Somewhere along the way our society failed. We failed to make sure people understand the financial realities and responsibilities of having health coverage. Maybe it’s because employers traditionally paid the brunt of the costs. Maybe it’s because we falsely assumed coverage costs and care costs were one and the same. Maybe it’s because health coverage can be complicated and overwhelming and scary so we chose not to think about it at all.
Americans are taking on — and will continue to take on — more financial responsibility for their health coverage and care expenses. What’s really frightening about this shift? A lot of it boils down to lack of understanding and preparation for the expenses they’re now responsible for. Given that 65% of people have less than $1,000 to pay out-of-pocket expenses associated with an unexpected serious illness or accident,i and 78% of people who file bankruptcy for medical reasons had health coverage,ii millions of Americans — including the ones who actually have health coverage — are at significant financial risk each year. So what do we do about it? First, we help consumers understand the real, financial responsibility of having health coverage. Then, we equip them with tools to help deal with it.
Consumers must show — through personal assets or financing — how they will pay for major purchases like a home or car.
Home purchase: You get a mortgage. You pay the monthly principal and interest to cover the base costs of ownership. You face additional expenses not covered by your monthly payment for things such as utilities, maintenance and repairs. You purchase one or more types of insurance coverage — property insurance, private mortgage insurance, mortgage protection insurance — to protect yourself against significant financial loss.
Car purchase: You get a loan. You pay the monthly principal and interest to cover the base costs of ownership. You face additional expenses not covered by your monthly payment for gas and ongoing maintenance. You purchase one or more types of insurance coverage — liability insurance, collision insurance, comprehensive coverage insurance — to protect yourself against significant financial loss.
The purchase process looks much different for private health coverage.
Health coverage purchase: You enroll in a plan (personal or through an employer). You pay the monthly premium to cover the base costs of coverage.
Oftentimes it stops there. Americans are not required to show, much less consider, how they will afford the additional out-of-pocket medical expenses they may face during the course of the year. The very action of enrolling may be considered a misnomer since the concept of “signing up” for something doesn’t always include a price tag.
So yes, they’ve signed up for health coverage. But what they may not realize is they’ve just signed up for what amounts to a major purchase.
According to the 2016 Milliman Index, a family of four with private health coverage can face up to $4,316 in out-of-pocket medical expenses during the year. Based on what we know about the state of Americans’ emergency funds, it’s doubtful these families even have an extra $360 each month — much less that they’re stashing $360 in savings each month to cover potential out-of-pocket medical expenses.
While there are unique differences in managing home or car expenses compared to managing health coverage and care expenses, applying the same approach can go a long way in helping consumers better understand how health coverage costs work and what their responsibilities are. Much like homeowners and auto insurance plans help limit financial strain for consumers, there is a category of insurance products designed to help limit financial strain due to out-of-pocket medical and non-medical expenses not paid for by health coverage. For those who cannot save upwards of $4,000 — or let’s face it, even $1,000 — these insurance products offer a lower-cost alternative to help manage their financial risk.
These products are typically offered in the form of accident, critical illness and hospital indemnity insurance plans and most commonly sold through payroll deduction at the workplace as part of an employer’s benefits package. They’re designed specifically to protect against financial hardship resulting from common accidents, hospital stays, stroke, heart attack, cancer and more. Cash benefits are paid directly to the insureds who can use them however they see fit for both out-of-pocket medical and non-medical expenses.
Historically, there may have been hesitation on the part of benefits brokers and employers to offer, not to mention the hesitation of employees to purchase, these products because you pay into something you may not get anything out of if there’s never a claim. Sound like homeowner’s or auto insurance? Perhaps so — except those types of insurance products are typically required by lenders or state governments.
Carriers understand the value play for these products and also recognize the need to offer a “carrot” that will ease hesitation and increase confidence in making them available to employees. Many are now embedding value-added services at no additional charge that provide value starting on day one of coverage and throughout the life of the plan — whether or not the insured ever needs to file a claim. Balancing peace-of-mind for “what if” scenarios with services that provide immediate return on the investment of premium dollars in one or more of these plans can go a long way in increasing buyer confidence and the value consumers place in how these plans integrate with the overall financial management of their health coverage and care.
Use of these services can result in time and money savings for employers in the form of presenteeism, less employee time away from work and reduced medical plan costs and for employees in the form of potentially reduced medical bills, access to lower-cost care and less missed work due to research, appointments or recovery. Yet perhaps the most impactful component of these services is customers have allies to help them along their journey and instill peace of mind. Allies who will listen. Allies who will advocate. Allies who will help fill needs customers might not even know they have.
Employees enrolled in insurance products such as accident, critical illness or hospital indemnity are more likely to say they are extremely or very prepared to pay out-of-pocket expenses not covered by health coverage related to an unexpected serious accident or illness compared to employees not offered these benefits.xix Yet nationally, only 26% of employers offer some type of these products to their employees.xx
We must flip the consumer mindset that has not been given a complete picture of the financial responsibilities of having health coverage. We must provide more access and education to help make sure consumers can afford their coverage and care despite delicate financial circumstances. And we must give them additional insurance coverage options to plan for these responsibilities as cost-effectively as possible.
