Limited Benefit Plans
Limited benefit health plans (also called supplemental or specified disease policies) provide coverage for specific conditions or situations rather than comprehensive medical care. These policies pay cash benefits directly to the insured, regardless of other insurance coverage.
Characteristics of Limited Benefit Plans
| Characteristic | Description |
|---|---|
| Scope | Covers only specified conditions or events |
| Benefit Type | Fixed cash payments (not expense reimbursement) |
| Coordination | Pays regardless of other insurance |
| Underwriting | Often simplified or guaranteed issue |
| Premium | Generally affordable |
| Use of Benefits | Policyholder decides how to use cash received |
Important: Limited benefit plans are NOT a substitute for comprehensive health insurance. They supplement existing coverage.
Critical Illness Insurance
Critical illness insurance pays a lump-sum benefit upon diagnosis of a covered serious illness.
Commonly Covered Conditions
| Category | Examples |
|---|---|
| Cancer | All types (may exclude early-stage) |
| Cardiovascular | Heart attack, stroke, coronary bypass |
| Organ Failure | Kidney failure, major organ transplant |
| Neurological | Paralysis, Parkinson's, Alzheimer's |
| Other | Blindness, deafness, severe burns, coma |
Key Features
- Lump-sum benefit: Typically $10,000 - $100,000+
- Survival period: Must survive 30 days after diagnosis (typical)
- Benefit use: Any purpose (medical bills, living expenses, mortgage)
- Recurrence benefit: Some policies pay for additional diagnoses
- Return of premium: Some policies return premiums if no claim made
Common Exclusions
- Pre-existing conditions (waiting period applies)
- Early-stage cancers (carcinoma in situ)
- Conditions diagnosed before policy effective date
- Self-inflicted injuries
Hospital Indemnity Insurance
Hospital indemnity insurance pays a fixed daily or per-admission benefit when the insured is hospitalized.
Benefit Structure
| Benefit Type | Typical Amount |
|---|---|
| Daily Hospital Benefit | $100 - $500 per day |
| Hospital Admission Benefit | $500 - $2,000 (lump sum) |
| ICU Benefit | Additional daily benefit (often 2x regular) |
| Outpatient Surgery | Fixed benefit per procedure |
Key Features
- Pays regardless of actual hospital costs
- No deductibles or copays
- Benefits paid directly to insured
- Can be used for any expense (not just medical)
- Often sold with simplified underwriting
Use Cases
- Cover high-deductible health plan (HDHP) out-of-pocket costs
- Replace lost income during hospitalization
- Pay for non-medical expenses (childcare, travel, mortgage)
Accident-Only Insurance
Accident-only insurance covers medical expenses resulting from accidents, not illness.
Common Coverage
| Covered | Not Covered |
|---|---|
| Emergency room visits (accident-related) | Emergency room visits (illness) |
| Ambulance services | Doctor visits for illness |
| X-rays and diagnostics | Prescription medications (illness) |
| Surgery for injuries | Surgery for disease |
| Physical therapy (injury rehab) | Physical therapy (illness) |
Benefit Types
- Scheduled benefits: Fixed amounts for specific injuries
- Expense reimbursement: Actual costs up to policy limits
- Combination: Both fixed benefits and expense coverage
Cancer Insurance (Specified Disease)
Cancer insurance pays benefits specifically for cancer diagnosis and treatment.
Coverage Components
| Component | Description |
|---|---|
| Initial Diagnosis Benefit | Lump sum upon first cancer diagnosis ($10,000+) |
| Hospital Confinement | Daily benefit while hospitalized for cancer |
| Treatment Benefits | Per-treatment amounts for chemo, radiation, surgery |
| Transportation/Lodging | Assistance for travel to treatment |
| Experimental Treatment | Some policies cover clinical trials |
Important Considerations
- Definition of cancer: Policies define what qualifies as cancer
- Internal limits: Each treatment type has its own maximum
- Pre-existing conditions: Prior cancer typically excluded
- Skin cancer: May be limited or excluded (non-melanoma)
Comparison of Limited Benefit Plans
| Plan Type | Trigger | Benefit Type | Best For |
|---|---|---|---|
| Critical Illness | Diagnosis of covered illness | Lump sum | Major medical expenses, income replacement |
| Hospital Indemnity | Hospitalization | Daily/per-admission | HDHP gap coverage, lost income |
| Accident Only | Accidental injury | Scheduled or expense | Active individuals, families with children |
| Cancer Insurance | Cancer diagnosis/treatment | Lump sum + per-treatment | High cancer risk, peace of mind |
Regulatory Considerations
- These policies are regulated as limited benefit plans
- Must clearly disclose they are NOT comprehensive coverage
- May not meet ACA essential health benefits requirements
- Cannot be sold as a replacement for major medical insurance
- Often sold through worksite (voluntary benefits) or direct marketing
What is the primary characteristic that distinguishes limited benefit plans from comprehensive health insurance?
Hospital indemnity insurance pays benefits:
Critical illness insurance typically requires the insured to:
27.1 Medicare Overview
Chapter 27: Medicare