The cost of living crisis is hitting Americans hard–decades-high inflation has caused prices to rise for everything from groceries to services, and mortgage rates are expected to remain above 6% throughout 2024. Health care costs are climbing, too, and only expected to get worse–65% of working adults say their ability to afford healthcare has been impacted by price inflation.
What we’re seeing as a result is the rise of the “functionally insured.” This is a relatively new term that refers to individuals and families who have health insurance but delay or avoid medical care because they aren’t able to afford the out-of-pocket costs associated with their health care plan, prior to meeting their deductible and out-of-pocket maximum.
Out-of-pocket costs have been increasing for many families, as the number of employees enrolled in high-deductible health plans (HDHPs) has increased–53.6% of private sector workers were enrolled in a HDHP in 2022, up from 30.3% in 2013. Employers use HDHPs as a cost-containment strategy–these plans have higher deductibles but lower premiums, so they keep employers’ rising health care costs in check by passing the burden on to the employees.
Meanwhile, employees are already shelling out an average of $6,575 for their share of the nearly $24,000 annual premium for a family plan, according to KFF’s 2023 Employer Health Benefits Survey (individuals pay around $1,400 of the $8,435 annual premium). Having to pay out-of-pocket costs of $2500 or more until your plan kicks in, on top of your premium, is often not feasible–in fact, 40% of U.S. households don’t have enough assets to pay a typical private plan deductible, let alone a HDHP deductible.
About half of adults (45%) say they’re worried about their ability to pay medical bills if they get sick or have an accident, while two in three (64%) with health care debt don’t want to sink any further. As a result, nearly one-third of adults (28%) reported that they delayed or went without medical care, prescription drugs, mental health care, or dental care in 2022 due to cost, despite 90% of them being insured. This is what’s known as the “care gap.”
Needless to say, putting off care can lead to complications and poorer health outcomes down the road–diseases like cancer, heart disease and diabetes all respond better to early intervention. Delayed treatment is often more intensive and expensive, which makes health care costs rise across the board–from members to payers to plans. Plus, very ill employees won’t be able to work, which is an added stress on an employer.
One way employers can encourage employees to use their health care benefits and stay on top of their health is by offering ancillary health insurance products that help cover their deductibles and coinsurance. While ancillary products like vision and dental insurance are the most commonly known, there are other offerings that can ease the financial burden of both planned and unplanned health care costs.
Two popular options are Health Spending Accounts (HSAs) and Flexible Spending Accounts (FSAs), which allow employees to set aside pre-tax dollars to pay for future health care expenses. However, for those living paycheck to paycheck, this isn’t really practical.
The following products are also geared toward covering costs related to illness and/or injury but require a substantially smaller financial commitment:
- Accident Insurance offers coverage if you’re injured in an accident, even if you can still work; it can supplement medical and disability.
- Critical Illness Insurance provides coverage for critical health emergencies–heart attacks, strokes, or cancer–that aren’t covered by your medical plan.
- Hospital Indemnity Insurance covers costs not covered by your medical plan if you spend any time in the hospital.
With employers increasingly turning to ancillary products as part of an attractive benefits package–the market for these products is projected to grow at a compound annual growth rate of 9.2% between 2023 and 2028–they need to round out their offerings with products that not only support their employees’ physical and mental health, but their financial health as well.
Ancillary Insurance Webinar
To learn more about how ancillary carriers are approaching the increasing “care gap” that high deductible health plans have created, watch our recent webinar, “Bridging the High Deductible Health Plan Care Gap: The Importance of Ancillary Insurance.”
