The word supplemental comes with a connotation of superfluous or unnecessary, and unfortunately that connotation is sometimes carried over to supplemental health insurance. But with the recent shifts in the benefits industry, supplemental health insurance has taken on new importance.
A Little History
For years, supplemental health insurance was considered an afterthought and an optional add-on. And for a long time, that’s what it was. Primary medical plans were more affordable with rich coverage and low deductibles, and supplemental coverage was viewed as a ‘nice addition’ to that coverage, but it wasn’t considered to be a part of the core health benefits structure.
But now the industry has changed, and with it supplemental health insurance’s role.
Shift in the Industry
Now, primary medical plans have soaring premiums. To lower costs, companies have degraded coverage and raised deductibles, which, in turn, pushes much of the cost onto employees. But burdening employees with high out-of-pocket costs is bad for the company, too.
Consider these statistics:
- #1 benefit as ranked by employees is health insurance
- 57% of people say benefits and perks are a top consideration before accepting a job
- 56% of U.S. adults with employer-sponsored health benefits said that whether they like their health coverage is a key factor in deciding to stay at their current job
- 84% of employees with high benefits satisfaction report high job satisfaction
The common theme among these statistics is that without satisfactory benefits, employees will leave. That will increase recruitment/retention costs, productivity, lost knowledge and time, which, in turn, negatively impacts the company’s bottom line.
So, how can a company boost benefits without breaking the bank? This is where supplemental health insurance comes in.
How It Works
Supplemental health insurance can be layered on top of the degraded primary medical plan to offer additional coverage at a more manageable cost.
There is even a type of supplemental, expense reimbursed insurance, that can actually be offered to select employee classes, like just those difficult-to-recruit-and-retain individuals, providing a targeted boost and an even more cost-efficient strategy.
Despite the overwhelming evidence that supplemental health insurance is the best way to boost health benefits in today’s industry, the mentality of yesterday still lingers. Hearing protests that supplemental is just an unnecessary addition is still common. Let’s take a look at a few.
“I never go to the hospital, so I don’t need supplemental.”
Supplemental insurance isn’t just voluntary insurance or hospital indemnity. That means it doesn’t just cover those unexpected hospital visits. It can actually cover a lot more.
Expense reimbursed supplemental insured plans provide coverage for everyday expenses like deductibles, co-pays and prescriptions, as well as the more unexpected expenses like hospital stays and cancer treatments.
“I stay in network.”
While this argument may have made sense in the past, now primary medical plans typically include deductibles for both in-network and out-of-network doctors. Supplemental health insurance can help with both types of deductibles.
“I have an HSA.”
One of the most important things to remember about HSAs and other health accounts is that they aren’t insurance. That means that any ‘reimbursement’ they are providing is simply dollars-in, dollars-out.
Plus, HSAs and FSAs have contribution limits, so how much additional funds you can use is limited to the amount that can be put in. And while HRAs don’t have contribution limits, they are often funded by employers who must contribute the same to every employee, which makes it hard to contribute a lot to anyone.
Supplemental insurance provides real insurance value, more than just a dollar value. And expense reimbursed supplemental insurance has similar tax efficiency* to health accounts, too.
Supplemental health insurance is no longer the fallback or afterthought that it once was. Today, it’s a huge part of the overall benefits strategy, and an important way to provide the necessary benefits that employees expect and need from a company. So, do you need supplemental? The answer today is a resounding yes.
*This is not local, state or federal tax advice as each person and company is unique. It is recommended that you seek the independent counsel of a professional tax adviser.