What is Supplemental Health Insurance and How Does it Work?
Supplemental insurance can help you pay for costs not covered by regular health insurance.
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Supplemental insurance can help you cover the part of your medical bill that you're responsible for. Many policies pay out directly to you. That means you can also use your supplemental coverage to replace income if you can't work or to pay for hotels and food.
What is supplemental insurance?
Supplemental insurance is any coverage you have on top of your main health insurance. Regular health insurance still leaves you with certain costs that you have to pay, such as your deductible, copays or coinsurance.
Some supplemental insurance can also help you keep up with other costs associated with illnesses and hospital stays, such as lost wages and temporary lodging. While regular health insurance plans usually pay directly to the hospital, many supplemental policies will send the money to you. You can spend your supplemental insurance money as you choose.
Disadvantages of supplemental insurance plans
Supplemental care insurance doesn't have to offer the same level of coverage as regular health insurance.
Normal health insurance plans have to offer a minimum level of coverage because of Affordable Care Act (ACA) rules. ACA plans also can't cap your coverage or deny you based on a pre-existing condition. Supplemental plans don't have to follow these rules.
It's important to understand what your plan does and doesn't cover before you buy.
Medicare supplemental plans, also called Medigap, are a separate category of supplemental plans. These plans help pay for things traditional Medicare doesn't fully cover.
You cannot buy a Medigap plan if you have Medicare Advantage.
Types of supplemental insurance
Supplemental insurance includes a wide range of types of coverage.
The best supplemental insurance plan for you will depend on your existing health coverage and \details about your health and lifestyle. For example, if you have to pay thousands of dollars before your main health coverage starts because of your high-deductible health plan, you should consider a fixed indemnity policy that will help you pay for some or all of those big, upfront costs.
Supplemental insurance | Who it’s best for |
|---|---|
| Fixed indemnity | People with high-deductible health plans. |
| Hospital insurance | People with ongoing health conditions. |
| Accident insurance | People who have a high risk of injury, such as fire fighters. |
| Critical illness insurance | Older individuals and people with a high risk of specific illnesses. |
| Long-term care insurance | People in their 50s and 60s. |
| Disability insurance | If you have a dangerous job or you're the main or sole breadwinner for your family. |
Carefully review what you need before you buy supplemental coverage. Remember, you can get more than one type of supplemental health insurance. It's also important to remember that not everyone needs supplemental insurance.
People who have high deductible health plans or plans with low coverage levels like catastrophic health insurance should consider fixed indemnity insurance.
This type of supplemental insurance provides a fixed amount of money, called an indemnity, to help pay for a specific illness or injury treatment. With this type of plan, you can use the benefits any way you want to help cover costs.
For example, the plan may pay $400 for an ambulance ride to the hospital, or it may contribute $5,000 toward an $80,000 heart operation that's also covered by your regular insurance.
An indemnity plan won't offer enough coverage to pay for all of your medical care. In other words, you should never rely on one as your main source of health insurance. Instead, think of it as a useful add-on to your regular coverage.
People with ongoing health issues or a family history of genetic diseases should consider hospital indemnity insurance.
Hospital indemnity insurance typically pays out a set amount of money to help you cover costs that come with hospital stays. Depending on your policy, payments may come as a lump sum or in daily or weekly installments.
You can use hospital insurance to pay for the costs that you still have to pay with your primary medical insurance, such as your deductible, copay and coinsurance .
Athletes and people who work in high-risk professions, such as police officers and firefighters should consider accident insurance.
This type of insurance helps pay for medical care and other costs after an accident. It typically covers emergency room and hospital stays, medical exams and other costs related to accidents not covered by your regular insurance.
Like fixed indemnity plans, accident insurance pays you directly, usually in one lump sum, making it possible to use the money for other costs after an accident, such as lodging or transportation. Accident insurance usually covers broken and sprained limbs, burns, cuts, paralysis and other accidental injuries.
People at high risk for conditions such as heart disease, stroke and cancer should consider critical illness insurance.
