly from an insurance company.

Critical Illness Insurance
Critical illness insurance, also known as disease-specific insurance, is meant to ease the financial burden of a serious illness such as cancer. These policies may provide a lump-sum cash benefit to help you pay for additional costs that are related to your illness but not covered by your regular health plan or disability coverage.

Depending on the specific policy, the coverage can be used to pay for:

  • Deductibles
  • Out-of-network specialists
  • Travel and lodging when treatment is far from home
  • Experimental treatments, usually related to cancer
  • Childcare and household assistance
  • Normal living expenses, such as car payments, utility bills, and groceries

Accidental Death Policies
There are two kinds of accident policies, including accidental death and dismemberment insurance (AD&D) and accident health insurance. They are often combined and sold together. The benefits vary from state to state due to local insurance regulations.

An AD&D policy will pay you a lump-sum cash benefit if you are the named beneficiary of someone who died in an accident. These policies may also pay smaller amounts if the person did not die but lost a limb, eyesight, or suffered permanent paralysis. AD&D insurance does not pay for any deaths related to illness, suicide, or natural causes.

Accident medical insurance, also known as an accident hospital indemnity policy, may pay for medical costs resulting from an accident not covered by your regular health insurance. Some of these policies may also pay for extended home care services, as well as travel and lodging expenses for family members.

Accident supplement policies are popular with healthy people who have high-deductible insurance plans, defraying upfront premium costs while providing a "backup plan" in the unlikely event of a calamity.

Hospital Indemnity Insurance
Hospital indemnity insurance, also known as hospital Confinement insurance, provides a cash benefit if you are confined to a hospital due to an illness or serious injury. The cash benefit, doled out either in one lump sum or as daily/weekly payments, may not start until after a minimum waiting period.

Similar to other types of supplemental insurance, the hospital indemnity coverage is meant to help you pay for services and needed items not covered by your regular health plan.

Deciding If You Need Supplemental Coverage

Supplemental health insurance plans are heavily promoted in direct-to-consumer advertising. Many Americans are familiar with the Aflac duck, an advertising symbol that has helped Aflac become the largest provider of supplemental insurance in the United States.

Although many supplemental policies are not overly expensive, duplicate coverage may be unnecessary.

Generally speaking, if you are over 65 and have Medicare, you can get the full coverage you need by purchasing a standard Medigap policy or enrolling in a Medicare Advantage plan. In most cases, nothing else is needed.

If you are under 65 and/or don't have Medicare, your first step is to determine if you and your family are fully protected with a regular health plan. If you think you need supplemental insurance, start by asking yourself the following questions:

  • If I or a family member gets into an accident or develops a serious illness, will my current health plan cover the costs of treatment?
  • Do I have a way to cover the out-of-pocket costs that would be incurred under my current health plan, along with the additional expenses that could go along with being sick and/or being out of work for an extended period of time?
  • How likely is it that I or a member of my family will be in a serious accident or develop a major illness?
  • Does the extra cost of the supplemental insurance policy make sense over time? 

Additionally, before purchasing a supplemental policy, it is important to understand the limitations and benefits of such insurance.

For example, your supplemental policy may not cover all the expenses you expected; it may impose waiting periods before payments start; or contain limits based on how much you paid and for how long.

It is important to understand that supplemental insurance is not regulated by the Affordable Care Act. This means that an insurer can deny coverage based on your medical history, impose limits on pre-existing conditions, and cap benefits at fairly low levels.

A Word From Verywell

However great the terms of a supplemental health insurance may be, the plans are neither intended to stand alone nor replace your regular health insurance. Supplemental insurance is just that: a supplement.

Before signing on the dotted line, make sure you that fully understand the benefits and limitations of the policy. If you do not, contact your state's department of insurance for a referral to a consumer advocate or helpline.

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