Rising Deductibles Boost Patients’ Use of Critical Illness Plans

January 19, 2016

by Amanda Conschafter, blog editor

Patients diagnosed with debilitating conditions often struggle to pay the high deductibles required for their health plans to begin covering treatment. Now, a product designed by insurers to fill the gap for these patients is on the rise.

Specialized coverage known as “critical illness plans” provides a lump sum to help patients pay to treat specific conditions, such as cancer. These plans may offer peace of mind, but they come at an added expense to the patient. And they fail to address the root problem—health plans whose cost-sharing burden leaves sick patients vulnerable.

How Critical Illness Plans Work

For an average annual premium of $283, patients are eligible to receive a lump sum of about $25,000 in the event of critical illness. The money can be used for treatment and medication costs as well as the added expense of visiting out-of-network hospitals or physicians. Patients may also be permitted to apply the money toward travel to visit specialists and related expenses, such as child care.

Not all patients are eligible for all types of critical illness plans, however. Age and pre-existing conditions may play a role. Coverage also applies only to specified conditions – for instance, not all types of cancer may be covered. And payment may be in partial amounts depending upon the condition and necessary treatment.

Growth & Value

Since 1999, insurers’ sales of these policies have reportedly risen from $8 million to $381 million. Critical illness plans are a win for the health insurance industry. But what about for patients?

The annual premium adds to patients’ existing financial burden for health coverage. And policies vary in the guarantee they offer patients. Partial payouts or plan caveats can leave patients disappointed and financially vulnerable. Moreover, these plans do not protect patients who may develop certain chronic diseases – whose costs are high but which do not qualify as “critical illnesses” for the purposes of policy coverage.

The Cost-sharing Conundrum

The rise in critical illness plans belies a related problem – unmanageable cost-sharing expectations for insured patients. The Kaiser Family Foundation’s 2015 Employer Health Benefits Survey found that the percent of patients insured through their employer who faced a deductible of at least $1,000 rose from 22 percent in 2009 to 46 percent in 2015. Meanwhile, some patients eligible for coverage through a federal or state exchange plan continue to opt for paying the IRS fine rather than committing to $10,000 or more a year in premiums and deductibles.

Critical illness plans may reduce patients’ anxiety about health-related financial risk. But they cannot address the underlying challenge of health plans’ rising cost-shifting – and patients’ inability to meet the financial demands of their insurance policies.

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