How To Choose the Best Supplemental Health Insurance

A Guide to Choosing Both a Good Insurer & a Good Supplemental Insurance Policy

Compare your options carefully when picking a supplemental health insurance policy. Image ©sodapix sodapix/GettyImages

If you’re buying supplemental health insurance on the private market rather than getting it as part of your employee benefits package, the number of options available to you is mind boggling. How do you choose the best supplemental health insurance plan?

You don’t want to spend your money paying premiums for supplemental health insurance that doesn’t meet your needs. Neither do you want to buy a supplemental health insurance policy from an insurer with such bad customer service that getting a claim paid is harder than getting a bill passed into law.

Two Keys to Choosing the Best Supplemental Health Insurance Plan

Choosing the best supplemental health insurance plan for your particular situation requires two basic steps:

  1. Clearly define your needs and choose a policy that matches those needs. Don’t over-buy or buy something that isn’t really what you need.
  2. Choose an insurance company with good customer satisfaction and a good financial stability rating to supply that policy.

Defining What You Need in a Supplemental Health Insurance Plan

Why do you want supplemental health insurance? What do you want the supplemental health plan to pay for that you don’t feel capable of paying for yourself or with your comprehensive major-medical health insurance? To answer this question, you need to carefully analyze your risks and fears before you can choose the type of supplemental health insurance plan that will address those specific risks.

See a list of different types of supplemental health insurance plans including what those plans cover in “What Is Supplemental Health Insurance?

” In addition, consider short-term and/or long-term disability insurance.

Short-term disability insurance pays you monthly cash benefits meant to partially replace your income when you’re unable to work due to a disabling condition. There’s a usually a waiting period of up to a few weeks and benefits may last for six months.

Like short-term disability, long-term disability is meant to replace your income if you’re disabled, but the waiting period before benefits begin is much longer, usually six months or more. However, long-term disability insurance may pay benefits for years. Some policies pay benefits for a defined number of years, others pay benefits until you reach a defined age. For example, after being disabled for six months, a policy may begin paying monthly benefits and continue to pay benefits for five years, or may pay benefits until you reach age 65.

Some insurers sell riders that can be used along with an existing supplemental policy from the same insurer. A rider is like an add-on to a policy. It adds specific benefits to a policy in exchange for an additional premium. If you see a policy that would satisfy most of your needs but is just lacking one or two coverage items, ask if coverage for those items is available as a rider to the existing policy.

In addition to looking for the type of supplemental health insurance that will meet your specific needs, consider self-insuring. Ask yourself if it would be wiser to forgo supplemental health insurance and use the money you would have spent paying the insurance premiums to build an emergency savings cushion instead.

The benefit of an emergency savings cushion is that it can be used for any emergency, not just for health care related problems. Additionally, if you don’t have an emergency, you haven’t lost any money; the money is still sitting there in your emergency fund. But, if you pay an insurance premium and don’t have a claim, you don’t get the premium back.

On the other hand, it’s hard to save enough money to equal the pay-out of a $100,000 critical illness policy or a $75,000 cancer insurance policy. It’s nearly impossible for all but well-off, upper-middle-aged people to save enough money to replace the income that a long-term disability policy would replace.

One last item to consider when evaluating your needs is whether or not you would be better served by increasing your comprehensive major-medical health insurance rather than by adding supplemental health insurance. If you’re looking for a supplemental policy because your comprehensive health insurance is lousy, weigh the cost of a better comprehensive health insurance plan against the cost and added hassle-factor of buying one or more supplemental health insurance policies to compensate for your lousy primary health insurance.

Choosing the Best Insurance Company

Once you’ve clarified your needs and defined exactly what type of supplemental health insurance will best meet those needs, make a list of the insurance companies that sell that type of policy in your area. 

Next, cross off the insurers that don’t sell policies with benefits close to the amount you need. Don’t buy a policy for more than you need.

Now, make sure each of the companies on your list is financially stable enough to pay its claims. You can evaluate an insurance company’s financial stability using A.M. Best or Standard & Poor’s. Cross off any insurer that doesn’t have excellent financial stability.

Be careful to use the exact name of each insurance company when entering it into the site’s search box. For example, when I searched A.M. Best for Aflac and United Health Care, the site was unable to locate any insurers by those names. However, when I entered American Family Life Assurance Company of Columbus instead of Aflac, and UnitedHealthcare rather than United Health Care, I was able to see A.M. Best’s financial stability ratings for both of these well-known insurers.

By now, you will have whittled your list down to a relatively manageable number of insurers. Evaluate the customer service reputation of your remaining insurance company choices. There are several ways to go about this, none of which are perfect. However, if you use a combination of these options, you’re likely to get a feel for an insurer’s reputation with its clients.

  • Better Business Bureau can be used to evaluate supplemental health insurance companies in two different ways. First, it provides a report-card type ranking for many companies. Second, it maintains a database of complaints about a company that have been filed with the BBB by consumers. In many cases, you can read the actual complaint as well as the company’s response. A few complaints here or there shouldn’t be alarming. Hundreds of complaints telling similar stories are much more concerning.
  • Each state’s department of insurance regulates the insurance companies doing business within its state. Many provide information about complaint ratios for insurers in their states; all provide information about whether a particular insurer is allowed to sell supplemental health insurance in that state.
  • J.D. Power ranks dental plans and comprehensive health plans based on several consumer-friendly metrics such as customer service and claims processing. Unfortunately, it doesn’t rank each and every type of supplemental health insurance plan.

What Is Comprehensive Health Insurance?