What Is Supplemental Health Insurance?

Supplemental health insurance offers an extra level of protection to policyholders who need help meeting out-of-pocket expenses and other costs that their regular insurance policy doesn’t cover. You can think of supplemental insurance as an additional payer who fills in the gaps in your insurance coverage, such as vision and dental care. Depending on your supplemental insurance coverage limits, it can help mitigate costs associated with deductibles, co-pays and other costs. For many people, supplemental coverage can be a useful addition to a medical health plan. However, depending on your healthcare needs and primary medical coverage, supplemental health insurance may not be necessary.

How Does Supplemental Health Insurance Work?

Supplemental health insurance can either pay benefits to the medical care provider or directly to the policyholder. Your plan will dictate how much is paid out and how it’s paid.

If You Have More Than One Health Plan

If you have more than one health plan or if you have health insurance and Medicare, the typical order of payment goes as follows:

  • Your primary insurance pays first once you’ve received healthcare. Your policy will state the coverage and cost-sharing limits.
  • Your supplemental, or secondary insurance, pays second. This helps you cover remaining expenses or provides additional coverage that your primary plan doesn’t.
  • Finally, you pay for any remaining copayments or balances.

Stand-Alone Supplemental Health Insurance

Different types of supplemental health insurance can work in different ways to help you offset the cost of medical expenses:

  • Disability insurance pays out a monthly benefit if you cannot work because of a covered injury or illness in order to replace part of your income.  
  • Supplemental dental/vision insurance is designed to fill the gaps in your dental and medical coverage. Gaps in coverage could mean your primary insurance plan doesn’t cover certain procedures, it has reached its annual spending limit or your health insurance plan doesn’t include dental or vision.
  • Beneficiaries of accidental death and dismemberment supplemental insurance often receive 100% of the policy’s value in the case of the policyholder’s accidental death. In the event that the policyholder is dismembered, most policies will pay out on a per-member basis — depending on the policy.
  • Supplemental life insurance policies often pay benefits equal to only one year’s salary. This may not be sufficient for your family’s financial debts and expenses, so you may decide to combine your supplemental life insurance with an individual life insurance policy to get the coverage amount you and your family need. Supplemental life insurance policies are commonly offered by your employer, so the coverage limits are determined by your work and insurance carrier.
Supplemental health insurance can either pay benefits to the medical care provider or directly to the policyholder.

Types of Supplemental Insurance

Most supplemental health insurance policies aren't sold through the marketplace, but many employers offer dental and vision. You can also purchase many kinds of supplemental insurance directly from private health insurance companies.

Accidental Death and Dismemberment Insurance

This is a very common supplemental plan that reimburses policyholders for medical bills associated with an accident. Your beneficiaries are paid benefits if the accident resulted in your death. No medical exam is required and premiums are generally low. Accidents can range from a slip-and-fall in your home to a car collision. You can also collect a portion of the death benefit if you lose fingers, toes, limbs or vision as a result of a covered accident.

Short-Term Disability Insurance

Short-term disability insurance is helpful if you are temporarily disabled and cannot work for a period of time. This insurance will pay a percentage of your salary for a specified amount of time, and you can use the benefits according to your needs.

Long-Term Disability Insurance

The older you get, the more essential protecting your finances and independence become. Considering the average cost for a semi-private room in a nursing home is almost $7,000 a  month, you need specialized health insurance to protect yourself and your wallet if you or your spouse ever need long-term care.

Critical Illness Insurance or Disease-Specific Insurance

This supplemental health plan commonly pays a cash benefit to the insured if they need treatment for a particular illness or disease, such as cancer. The insured can spend the cash however they choose if it doesn’t go to their medical provider.

Additional Insurance for Seniors

Seniors can purchase standalone supplemental insurance to meet the rising costs of healthcare as they age. These plans are not part of Medicare but can be used along with your existing coverage. These insurance plans can include vision, dental and final expenses.

Hospital Indemnity Insurance

If you are hospitalized, this health insurance offers a daily, weekly or monthly cash benefit. You may have to meet a minimum hospital stay in order to activate benefits. Cash benefits are paid to the policyholder.

Dental Insurance

Not many insurance policies cover dental care. Often, preventive cleanings and exams, fillings, X-rays, root canals and other dental procedures must be paid out-of-pocket. Dental insurance for individuals and families can often fully cover preventive treatments without a waiting period. These supplemental plans can also include major care on top of diagnostic and basic care.

Vision Insurance

Just like dental, many health insurance plans only cover eye care if it is a medical emergency or medically needed. Vision insurance can reduce the cost of lenses, eye exams and frames.

Fixed Indemnity Insurance

You can choose a fixed-indemnity plan that offers a predetermined amount when you experience a covered injury or illness. Plan payouts and benefits can vary based on your needs and budget. These benefits can include your deductible, prescription copays, lab costs and more.