These plans help pay the costs associated with serious illnesses such as cancer and heart disease. The plans pay a lump sum for diagnoses specifically listed in the policies.
You'll get a lump sum payment when you're diagnosed with the disease listed in your policy. Remember, these policies typically protect you against a single type of disease. So, if you bought cancer insurance, you can only file a claim if you're diagnosed with cancer.
You should consider long-term care insurance if you're in your 50s or 60s.
Seventy percent of 65-year-olds will need long-term care at some point in their life. Because of the high cost of long-term care, most elderly Americans should consider long-term care insurance. On average, you'll pay $54,000 per year for assisted living care in the U.S.
Most long-term care policies will cover home care or a stay in a nursing home, assisted living facility or adult day care center.
Long-term care insurance helps to protect you from costs caused by long-term diseases and conditions such as Parkinson’s and Alzheimer’s diseases. People who have these diseases will often need to stay in an assisted living facility where they can get help with daily tasks.
Regular health insurance, Medicaid and Medicare will not pay for most long-term care costs. That means you could have a hefty bill if you don't have the right coverage.
Breadwinners and those who work in high-risk jobs should consider getting disability insurance.
This type of insurance pays a portion of your income if you are unable to work because of a serious injury or illness. With disability insurance, benefits are paid directly to you. Disability insurance is a good option for workers who have children or a dangerous job.
The major difference between short-term and long-term disability insurance is how long payments last. Short-term disability insurance usually covers a portion of your income for three to six months . In contrast, long-term disability insurance typically lasts for five to 15 years. Either policy can cover the same disability.
Short-term disability insurance | Long-term disability insurance | |
|---|---|---|
| Typical payout period | 3 to 6 months | 5 to 15 years |
| Average coverage | 60% to 70% of income | 40% to 60% of income |
| Average cost | 1% to 3% of income | 1% to 3% of income |
| Payment start date | Two weeks post-diagnosis | Six months post-diagnosis |
Cost of supplemental insurance
Supplemental policies are cheaper than regular insurance because they offer less coverage.
The cost of supplemental plans varies dramatically. Some kinds of policies cost less than $10 per month, on average, while others cost well over $500 per month. It all depends on the policy and several other factors, including age, health status, gender, where you live and whether you smoke.
How much you pay over the long run may shift, too. Some plans raise rates each year while others don't. However, age impacts how much you'll pay for most policy types. Typically, older people will pay more than younger people for the same amount of coverage.
Vision, dental and orthodontics insurance
Vision, dental and orthodontics insurance are also considered supplemental health policies.
Vision and dental insurance differ from other types of supplemental health insurance because they cover services and procedures that are left out of regular health insurance. These plans are typically inexpensive and you can usually buy coverage through your employer.
If you don't have insurance through your workplace, consider buying coverage through your state's health exchange or HealthCare.gov. Many ACA plans let you bundle dental coverage for an extra fee, or you can buy a stand-alone dental plan.
All ACA plans are required to offer vision coverage for children under the age of 19. However, adult plans don't have this requirement. To buy a stand-alone vision policy, you'll have to shop online or go through a broker.
Frequently asked questions
What is supplemental health insurance?
Supplemental health insurance adds extra coverage to your regular health insurance. Many types of supplemental coverage will pay out directly to you.
How does supplemental health insurance work?
Supplemental policies typically pay a set amount of money to you either in a lump sum or in weekly or daily installments. You can use this money to pay for food, lodging or medical costs not covered by your main health insurance, such as your deductible, copay and coinsurance.
Is supplemental insurance worth it?
Certain types of supplemental insurance such as dental insurance are worth it for most people. However, most supplemental health insurance only makes sense if you fit a certain profile. For example, you should only consider hospital insurance if you have an ongoing health problem.
Sources
Information related to vision and dental coverage availability through ACA health exchanges came from HealthCare.gov. Cost data for long-term care services came from the National Council on Aging (NCOA). Other long-term care statistics were taken from the Administration for Community Living (ACL).
Editorial note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.