3 Ways to Know You Need Supplemental Health Insurance

Updated on July 1st, 2021

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So, you have health insurance—either through your employer or an individual insurance plan you purchased. You think you’re all set, right? Think again.

Many people have felt protected by doing solely that one step you have completed—enrolled in a health insurance plan. But, have you looked closely at your health insurance plan? Do you know how much you are expected to pay for your medical expenses? What about the gaps in your coverage? Do you need some kind of gap health insurance or supplemental health insurance?

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Out-of-Pocket Gaps in Your Health Insurance

If you’ve looked closely at your individual insurance plan’s explanation of benefits or your employer-sponsored health insurance EOB, you can quickly see that there are a lot of medical expenses that you must pay out of pocket:

  • Deductibles
  • Coinsurance
  • Copays

In fact, your coverage probably has a table that points out an “out-of-pocket maximum” amount. Take a close look at that figure. That’s how much you will need to pay if you have some serious medical expenses for you or your family. It’s probably a pretty high figure.

Almost all major medical plans have high deductibles that are now $1,000 or more. Most major medical plans also require more than $6,500 in out-of-pocket expenses. That doesn’t even take into consideration the medical and other expenses not covered by your major medical health insurance that would hit you in an injury or significant illness situation.

These gaps in coverage are why you need supplemental health insurance.

You’ve probably heard stories of people who felt they were well-insured—until they really needed the insurance due to an injury or sickness that put a real strain on their finances and their peace of mind. You may have friends, neighbors or even family members that have been in this situation, and it can be agonizing and costly.

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Medical Debt, Bankruptcies and Health Insurance Gaps

It has been widely reported that unpaid medical expenses are at or near the top of the top 10 reasons for personal bankruptcy.

A recent study showed that medical expenses account for more than 62% of personal bankruptcies in the U.S. And it isn’t just the uninsured that have medical debt.

Many people expect this condition to get even more severe as deductibles and out-of-pocket costs continue to rise rather rapidly. In case you haven’t followed recent news, both premiums and out-of-pocket costs are rising for major medical insurance both on and off the Affordable Care Act exchanges.

What Is Gap Health Insurance?

Gap health coverage fills in where your standard health insurance doesn’t pay—to cover deductibles and other out-of-pocket expenses, as well as non-medical expenses that you may face when you have an injury or illness. It usually pays benefits for sickness and accidents in addition to any other coverage you have.

With most major medical insurance, deductibles and coinsurance can be quite high, meaning there can be thousands of dollars that you must pay out of your own pocket before the insurance benefits begin. Gap coverage is a type of short-term health insurance that can help fill those gaps.

3 Reasons to Buy Supplemental Health Insurance

How do you know if your health insurance is leaving you with serious gaps that could cause you financial problems? Here are three ways to know:

1. Your deductible is greater than your savings account.

Almost all major medical plans have high annual deductibles that are now $1,000 or more and include over $6,500 in out-of-pocket expense limits.

Compare the deductible and the out-of-pocket maximum for your health insurance plan against the balance in your savings account. Would your savings cover your out-of-pocket maximum?

If you are like most people, your savings won’t cover that expense. In fact, a recent study showed that more than 40% of Americans do not have enough money in savings to cover an unexpected $1,000 medical event.

So, what do you do if you can’t afford to pay your medical expenses?

  • Use a credit card and pay double-digit interest on those funds and hope that you can pay it off in the next few years?
  • Ask for a loan from family members and face them at every family event, knowing you owe one or more of them money?
  • Take a second mortgage on your home or a title loan on your car or other assets and pay the often high-interest rates that those entail?

Supplemental health insurance, sometimes called gap health insurance can make a big difference for you and your family.

2. You have children that will need extra childcare expenses if you are ill or injured.

You are already juggling a lot, with a job, children to raise, a home to maintain and finding time to sleep and relax occasionally A serious illness or injury would put a lot more financial strain on you than just the actual medical expenses would. Sometimes people forget that when they are buying health insurance.

If you have young children, you know how expensive childcare is these days. Here are some national averages:

  • The average cost of center-based infant daycare ranges from $5,760 to $20,880 a year depending on which state you live in, according to Child Care Aware of America.
  • Daycare costs for preschool-age children are typically lower. Depending on your state of residence, you’ll pay anywhere from $4,439 to $12,796 a year ($370 to $1,066 a month) for daycare for a 4-year-old.
  • There are more than 12 million children younger than age 5 in some form of childcare in the United States.

When you are seriously ill or injured, you may need even more childcare services, since you won’t be able to do all the things you usually do while you are recovering.

These days, most people don’t have a big support circle for this kind of situation either. Other family members and friends also have jobs that they must maintain, so there are fewer people in our society who you can lean on for support.

3. You don’t have savings to cover being off work for illness/injury.

It’s pretty well-known that most Americans live on the edge, spending all or most of what they make each week or each month. Many of us haven’t taken the time to do financial planning or really analyze how much we need to save and for what reasons or events.

It’s easy to say after the fact, “I should have saved …,” But we need to face the facts:

  • Americans age 34 or younger have savings of less than $1,500.
  • That amount won’t go very far for you and your family if you should have an injury or illness, especially one that puts you off work for a time.
  • 21% of Americans do not even have a savings account, according to a survey by Google Consumer Survey for personal finance website GOBankingRates.com. This study surveyed more than 5,000 adults.

In the study we mentioned above (63% of Americans do not have enough money in savings to cover an unexpected $1,000 medical event), those surveyed said they would do the following if they had to face a $1,000 emergency room visit or a $500 car repair:

  • 26% said they would reduce other spending (although it’s expected that most people would have a difficult time determining where to reduce spending).
  • 16% said they would borrow from family or friends (as mentioned above, that strategy has its own “costs” in terms of your self-esteem and ease of visiting these people in the future).
  • 12% said they would use credit cards (also a difficult choice that can result in even greater expenses, once you calculate the interest you will pay, with interest mounting up even higher through penalties if you have difficulty making the additional payments).

Why Medical Gap Insurance Is Important for You

You may be responsible for thousands of dollars upfront before your regular health insurance coverage kicks in. With a supplemental health insurance plan, you get extra protection that helps pay for covered accidents and unexpected critical illnesses. This coverage also can help you pay for those other non-medical expenses that go along with an injury or serious illness.

Supplemental medical insurance can help you cover your insurance deductible, medical bills, the mortgage — whatever you need the funds for.

Supplemental insurance has another important benefit for those that purchase it: This insurance allows you to focus on the most important aspect of recovery, which is getting better.

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