Personal Finance > Insurance
Do you need more health insurance?
Before buying a "supplemental" plan, take a realistic look at your risks.
May 15, 2002: 1:42 PM EDT
By Annelena Lobb, CNN/Money Staff Writer

NEW YORK (CNN/Money) - It's Thursday night, you flip on the TV, and you see the AFLAC commercial: you know, the one with the quacking duck. A couple of questions may have come to mind.

First, why a duck?

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With apologies to Marx brothers fans, that's easy. An AFLAC spokesperson says it's because the company's name sounds sort of like "quack-quack." Also, it was difficult for them to get specific about their products in the commercials, since they vary widely between states. So they opted to go with a catchy mascot.

Second, what's supplemental health insurance? Do I need it?

That's tougher. Many major insurers, of which AFLAC is just one, sell supplemental policies. These policies cover you in the event of a specific, serious health problem. For example, you can buy supplemental cancer policies, intensive-care unit policies, and multiple sclerosis policies, to name a few.

It's not that these conditions are not covered by regular health insurance. But supplemental policies give you extra financial protection for costs associated with these diseases and conditions, or so says the sales pitch.

David Bird, president of Allstate Workplace Division, said his company receives an average of 6,000 applications for its supplemental products (including life insurance) a week. He cites skyrocketing out-of-pocket health expenses as the main reason for such growing interest.

In 1960, a total of $13 billion was spent on out-of-pocket medical expenses, according to the Life Insurance Marketing and Research Association in Hartford, Conn. In 1998, that figure had reached a cool $200 billion.

But don't just listen to the duck and rush to an insurance agent. If you're nervous about, say, contracting a particular type of cancer, take a clear-eyed look at your standard health policy. Then consider the actual likelihood of your getting the disease, and factor in your risk tolerance, before you decide whether to buy insurance.

"Buying a supplemental policy largely depends on your aversion to risk," said Marianne Miller, director of federal regulatory affairs and policy development at the Health Insurance Association of America. "Some people will pay for the certainty that they're covered for something. It's not black-and-white, or a really clear, bottom-line question."

The right supplements

Some supplemental policies insure against specific illnesses like cancer and muscular dystrophy. Others cover accidents, and still others pay a daily benefit to a person who's required to stay in the hospital, usually called a hospital indemnity policy.

Some insurers also classify disability insurancea and dental insurance as supplemental health policies. While both obviously "supplement" your health insurance, they're also must-haves -- so we're not discussing them here with these more specialized policies. (For more on that topic, see "Ouch! Don't forget disability insurance.")

Bonnie Dunn, now 61, a retiree in La Grande, Ore., took out AFLAC cancer insurance while she was still working. She had suffered cervical cancer at age 24, and carried AFLAC cancer coverage for about 20 years afterward. After letting her policy lapse for several years, she decided to renew it at the beginning of 1999.

In April of 1999, Dunn's doctor diagnosed her with breast cancer.

"The policy paid for me to live away from home, it paid for each chemotherapy treatment and radiation treatment, and for the Tamoxifen I've had to take since," Dunn explained. "I had to travel 140 miles to receive treatment, and the cancer policy allowed me to afford lodgings close to the treatment center and to where my daughter lived."

Dunn's cancer is in remission, and she asserts the policy took away any financial burden her cancer would have caused otherwise. She still pays $44 a month to insure herself and her husband with AFLAC cancer and accident coverage.

Finding an insurer

Though well known through their TV ads, AFLAC is not the sole provider of supplemental insurance. Other insurers, like Allstate, Aetna, GE Voluntary Benefits, and Colonial Life, write supplemental health policies as well.

Supplemental insurers typically sell policies at a group rate to an employer. The employer then offers the benefit to employees, usually as a pre-tax deduction from their paychecks. Supplemental insurance is rarely sold directly to consumers.

"Most of our products are sold in the workplace," said Mitzi Clayton, a spokesperson for AFLAC. "We have large accounts like Wal-Mart and Rite Aid, and we work with small, mom-and-pop businesses as well. People buy it because their major medical policy doesn't necessarily cover everything they might need."

An AFLAC cancer policy like Bonnie Dunn's, for example, pays a certain amount per day, per procedure, Clayton said. The patient can spend the cash however they see fit. Even if the patient's major medical insurance paid for every medical cost incurred, he could still use the money for ancillary expenses associated with their illness.

A GE hospital indemnity policy pays a minimum daily benefit of $30 up to a maximum of $300 daily for a maximum benefit period of 365 days, explained Peter Paul Lucas, chief operating officer at GE Voluntary Benefits. GE allows you to add specific riders on that policy to provide things like intensive care, a private-duty nurse, or even a lump-sum payment. The average premium on a GE hospital indemnity policy was $500 in 2001.  Top of page