Minding the CDHP out-of-pocket medical expense gap

Voluntary Benefits Team

Consumer Driven Health Plans (CDHPs) are getting a lot of attention lately. For example, one major carrier announced that its CDHP participation grew by 26% in 2012. Employers typically don’t move to CDHPs for their plan design, though. The usual trigger is the need to control rising healthcare costs. CDHPs are effective for cost control in part because they shift more of the financial responsibility of healthcare to employees.

CDHPs typically include High Deductible Health Plans offered along with a Health Reimbursement Account (HRA) or a Health Savings Account (HSA), both of which are designed to help employees bear the burden of a higher out-of-pocket responsibility. However, HRAs and HSAs often don’t provide adequate financial protection for employees afflicted with a serious illness, such as cancer, heart attack, or stroke, or for someone who requires a major surgery like an organ transplant.

One way to fill this financial gap is with voluntary benefits.

Voluntary benefits, such as accident insurance, critical illness, and hospital confinement/medical bridge insurance, are plans offered at work. In addition to being more affordable than similar coverage purchased on the open market, these plans provide a wider financial safety net for employees who are bearing an increased portion of the cost of their medical care. Unlike traditional group employee benefits, the policy holder/employee (not the employer) typically covers the cost of premiums. That’s why voluntary products help employers increase the value of the benefits they offer without adding to their budgets.

Below are brief descriptions of plans that could be offered to fill CDHP gaps:

Accident Insurance

This provides a direct payment to the policyholder who suffers from a covered accidental injury. Payments are based on the injury and treatment received as outlined on a schedule of benefits included in the policy. Employees can typically choose coverage for on- and off-the-job or off-the-job-only accidents. They have a choice of family coverage or stand-alone coverage for themselves, their spouse or dependent children. Optional riders on these policies, such as disability income, are available at an additional cost.

Critical Illness Insurance

Critical illness provides a direct payment to the employee who is diagnosed with an illness that is covered under the policy. Illnesses may include but are not limited to heart attack, stroke, end-stage renal failure, organ transplant, HIV, blindness and cancer. The policy issued to the individual employee will outline covered illnesses. A critical illness insurance payment is typically made in a lump sum upon diagnosis and can be spent for any purpose.

Hospital Confinement

This plan provides direct payment to the employee for each day admitted in a hospital due to injury or illness. The payment is used for deductibles and other unexpected expenses that the employee’s health insurance may not cover—costs that are associated with hospitalization. Hospital confinement insurance is one way to guard against catastrophic medical expenses without paying sky-high premiums for more traditional health insurance.

Medical Bridge

These plans are designed to provide direct payments to the policyholder for hospital confinement, preventative care and outpatient surgeries. Payments are made per eligible hospital confinement, preventative care visit or covered outpatient surgery.

Medical bridge, hospital confinement and critical illness can be offered as group products or worksite benefit products. Because the benefits are offered at the worksite, employees receive discounted pricing pay for premiums through convenient payroll deduction.

As employers migrate to CDHC plans to save money, employees may feel anxiety about their increased out-of-pocket financial exposure. A recent MetLife study found that six out of 10 employees are concerned about covering out- of- pocket medical costs. You can offset this anxiety by offering a robust portfolio of voluntary benefits.