Critical Illness, a Fate Worse than Death

By Cyril Tuohy
InsuranceNewsNet

Out-of-pocket medical costs for critical illness, which average as much as $7,500, weigh so heavily on workers that they fear the financial impact of an illness even more than dying from one, according to a new report by Sun Life Financial.

When asked to identify their greatest concern in the face of a critical illness, 47 percent of participants named “finances,” 29 percent named “dying,” and 22 percent feared the “emotional burden,” it would bring.

Bob Klein, senior vice president of Sun Life’s Voluntary and Multiline divisions, said the concerns were most acute among women, workers between the ages of 40 and 50, and employees who are single.

“Further, our research shows that workers in the transportation, utility, business/professional services, and manufacturing industries also seem particularly concerned with the financial impact of a critical illness,” he said.

Invasive cancer, heart attacks and strokes are most feared most by men and women, as well as younger workers between the ages of 22 and 29, and older workers between the ages of 40 and 45, according to Sun Life.

Per-person out-of-pocket medical costs for insured workers experiencing a critical illness cost an average of $6,740 for cancer, $17,680 for a stroke and $14,234 for a heart attack, Sun Life's estimates from more than 300,000 claims found.

More than one-third of workers who survived a critical illness also found themselves out of work for four months or longer and added to out-of-pocket medical costs such a workplace absence usually forced them to dip into retirement or tuition savings.

Critical illness coverage has been offered by the industry since the early 2000s, usually on a voluntary basis, and several big carriers such as Aflac and MetLife have recently offered broader critical illness coverage. It is offered as a supplement to primary coverage.

Primary health insurance plans, with their high out-of-pocket cost structures, exclusions and low limits relative to expensive treatment procedures, are quickly overwhelmed by the cost tidal wave that rides in with a catastrophic illness.

Dr. David U. Himmelstein, co-author of groundbreaking studies conducted in 2001 and 2007 correlating bankruptcy with medical debts, said he was struck by how thinly stretched many American families are, on account of medical costs.

“The net worth of most American families is actually very low, and so many resources are stretched. It's really strikingly low for at least half of American families,” he told InsuranceNewsNet. “So a serious illness, even if you have really good coverage, makes a difference.”

Particularly with expensive cancer therapies, different coverage tiers for medications make the out-of-pocket burden difficult for many families to bear.

Himmelstein, a professor of public health at the City University of New York and a visiting professor at Harvard Medical School, said his research found many families “so close to bankruptcy.” Most medical bankruptcies, he also said, occur among people who are underinsured.

As many as 62.1 percent of all bankruptcies in 2007 were related to paying for health care-related expenses and debtors were well educated, owned homes and held middle-class occupations, according to Himmelstein’s study.

A separate 2009 study by the Kaiser Family Foundation and the American Cancer Society underscores how rapidly workers become overwhelmed by the financial burden of catastrophic illness.

In one example, Connecticut resident Debra Gauvin, 52, was diagnosed with Stage II breast cancer in 2008.  Though her employer-sponsored health insurance covered 80 percent of the lumpectomy, she quickly met the $20,000 annual maximum on her insurance plan and found herself owing $18,000 for surgery and chemotherapy in out-of-pocket expenses.

While 36 percent of workers believed they had critical illness coverage, far fewer actually have critical illness coverage, the Sun Life report also found. Yet, when employees were given sample rates and the coverage amounts, 65 percent of nonsmoking workers from age 22 to 49 said they would buy critical illness if their workplace offered it.

For $15 or $20 a month, employees can typically get up to $30,000 worth of coverage in critical care illness insurance coverage, said Dan Pisetsky, president of US Living Benefits and vice president of public relations for the National Association for Critical Illness Insurance.

The survey for the Sun Life report was conducted in August 2012 by Kelton Research. Responses were collected from 4,116 employees with a median income of $51,000 and a median age of 43. Additional data used in the report was collected from Sun Life’s claims database.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at Cyril.Tuohy@innfeedback.com.

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.