Health Insurance Underwriter

Health care in the United States continues to be in a state of flux. For a number of years, we thought the solution to rising health care costs and providing quality health care consisted of utilizing managed care. We have seen HMOs continue to evolve from a totally managed care approach—that is, consumers having little or no say in their care—to a new phenomenon: consumer-driven health care, which allows consumers more control in their health care decisions.

Under CDHC, carriers work to control costs by giving the consumer a greater decisionmaking role in purchasing health care. Currently, employers are offering high-deductible plans to deal with escalating health care costs.

The federal government is currently taking an active role in providing health care solutions. Employers are offering Flexible Spending Accounts and Health Reimbursement Accounts to their employees to help complement their health care benefits. FSAs are employee funded on a pretax basis to cover out-of-pocket health care expenses. Typically, these expenses include vision and dental care. A major issue with this approach is that employees must use the pretax dollars in the same year the account is set up. If they don’t use it, they will lose it.

HRAs are funded by employers and can be used for the same expenses as FSAs. However, at the end of the year, any money in HRA that has not been used can be rolled over to the following year, whereas an FSA cannot.

In 2003, a new option was introduced: the Health Savings Account. Basically, HSAs are IRA accounts for individuals and employees who purchase specific, high-deductible health plans. There are annual monetary limits for which an individual/employee accumulates tax-free interest. Under the current HSA legislation, not only can individuals utilize the account for medical expenses, but they can also use this money to pay their premiums for qualified long-term care.

In my opinion, there is great deal of confusion from the perspective of employers and employees in deciding which is an appropriate health care solution for their respective needs.

The Bush Administration is pushing consumer-driven health care and is using tax-free dollars as an incentive for setting up an HSA. This year, the federal government has introduced HSAs for its own employees. It is too early to measure the success of this new approach, however it is available to help us control our escalating health care costs by empowering consumers to be proactive in their health care choices. With this approach, it is consumers’ responsibility to be prudent when utilizing their health care dollars, as well as exploring all options best suited for their health care.

A new option for consumer consideration is critical illness insurance (CII), which has recently been introduced in the United States. Dr. Marius Barnard founded CII in South Africa and its success has been witnessed throughout the world.

CII is simple product to understand. The three major CII conditions are life-threatening cancer, heart attack and stroke; they represents 80% of the CII conditions that are diagnosed in the United States.

CII policies are designed to pay a lump sum at the time of diagnosis. For example, if an individual owns a $50,000 policy and is diagnosed with life-threatening cancer, he would receive a $50,000 lump-sum payment. This money could then be used to pay for medical expenses, a child’s education or experimental treatment not covered by health insurance.

CII is an empowerment product—individuals can use this money as they wish, tailoring it to their particular needs. In essence, it is solely the individual’s judgment that determines if and how this money will be used.

Now is the time to provide consumers with choice and flexibility. CII is the financial cushion for a catastrophic medical event. Unfortunately, I shared this devastating experience with a close friend who had been diagnosed with life-threatening cancer. Immediately after reeling from her diagnosis, she had to contend with the related financial ramifications that lay ahead. She still had a home mortgage to pay, uncovered medical expenses, day-to-day living expenses and a dramatically reduced income. In her case it was a one-two punch: a medical and financial blow.

The American Cancer Society states that two-thirds of the costs associated with cancer may not be paid by medical insurance. CII is not a cure-all for health care, but it is part of a solution. It’s there to fill in the gaps that are not covered by medical or disability products. Given that we are now in the age of consumer-driven health care and the HSA, the time is right to introduce this product to producers and consumers.

Several years ago, I founded the National Association for Critical Illness Insurance. NACII’s mission is to be a depository of CII information for the United States and to educate state and federal government as to the value of critical illness insurance.

NACII’s primary undertaking is producer education. As producers are educated on the merits of this product, consumers will, in turn, be given an opportunity to consider this product as a complement to their current health care program. Approximately 50 insurance companies are offering critical illness insurance products, which are sold through three distribution channels: individual, worksite and group. CII sales are in their infancy, similar to the beginning of long-term care.

It took many years for LTC to gain market momentum. The biggest endorsement came from the federal government when it approved legislation for qualified LTC. This endorsement gave employers and individuals an opportunity to purchase plans and receive tax benefits. 

With the introduction of the HSA, an individual can purchase qualified LTC and use tax-free dollars to pay for the premiums.

CII and LTC are very similar—both are asset-protection products. LTC uses activities of daily living to trigger benefits, whereas CII uses diagnosis. The target age for LTC sales is 55-plus and 30-50 for CII. The ideal product, in my opinion, would be a convertible product— a CII product that, at an appropriate age, converts to a LTC product.

CII is just beginning to gain traction in our country. A great deal needs to be done to ensure that we, as an industry, offer quality CII products to help empower the consumer in making intelligent health care choices. This is the time to introduce CII as part of medical package. It could be offered as a rider on a high-deductible heath plan or as a stand-alone health product through the individual, worksite or group markets.

I believe it is the responsibility of the insurance industry to educate government on the merits of CII, just as we did for qualified LTC. We need to lobby for appropriate CII legislation that allows HSA dollars to be used to pay for CII premiums, with the same tax incentives afforded LTC.

Critical illness insurance is another important step in empowering employers, employees and individuals in selecting the best product options to provide coverage for their health care expenses.

In addition to serving as managing director of US Living Benefits, Dan Pisetsky is president of Insurance Consultative Services. Dan can be reached at 860-434-7227 or uslb@uslivingbenefits.com.