Critical illness insurance as a substitute for ‘comprehensive’ health insurance

I’ve probably mentioned critical illness policies half a dozen times as potential substitutes for high-priced ‘comprehensive’ health insurance, but I haven’t actually gotten around to explaining what they are and how they can be of benefit to self-pay patients (and of course, what their drawbacks are). So, here goes.

For starters, critical illness (sometimes also known as dread disease) insurance was not originally intended, at least in the United States, to be a substitute for comprehensive health insurance of the sort that most people have today, and that Obamacare attempts to steer people into. Instead, it was originally thought of as a supplement to regular health insurance, paying for the sorts of financial needs that often accompany illness. The most obvious of these is loss of income – not a whole lot of people are able to earn a living while spending weeks in the hospital or at home recovering from major heart attack.

So critical illness policies developed in the U.S. largely as a way to pay for bills that don’t go away just because you’re in the hospital, like your mortgage, groceries, utilities, and other living expenses. The way they work is fairly simple – if you get diagnosed with a particular illness, like cancer, or have a particular medical event, like a heart attack, then they pay you directly a large sum of cash. 

The cash goes directly to the insured, for whatever purpose they deem appropriate. Including, it should go without saying, to actually pay for the healthcare treatments that are needed as a result of the diagnosis or event.

Reserve National, one of several insurance companies offering different types of critical illness policies, describes their “Specified Disease Policy” this way:

Some of the most serious diseases with “major” expenses that can occur during one’s lifetime are:

  • Cancer
  • Coronary artery/cardiovascular disease
  • Diabetes
  • Stroke
  • Major organ transplant
  • End stage renal failure

This policy can cover all six of these diseases. You are able to choose your own hospital or physician – this is not a PPO or a managed care plan. This policy includes benefits for hospitalization (you can select Miscellaneous Hospital Inpatient Expense Benefits of $100,000 or $250,000), inpatient diagnostic procedures, inpatient or outpatient surgery, anesthesia, confinement in a skilled nursing/rehabilitation center and physical therapy. Benefits may be paid directly to you or whomever you assign.

As you might guess, $100,000 or $250,000 will give you a lot of buying power for the healthcare services you need in the event you get diagnosed with any of these diseases. The web site of Reserve National doesn’t offer any information on the premiums for these policies, but depending on age and location, they’re quite likely much less than traditional ‘comprehensive’ health insurance.

Other companies sell similar products. Assurant Health, for example, offers two different critical illness plans, with more (and lower) options for a payout amount in the event of a diagnosis or event like a heart attack or coma, ranging from $5,000 to $100,000. The more generous of the two policies with a $25,000 benefit starts at $16.50 per month, presumably for a fairly young person. The policy with a more limited range of illnesses covered (primarily heart conditions and cancer, it looks like) starts at $12.60 a month.

For individuals and families primarily concerned about being hit with a major medical bill in the event of cancer, a heart attack, coma, stroke, or some other serious illness or event, critical illness policies can provide the funds necessary to pay for needed healthcare. To cite just a few examples, the Medical Expenditure Panel Survey conducted by the U.S. Department of Health & Human Services found the average costs for treatment of the following medical conditions in 2010:

  • Heart conditions – approximately $30,000
  • Cancer – approximately $36,000
  • Kidney disease – approximately $9,000

Now for the bad news, or at least something worth considering – you may not be “average” in the event of having any of these happen to you, and there’s a wide range in severity and complexity for these conditions. While heart conditions cost around $30,000 on average, coronary bypass surgery carries an average price tag of around $64,000, according to Healthcare Blue Book. And cancer treatments can run into the hundreds of thousands of dollars in some cases, especially if biological medicines are being used. So the danger is always that, no matter how much you might receive to pay for your care, the money will run out before the treatment is through.

Fortunately there are options available to help self-pay patients keep their costs down in these and other events, such as patient-assistance programs or charity care, as well as pursuing several of the other strategies discussed here at The Self-Pay Patient, such as medical tourism. To cite just one example, I previously wrote about the Narayana Surgical Hospitals in India, which is able to provide coronary bypass surgery for less than $2,000, compared to the $64,000 U.S. average cited above.

Self-pay patients should look carefully at critical illness policies, and other similar policies that provide cash directly to patients upon diagnosis of an illness, or admittance to a hospital. They can fill a vital funding gap for self-pay patients who have little worry about paying for low-cost primary care or even moderately expensive treatments like hernia repair, but are concerned about a major illness that could literally drive them to bankruptcy. That seems like a far better option for most compared to the idea of having to raid your savings or take out a loan on your house to pay for needed care.

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6 Responses to Critical illness insurance as a substitute for ‘comprehensive’ health insurance

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  6. I have been looking at Surebridge health insurance but the write up on it is not so good? Looking for an alternate catastrophic health insurance. Do not need primary care. I go to a Buddhist clinic?

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