Medicare Supplement Plans

Many Americans over 65 and those with disabilities are eligible for Medicare, but not everything is covered. Therefore, you can extend your Original Medicare (Parts A and B) benefits with one of several Medicare Supplement options. Medicare Supplement policies are sold by private insurance companies and can help cover deductibles, coinsurance and copays.

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What Are the Costs of Supplemental Insurance?

Medigap (Medicaid Supplemental)

This is one of the most popular forms of supplemental insurance, which is sold by private insurance companies to those enrolled in Original Medicare. Bear in mind that you cannot pair Medicare Advantage with Medigap plans. According to industry experts, the average cost for Medigap insurance in 2020 was around $150 per month or $1,800 per year. As with any insurance coverage, different variables affect Medigap costs, such as where you live, the type of plan you choose, plan rating systems, how old you are and more.

Supplemental Insurance

Supplemental plans are less costly than regular insurance since they do not provide comprehensive coverage. The cost of supplemental plans can change depending on many factors and the type of plan you get. For example, a dental plan may be much more affordable than an Accidental Death and Dismemberment Plan.

Do I Need Supplemental Health Insurance?

Whether you need supplemental health insurance depends on your health and risk factors. You should consider how much an extra premium will be, how much insurance you need and what you will be insured for. For example, if you know you or your children will need orthodontic care, you may want to buy a dental plan to help with the costs. Another example is anticipating long-term care or the loss of your income if you have been diagnosed with an illness like cancer. In this case, you may want to consider critical illness or long-term plans. If you have enough savings to cover your copays, deductible and coinsurance, a supplemental policy may not be worth it to you.

If you are over 65 and have Medicare, you can purchase a standard Medigap plan along with a Medicare Part D (prescription drugs) plan, and a stand-alone vision/dental plan. You can also enroll in Medicare Advantage which includes Part D and vision/dental coverage.

You may still have some out-of-pocket expenses with supplemental insurance.

If you are under 65 and/or don't have Medicare, you can determine whether you and your family are fully covered with regular health insurance. If supplemental insurance might be needed, consider the following questions:

  • If you get in an accident or become critically ill, will your current health policy cover the health care that you will need to recover? If not, determine which supplemental plans will.
  • How likely are you or a family member to develop a critical illness or get in an accident?
  • Do you have enough savings to cover out-of-pocket costs if you were sick or not working for a long period of time?
  • Would you be able to pay the cost of an extra premium?
  • How likely are you to use your supplemental insurance?
  • Is your employer subsidizing the supplemental income?
  • Will the supplemental insurance cover the expenses you expect?
  • Is there a waiting period before payments start?
  • Are there any limits based on how much you paid and for how long?

Since supplemental insurance is not regulated by the ACA, your insurer can impose limits on pre-existing conditions, deny coverage based on your medical history and cap benefits. Whether or not you need supplemental health insurance depends on the policy you are looking at, your health, finances and circumstances. Be sure you comprehend the benefits and limitations of a plan before enrolling. Determine the copays, deductible and coinsurance you currently pay under your health plan and determine the odds of you needing supplemental protection. For example, you can look at your family medical history to see if there is a potential for future health risks. You’ll also want to compare how much you can afford on insurance premiums each month and how much you can afford if you get in an accident or have a critical illness.

FAQs

Are supplemental health plans worth it?

Supplemental health plans can help provide coverage for everyday costs like co-pays, deductibles, coinsurance and prescriptions, as well as unanticipated costs like cancer treatments and hospital stays. They are worth it if you anticipate not having the money to cover unexpected medical costs.

Is supplemental health insurance tax-deductible?

Supplemental health insurance is tax-deductible as a medical expense on Schedule A for Form 1040. You can deduct the amounts that exceed a certain percentage of your AGI (adjusted gross income) and your age.

Who should buy supplemental health insurance?

You should buy supplemental health insurance if you need the extra coverage that your regular health insurance plan doesn’t offer, such as vision/dental. It can also cover unexpected medical costs associated with injury or illness, like childcare or lost income.

Key Takeaways

  • Supplemental health insurance covers costs that most regular health plans won’t cover.
  • Consider supplemental insurance but be aware of the extra costs and the benefits of the plan.
  • Some examples of health insurance plans include critical illness, vision, dental, accidental death and dismemberment and hospital stay plans.

Shop Around for Supplemental Insurance

You can purchase supplemental plans individually, but there are many bundled products that may provide more coverage for less. Individual and bundled supplemental health insurance can be purchased through private insurance companies.

If you’re looking for health, life, car, home or Medicare Advantage or supplements, compare rates with SmartFinancial to get the best deals. Just use the drop-down below and compare rates for free!

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