Enhance Your Benefit Plan with Cancer Insurance
The National Institutes of Health estimated the overall annual costs for cancer in 2010 at $263.8 billion. This includes $102.8 billion in direct medical costs, $20.9 billion in indirect morbidity costs (cost of lost productivity due to illness) and $140.1 billion for indirect mortality costs (cost of lost productivity from premature death). Source: Cancer Facts & Figures, American Cancer Society, 2010
Cancer now accounts for about 10 percent of all healthcare costs in America. And one in three Americans will receive a cancer diagnosis in their lifetime, according to the American Cancer Society.
With more employers adopting high-deductible health plans or cutting coverage altogether, the appeal of limited benefit plans, such as cancer and “dread disease” insurance, is growing.
The move toward “consumer-driven” healthcare has shifted a larger portion of healthcare costs onto employees. High deductibles, limited formularies and uncovered transportation costs can eat through a cancer patient’s savings quickly. Many employers recognize the unusual burden a cancer diagnosis puts on employees. At a time when employers are dropping many types of benefits, the percentage of employers offering some type of cancer insurance is actually increasing — from 32 percent to 34 percent between 2002 and 2011, according to the Society for Human Resource Management (SHRM) Employee Benefits Research Report.
Do these plans make financial sense? They cover only limited conditions and often carry high deductibles. But today a diagnosis of cancer or other dread diseases often means dealing with a chronic condition rather than a death sentence. You’re more likely to survive a cancer diagnosis now than ever before, but that also means higher long-term health care costs. It’s no wonder that many people with cancer exhaust even catastrophic insurance policy limits. The evolution in treatment of dread diseases, coupled with consumer-driven healthcare, demands new products.
Cancer policies fall into two types, lump-sum payment and reimbursement. Under lump-sum payment policies, the beneficiary receives a lump sum for a covered diagnosis according to a policy schedule. Policy face amounts range from $5,000 to $100,000, but average around $20,000. The insured can use policy benefits for any expense—including expenses not covered by a typical health insurance policy, such as the cost of transportation to a specialized hospital, lost wages or in-home help.
Reimbursement policies pay on a per-event basis. Although these policies pay set per diem rates for hospitalization and recuperation time, they often cover items that are not covered by catastrophic health plans. For instance, some policies cover transportation and lodging for family members who transport a patient to see a specialist.
Underwriting is relatively lax for cancer insurance policies. Workers who can demonstrate being cancer-free for ten years generally can find cancer coverage. However, as with many types of health insurance, it does exclude coverage for pre-existing conditions. Benefits under many policies also drop automatically after the insured turns age 65.
Cancer insurance qualifies for tax-preferred treatment under a Section 125, or “cafeteria,” plan. A cafeteria plan, which may include a flexible spending arrangement, is a written benefit plan that meets the requirements under IRC Section 125. Under a cafeteria plan, the employee agrees to contribute a portion of his or her salary on a pre-tax basis to pay for certain benefits. If he/she uses funds to buy qualified plans, including cancer insurance, this reduces his/her taxable wages. Those sums generally are not subject to FICA and FUTA, reducing the employer’s tax obligations as well.
Benefits provided under a cafeteria plan are subject to Social Security and Medicare taxes on the same basis as the specific benefits would be if provided outside the plan.
Cancer insurance can be another benefit employers can use to help retain valuable Baby Boomer workers. Most employers offer it as a voluntary (employee-paid) benefit. As a voluntary benefit, employees who opt to buy coverage enjoy group rates, which might be lower, along with the convenience of payroll deduction payment. For more information, please call us.
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