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How to cope with health care uncertainty

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Planning for Rising Health Care Costs

When it comes to health care, these are uncertain times. And that’s not only because of questions caused by the ongoing health care debate. There’s also the matter of rising health care costs in premiums and deductibles. From 2011 to 2016, for example, the average deductible for plans covering one person rose 63 percent. Annual premiums reached an average of $18,142 per family in 2016, including both the employer and employee’s share, up three percent from the year before.

There’s a way you can hedge against health care uncertainty

A hedge is a way to protect or defend yourself against financial loss. Supplemental insurance policies can function as a hedge by helping to protect against possible health-related charges that aren’t covered by your current insurance. The fact is, if you or a family member experiences a serious illness or accident, your insurance might not pay for all the costs incurred. Supplemental insurance can help cover a wide variety of personal health care costs, including everything from X-rays to transportation for a companion, depending on the plan. Plus, the money is paid to you directly, rather than going to doctors or hospitals first.

What types of supplemental coverage are available?

Accident insurance pays out money you can use to protect yourself and your family in case of a serious mishap, covering services like physical therapy, fractures and doctor visits. Hospital indemnity policies help pay for bills not covered by standard medical plans, often including a wide range of expenses, from hospital stays to diagnostic tests. One study found that, even with insurance, the average hospital stay costs over $1,000 in out-of-pocket expenses. Without insurance, the costs are huge, with a typical three-day hospital stay costing $30,000.5 Think of all the things you could buy with that money.

Given that 15 million American adults (ages 19-64) will use up all their savings to pay medical bills, it’s important to have coverage that can help you keep your savings intact. Critical illness insurance targets expenses for conditions like a heart attack or stroke, which, in addition to being life-threatening, can be financially draining without the right protection. Coverage under cancer insurance policies begins with your diagnosis and continues through your recovery. As with critical illness, cancer, which occurs at a rate of 33 percent in the U.S., specifically increases your chances of bankruptcy by a factor of 3. You can read more about the risks and costs of these medical conditions here.

High-deductible plans

Supplemental insurance coverage is well-suited for those with high-deductible plans. In 2018, the minimum annual deductible for these plans will be pegged at $1,350 for individuals and $2,700 for families.6 Your deductible could be a lot more. While health savings accounts (HSAs) were implemented to help manage the out-of-pocket costs of high-deductible plans, they do not address the concern of cash flow: You may need to come up with a lump sum to cover a single event, such as an accident or something that requires a hospital stay.

With an HSA, your account may be underfunded, and you may have to deduct more from your paycheck to cover the balance. But with supplemental coverage, as long as you keep up with your monthly premium payments, you can be directly reimbursed for the full cost of care.

The health care world is in the midst of a tumultuous period — and it’s likely to remain volatile for a while. Supplemental coverage is one way to help protect yourself and your family in case you face a health crisis and unanticipated health care costs, even in these uncertain times.7 More and more companies are offering supplemental insurance options as a voluntary benefit, which means you pay all or part of the cost of coverage, but benefit from lower rates. Check with your employer or HR rep to find out what kinds of insurance you can opt into, or look for providers that will sell directly to you. 

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1 John Hancock, Shefali Luthra, “High Deductibles Are Forcing Employees to Pay More Money Out of Pocket,” Sept. 15, 2016.

2 National Conference of State Legislatures, “Health Insurance: Premiums and Increases,” 2017.

3 https://www.merriam-webster.com/dictionary/hedge

4 Dr. Emily R. Adrion, Dr. Andrew M. Ryan, Amanda C. Seltzer, “Out-of-Pocket Spending for Hospitalizations Among Nonelderly Adults,” Sept. 2016.