In time we can reverse long-held views and misconceptions, building a body of consumers who not only have a greater understanding of what their health coverage does and doesn’t pay for, but also take steps to protect themselves so they’re less likely to experience significant financial hardship due to health care expenses.
i The 2016 Aflac WorkForces Report is the sixth annual Aflac study examining benefits trends and attitudes. The study, conducted by Lightspeed/GMI on behalf of Aflac, captures responses from 1,500 employers and 5,000 employees across the U.S. To learn more, visit AflacWorkForcesReport.com.
ii Kaiser Family Foundation and Health Research & Educational Trust. Employer Health Benefits 2014 Annual Survey: High Deductible Health Plans with Savings Options. http://files.kff.org/attachment/ehbs-2014-section-eight-high-deductible-health-plans-with-savings-option-section-eight-high-deductible-health-plans-with-savings-option. Accessed August 15, 2016.
iii The Henry J. Kaiser Family Foundation. State Health Facts: Health Insurance Coverage of the Total Population. 2014. Number represents the number of people enrolled in employer and non-group plans. http://kff.org/other/state-indicator/total-population/. Accessed August 15, 2016.
iv Centers for Medicare and Medicaid Services. National Health Expenditures 2014 Highlights. https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/downloads/highlights.pdf. Accessed August 15, 2016.
v National Association of Realtors. Field Guide to Quick Real Estate Statistics. July 2016. http://www.realtor.org/field-guides/field-guide-to-quick-real-estate-statistics. Accessed August 15, 2016.
vi PR Newswire. U.S. Home Values Gained $1.1 Trillion, Renters Paid Record $535 Billion in 2015. December 30, 2015. http://www.prnewswire.com/news-releases/us-home-values-gained-11-trillion-renters-paid-record-535-billion-in-2015-300197779.html. Accessed August 15, 2016.
vii Harwell, Drew and Mufson, Steven. The Washington Post. U.S. car sales hit record high in 2015. January 5, 2016. https://www.washingtonpost.com/business/economy/us-car-sales-hit-record-high-in-2015/2016/01/05/363aaf30-af14-11e5-b820-eea4d64be2a1_story.html. Accessed August 15, 2016.
ix Girod, Christopher S., Weltz, Scott A, Hart, Susan K. 2016 Milliman Medical Index: Healthcare costs for the typical American family will exceed $25,000 in 2016. Who cooked up this expensive recipe? May 2016. For the typical family of four’s $25,826 in total spending, the employer pays 57% of costs, or $14,793, while the employee pays the other 43%: $6,717 in employee contributions through payroll deduction and $4,316 in the form of out-of-pocket expenses incurred at time of service.
x 2016 Milliman index total spending for family of four divided by 12 to express as a monthly expense.
xi United States Census. Median and Average Sales Prices of New Homes Sold in United States. https://www.census.gov/const/uspriceann.pdf. Accessed August 15, 2016.
xii Thirty year fixed rate mortgage at 4.5% APR, principal and interest only. Mortgage loan calculated July 19, 2016. https://www.loandepot.com/mortgage-calculator?calculator=purchase.
xiii Autoblog.com. Who Can Afford The Average Car Price? Only Folks In Washington, D.C., March 12, 2014. http://www.autoblog.com/2014/03/12/who-can-afford-the-average-car-price-only-folks-in-washington/. Accessed August 15, 2016.
xv Girod, Christopher S., Weltz, Scott A, Hart, Susan K. 2016 Milliman Medical Index: Healthcare costs for the typical American family will exceed $25,000 in 2016. Who cooked up this expensive recipe? May 2016. The typical family of four faces $4,316 in the form of out-of-pocket expenses incurred at the time of service.
xvi Sample rates for illustrative purposes only. Aflac Group Accident Advantage Plus Insurance (Policy Series CAI7800). Mid Option-24 hour Plan, Family Coverage.
xvii Sample rates for illustrative purposes only. Aflac Group Hospital Indemnity Insurance (Policy Series CAI80000). Hospital Admission, Hospital Confinement, Hospital Intensive Care Unit and Intermediate IC Step down Unit. Family Coverage.
xvii Sample rates for illustrative purposes only. Aflac Group Critical Illness Advantage Insurance (Policy Series CAI21000). Standard Non-tobacco Employee, Age 45-$10,000 face amount; Non-tobacco Spouse, Age 40-49-$5,000 face amount; Children-$5,000 face amount.
xix The 2016 Aflac WorkForces Report is the sixth annual Aflac study examining benefits trends and attitudes. The study, conducted by Lightspeed/GMI on behalf of Aflac, captures responses from 1,500 employers and 5,000 employees across the U.S. To learn more, visit AflacWorkForcesReport.com.AflacWorkForcesReport.com.