Supplemental insurance guide (2024)

When you’re facing a serious illness or accident, supplemental insurance policies can pick up where major medical leaves off by paying for out-of-pocket expenses and even helping with everyday expenses – all for a regular monthly premium.

What is supplemental insurance?

Supplemental insurance is limited benefit coverage that’s designed to supplement – but not replace – your regular major medical insurance policy.

Supplemental insurance includes a variety of different types of coverage, including accident insurance, dental insurance, vision insurance, cancer insurance, fixed indemnity insurance, and critical illness insurance.

What does supplemental insurance cover?

Coverage will vary considerably depending on the type of supplemental insurance and the specific benefits that you purchase. In general, these policies will have specific lists of the medical conditions, circ*mstances, or treatments they’ll cover, and pre-determined maximum benefits.

The benefits might be paid in one lump sum, or as a series of smaller amounts depending on the medical services that you receive.

It’s possible to buy supplemental insurance policies that will pay benefits for a wide range of serious medical conditions, accidental injuries, and routine care such as dental or vision services.

For dental and vision insurance, the policy is likely to pay benefits directly to the dentist or optometrist, as opposed to sending cash to the policyholder. This will typically be the case if the dentist or optometrist is in-network with your plan; if they’re out-of-network and the plan provides out-of-network benefits, it’s more common for the patient to pay the provider in full and then submit a claim to the dental and vision plan for some level of reimbursem*nt.

But for other types of supplemental insurance, the policy is typically structured so that cash benefits are paid to the policyholder, to use as they see fit.

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Is it a good idea to get supplemental insurance?

The answer depends on your circ*mstances and the extent of the coverage provided by your major medical health plan. It’s important to think about how your finances might be affected by a serious medical condition.

Would you be able to pay your health plan’s out-of-pocket costs (deductible, copays, coinsurance) without much difficulty? Do you have enough in savings, paid leave, or disability insurance to cover your living expenses if you had to take an extended leave of absence from work during your recovery? Would the cost of unexpected additional expenses, such as childcare and travel to medical appointments, be a financial burden?

If the answer to any of those questions is yes, you might want to consider supplemental insurance, in addition to your regular major medical insurance.

Because of the limited benefits, supplemental insurance tends to have more affordable premiums than other types of more comprehensive coverage. But there’s still a lot of variation in the premiums: they can range from just a few dollars per month¹ to over $100/month.²

The premium amount depends on a variety of factors, including where you live, your age, the insurer you choose, the level of benefits you select, and the type of policy you’re buying (accident insurance, critical illness insurance, cancer insurance, etc. or a combination of different policies). The monthly premium also depends on whether you’re buying the coverage on your own, or obtaining it through a trade group or similar organization.

Depending on your expected needs and budget, supplemental insurance could be a worthwhile purchase. The first step is to consider your major medical coverage, and determine whether your current plan fits your needs better than others. If you’re worried about out-of-pocket costs, you can check to see if there’s an option to switch to a different policy during your next open enrollment period – one with lower out-of-pocket costs or more comprehensive benefits. If so, that might be a better use of your money than an additional supplemental insurance policy.

But even with a more robust major medical policy that meets your needs and budget, supplemental insurance can be a good idea, especially if you have a family history of certain high-cost medical conditions. The financial challenges that go along with a serious medical condition can go well beyond the out-of-pocket costs for medical procedures. (These challenges may include expenses for travel to medical appointments, time off from work, and childcare while you’re receiving treatment.)

With the exception of Medicare Advantage plans,³ and various states’ Medicaid programs.⁴

Dental and vision coverage may not be included in even the most robust major medical health plan. So in those cases, you’ll need a supplemental policy if you want coverage for those services. Although it’s common for employers to offer dental and vision benefits along with major medical coverage, the dental and vision benefits are typically offered in addition to the major medical coverage, and are not part of the medical plan itself.⁵

Supplemental insurance is a limited-benefit policy that provides additional cash benefits – typically paid directly to the policyholder – in the event of a medical condition or circ*mstance that’s covered by the policy.

Secondary insurance is a second major medical health plan that picks up some or all of the out-of-pocket costs after your primary major medical plan has processed your claims. Secondary insurance sends payments to your medical providers (doctor, hospital, etc.), rather than paying cash benefits to you.

If you have health insurance through your employer, secondary insurance might come from your spouse’s employer. Or if you’re continuing to work after you turn 65 and enroll in Medicare, your employer’s health plan and Medicare will each provide benefits, with one primary and the other secondary. (The specifics depend on the size of the employer).

With secondary insurance, coordination of benefit protocols may be imposed to ensure that a covered member does not profit from a medical claim. In other words, the secondary policy would not pay more than the person’s out-of-pocket costs under the primary policy.⁶

But with supplemental insurance, the combined total amount of your benefits will depend on the policy and the situation. You may find that your supplemental insurance policy more than covers your out-of-pocket medical costs under your primary policy, providing cash that you can also use for other expenses. On the other hand, you may also find that the supplemental policy covers less than your out-of-pocket medical bills, as there is wide variation from one policy to another.

Medicare supplement insurance – also known as Medigap – is a specific type of standardized coverage designed to pay some or all of the out-of-pocket costs that a person can incur with Original Medicare. These policies send payments directly to the patient’s medical provider, rather than to the patient. They function as a specialized form of secondary health coverage, and can only be used in conjunction with Original Medicare.

Although a Medicare beneficiary might find that all of their out-of-pocket costs under Original Medicare are paid by their Medigap plan (depending on the policy), they will not receive any additional money over and above the out-of-pocket costs.

And with very limited exceptions for medical emergencies overseas (on some Medigap policies), Medigap plans do not provide any benefits for services that aren’t covered by Original Medicare, such as dental and vision or custodial long-term care.

In general, yes, if you opt for Original Medicare. If you choose a Medicare Advantage plan that has integrated Part D prescription drug benefits, that plan will likely be the only coverage you need. (You cannot use a Medigap policy in conjunction with Medicare Advantage, although you can use both an employer’s group health plan and Medicare Advantage, with one secondary and the other primary.)

But Original Medicare does not have a cap on out-of-pocket costs, and does not cover most outpatient prescription drugs. So most Medicare beneficiaries do not rely on Original Medicare alone.⁷

If you have Original Medicare in conjunction with an employer’s health plan or full-scope Medicaid, you likely don’t need any additional supplemental coverage. But if not, you’ll need a Medigap policy and a Part D prescription drug policy, in order to have more comprehensive coverage.

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