Factor Supplemental Health Plans Into Your Finances

Factor Supplemental Health Plans Into Your Finances

Many people find supplemental health insurance, also known as supplemental health benefits, to be a key component of their financial plan.
Supplemental insurance, also known as supplemental health benefits, helps fill the gap for expenses not covered by medical insurance.1 It’s designed to supplement traditional medical insurance, not replace it. But do you really need such a plan if you already have savings or a health savings account (HSA)? It turns out, many people find supplemental insurance to be a key component of their financial plan.

How Does Supplemental Health Insurance Work?

Medical insurance is designed to pay for the costs of medical care. Supplemental health benefits help insure against a variety of other risks and are designed to be purchased in addition to medical.
Supplemental health benefits work a little differently than a regular health plan, and that’s a good thing. You still pay a monthly premium (although it’s typically much less than your health insurance premium), and supplemental plans still provide payments via claims. The claim money goes to you to spend how you need to. You can use it to pay off doctor’s bills, get groceries or even make rent for the month. With supplemental health benefits, you won’t have to worry about things like coinsurance, deductibles, copays or networks.
In general, supplemental health benefits fall into a few different categories, and how you get paid can depend on the type of benefit. Supplemental health benefits are independent and do not coordinate with any other health coverage. Benefits would generally be paid in addition to any other coverage such as health insurance.

Learn the Lingo: What Are My Medical Savings Options?

You have options when it comes to paying for unexpected medical bills, such as:
  • Supplemental Health Benefits: Plans provide extra protection on top of traditional health insurance. Depending on the plans, these benefits provide payments for claims based on designated events, like hospitalization after a car accident or the inability to work due to a non-work-related injury.
  • Personal Savings Account: This is your nest egg for emergency savings. Experts recommend saving about three to six months of living expenses. The problem is, a single high medical bill could drain the account — and once it’s empty, it can take many months or more to replenish.
  • Health Savings Account (HSA): This type of account allows you to deposit pre-tax dollars through regular payroll deductions or separate contributions. The money can be used for qualified health care expenses as needed. However, participation is limited to people with a high-deductible health insurance plan.

Are Supplemental Health Benefits Worth It? 

Like everything in life, each option – whether it’s supplemental health benefits, personal savings or an HSA – has pros and cons.
Supplemental health benefits, for example, give you a certain amount of coverage for your premium as designated in your policy. You know ahead of time what your policy includes, which gives you a little more peace of mind. But it comes at the cost of monthly premiums.
With both HSA and savings accounts, you’re limited to whatever amount you have saved to date. The point of an HSA is to save on a pre-tax basis. The downside may be that it’s used for routine medical expenses. The bigger downside with a savings account is that it may be used for all kinds of other things (like to fix your car) and then it won’t be available for medical bills.
Even with those variables, you might find that a mix of two or all three works best. But before determining which path to choose, ask yourself these questions:

Do I Trust Myself To Save Enough Each Month?

We all have aspirational plans for our finances, but sometimes reality gets in the way. And that’s what makes a savings account particularly tricky if you’re using it for your medical emergency fund. You’ve got to be diligent about saving – even when other expenses tempt you to spend that money elsewhere.
HSAs and supplemental health benefits don’t have that downside because they can be automatically deducted from your paycheck. You never see the money, which means your take-home pay is all yours. This makes budgeting more straightforward and your savings more protected from routine expenses.

Can I Trust Myself To Plan?

It’s not just about trusting yourself to save. It’s also about knowing how much to save in the first place. When you have to budget and plan for taxes, premiums and savings deposits, things can get complicated quickly. Those financial headaches can add up when you consider all the work that goes into managing a personal savings account. You have to track the money going in and out, make sure you’re meeting savings goals and use the funds wisely.
With both HSAs and supplemental health benefits, not only do automatic payroll deductions keep your goals on track, but they also mean that you don’t get tempted to spend the money on non-medical expenses. HSAs can only be used on qualified medical expenses, while supplemental insurance provides the benefits listed in your policy.

How Much Do I Value Immediate Protection?

Some supplemental insurance plans have a waiting period of a month or more, which means you might not have access to benefits right away. But then again, once you pass that waiting period, you’re covered up to the benefit amount for the events, services or conditions described in the policy. This can be beneficial in many ways.
Although HSA money is paid with pre-tax dollars, HSAs don’t offer that kind of immediate protection because it’s wholly reliant on how much is in your account when you need it. This is also true for personal savings accounts. If you have a crazy year of curveballs that deplete your savings account, you may not have the funds if something happens. Unfortunately, most people don’t.
In fact, a recent poll by Bankrate found that 56% of Americans are unable to cover a $1,000 unexpected emergency expense with their savings.2 That can make people think twice about getting care, especially when money is tight. The Hartford’s 2022 Future of Benefits pulse survey found that 43% of U.S. workers have delayed routine health care appointments since the COVID-19 pandemic began.3

Supplemental Health Benefits in Real Life: Doing the Math

Let’s look at an example.4 Imagine you’re a healthy, active teacher in your 30s. One weekend in January, you’re enjoying a bike ride when you lose your balance from a rock in the road. You fall to the ground and land on your arm. It’s broken.
Your health insurance covers a portion of your medical care, but it leaves you with out-of-pocket bills that you now have to pay on top of new expenses that accompany your rehabilitation, like additional childcare and grocery delivery. And the average cost of staying in the hospital is around $2,517.5 You’d still have to consider other fees such as procedures, specialists, rehabilitation, durable medical equipment (DME) and other expenses.
So, what’s the advantage of a medical savings account, HSA or supplemental health benefits to cover those bills? Let’s say, for example, your monthly accident insurance (also known as accidental injury benefits) premium is $10 per month or you contribute $10 per month into a savings account or HSA. Here’s how each scenario could play out when the medical bills are due.
  • Using your savings account: If your out-of-pocket costs exceed the money in your savings account, you’d have to use all of your savings to pay for your medical care. You may still need to borrow money from friends or family, use a credit card or sign up for a payment plan with the hospital.
  • Using your HSA: It’s January and you used all of your HSA funds last year on prescriptions and now only have $10 in your account. Similar to the above example, you’re likely going to be taking on debt.
  • Using your supplemental health benefits: You’ve paid premiums on your accidental injury benefits for two years now and (luckily) never needed it. If covered under the terms of your policy, your accidental injury benefits could help pay you for the hospital visit and your injury. This could put extra money in your pocket for those other non-medical expenses. The check is made out to you, which means you can use the money for whatever you want and need. No debt. No worries. And best of all, you can recover on your own time.

Plan for the Unthinkable and Get Peace of Mind

Nobody wants to think of the disasters that could lie ahead, but it’s smart to make a plan, just in case. Even if you don’t think you’ll need supplemental health benefits, they can pay off if the unthinkable were to happen. Not only would you get peace of mind and financial protection, you’d also be able to focus on what matters most - getting better.
During open enrollment, consider what you’re buying with those low monthly premiums. Pay a little now and save yourself a lot of headaches later.
1 Supplemental Health products (Accident, Critical Illness and Hospital Indemnity, etc) are independent and do not coordinate with any other health coverage.
2 56% of Americans can't cover a $1,000 emergency expense with savings (Bankrate).
3 New Research from The Hartford Finds U.S. Workers Are Delaying Routine Health Care.
4 Check fairhealthconsumer.org/medical to see estimates for common procedures.
5 This benefit example is fictitious and for illustrative purposes only.
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The Hartford Staff
The Hartford Staff
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