What Is Supplemental Health Insurance?

What Is Supplemental Health Insurance?

Supplemental health insurance is coverage you can buy in addition to your traditional health insurance plan. More than a dozen supplemental insurance plans are available in the workplace and individual markets, including policies that address accidents, critical illness, hospitalization, disability, vision, dental, Medicare gaps, and more. 

Learn more about supplemental insurance, including types, how they work, controversies, and advantages. 

How Supplemental Health Insurance Works 

Supplemental insurance is a policy you buy as an additional workplace or group benefit or as an individual plan. The plan is not meant to help cover everyday medical needs and expenses. Supplemental insurance often provides a fixed cash payment for a healthcare event, diagnosed condition, or circumstance. Plans may pay a flat fee, a percentage of your costs, or an amount up to a stated limit.

Top supplemental providers include Aflac, Colonial Life, Allstate, and MetLife. About one-third of agents noted that they enrolled people one-on-one, while another third enrolled with a group plan.

This insurance can cover:

• Specific conditions such as cancer, a critical illness, or a disability 
• Situations such as hospitalization or an accident
• Deductibles, copays, and other out-of-pocket costs
• Emergency healthcare while traveling

Various types of supplemental health insurance work differently, including Medicare supplement, dental, and vision insurance. For example, dental and vision plans may pay a percentage of your covered costs up to a fixed annual maximum in exchange for premiums. 

Hospital indemnity and other fixed indemnity insurance work slightly differently. After you submit a claim and the insurer agrees it falls under your policy’s coverage, the insurer pays you a lump sum (normally a fixed dollar amount). You can use this to cover out-of-pocket medical expenses or help pay everyday expenses, like rent or bills. 

Payments are either per period of hospitalization or illness or per service. Typically, the same fixed sum is paid no matter how high your actual costs run.  

Types of Supplemental Health Insurance

You can buy most supplemental health insurance types directly from the insurance plan’s provider or through an online site offering multiple quotes from different providers. Here are a few you might come across.

Accident Insurance 

Accident insurance pays out if you get injured in some accident, like a car crash or fall down the stairs. It won’t cover illnesses. Some insurance companies market accident insurance under other names, like “supplemental insurance.” Accidental death and dismemberment insurance (AD&D) may be folded into an accident insurance plan or sold separately. 

Critical Illness Insurance

Critical illness insurance can be sold individually or in combination with another policy. These policies may cover a wide range of diseases while others only cover one specific disease. For example, a cancer policy would only pay out if you get cancer.

Dental Insurance

Dental insurance can help pay for cleanings, exams, and treatments such as fillings, root canals, implants, braces, and more. Dental insurance is one of the most commonly known forms of supplemental insurance. You can get adult dental insurance from:

• The ACA Health Marketplace
• Your employer
• Medicare Advantage
• Medicaid, in some states

Dental insurance varies widely in cost and the procedure percentage a plan will cover. Like other forms of supplemental insurance, you’ll find many exclusions and annual benefit limits.   

Disability Insurance

Disability insurance includes long-term disability insurance and short-term disability insurance. This insurance helps cover a percentage of your income if you’re injured, ill, or otherwise disabled for a short or extended period.

Hospital Insurance

Hospital insurance covers accidents and illnesses. It reimburses various aspects of your hospital stay at a flat per-item or per-event amount, which you can typically choose in advance.

A basic hospital insurance supplemental insurance plan often provides a flat amount if you’re admitted to the hospital and for each daily hospitalization. Other, more extensive hospital insurance plans may reimburse you for extended care outside the hospital, ambulance costs, and outpatient surgery.

Medicare Supplement Insurance

Medicare Supplement insurance, or Medigap, isn’t like the other supplement insurance plans on this list. Although private companies sell these plans and require a monthly premium, Medigap plans are regulated by the federal government and only exist to help pay for costs not covered by Original Medicare, such as deductibles, copays, and coinsurance.  

Plans use different letters to classify the coverage offered. Notably, older Americans can buy a Medigap plan to help cover the cost of emergency healthcare while traveling internationally, which isn’t covered by Original Medicare.

Travel Insurance 

Travel insurance can help cover the costs associated with some emergency healthcare when you’re on a trip. Your health insurance company may or may not pay for emergency care abroad, while Medicare and Medicaid do not pay for any care overseas. You can buy travel insurance for foreign medical coverage, evacuation, and accidental death and dismemberment.  

These policies usually pay you a flat, predetermined amount for each event. Some travel insurance coverage is duplicated by homeowners insurance, auto insurance, health insurance, or credit card coverage. Call your current insurers or card issuers to ask about coverage. 

Vision Insurance 

Vision insurance can help pay for eye exams, glasses, frames, contacts, and other vision-related costs. Vision insurance is widely available through employers and as an individual plan. Health Insurance Marketplace plans for children always include vision insurance. However, vision coverage isn’t always available for adults on the Marketplace. 

Advantages and Disadvantages of Supplemental Health Insurance

Supplemental health insurance is typically affordable and can provide peace of mind if you’re concerned about a specific health issue or situation. Some types of supplemental health insurance, like accident and travel, are offered without requiring any medical exam as long as you meet the basic qualifications that apply to everyone. 

The policies are usually renewable for life or up to the policy’s age limits, although costs may increase as you age. Often, you can choose your deductible amount with a supplemental insurance plan if a deductible is required. 

However, depending on the policy, it can be challenging to understand payout amounts and exclusions, making it difficult to shop between insurance options. Exclusions can decrease your claim success if the company can find a reason to reject your claim.

For example, a hospitalization policy may not pay out if your illness or injury occurred under the influence of drugs or alcohol, while you were pregnant, traveling, or potentially dozens of other situations. A travel insurance policy may not cover healthcare claims resulting from participating in risky activities such as scuba diving.

In addition, even if the plan covers some out-of-pocket expenses, it’s unlikely that all costs will be covered. You could still be left with medical debt even after your supplemental plan cuts you a check.

Qualifications for Supplemental Health Insurance

Read the policy’s guidelines to ensure you understand how the policy works and the benefit rules. Many will feature waiting periods, rules around pre-existing conditions, and more. Some types of supplemental health insurance use medical underwriting and could deny coverage for pre-existing conditions.

For example, you can’t buy a cancer policy after you’ve already been diagnosed with cancer. Even if you’re diagnosed shortly after your policy kicks in, the policy may be canceled, and the amount received is limited.

Some policies will have other restrictions. For example, a policy may only be sold to those between the ages of 50 and 85.

Regulations for Supplemental Health Insurance

Updated regulations scheduled to take effect in September 2024 may affect some supplemental health plans, The regulations address concerns that consumers mistakenly purchase fixed indemnity plans to replace comprehensive coverage.

The rules require changes in consumer notices for the individual and group markets. The notices highlight differences between traditional comprehensive health insurance plans and fixed indemnity coverage. This notice ensures “consumers are aware of the limitations of the coverage,” the government stated.

Frequently Asked Questions (FAQs)

The Bottom Line

Supplemental insurance can add a layer of financial protection regarding your teeth, a trip, or an unexpected accident. The policies often don’t cost much, but limit both the circumstances that qualify for a payout and the dollar amount you can claim. 

If you’re concerned about covering a known or potential upcoming expense, compare policies between providers beyond just the monthly premium. Review deductibles and balance coverage amounts against actual out-of-pocket costs.

After the insurer pays its share, you may still have a sizable bill remaining. Rather than purchasing supplemental insurance, consider putting your monthly premium into a high-yield savings account or certificate of deposit (CD) to cover unexpected health or travel expenses.