3.6 Limited, Supplemental & Worksite Health Policies

What Makes a Policy "Limited"

A limited benefit policy covers a specific peril, disease, or event rather than medical expense generally. Because a consumer can easily mistake one for real coverage, state law requires a conspicuous disclosure — typically bold type on the face page reading "THIS IS A LIMITED POLICY" — and producers may not present these products as substitutes for comprehensive major medical.

The honest framing for a client is that limited products are supplements: they pay cash that helps with the deductible, coinsurance, travel, lost income, and household costs that major medical does not touch.

The Named Products

Critical illness

Pays a lump sum on diagnosis of a covered condition — commonly heart attack, stroke, cancer, end-stage renal disease, major organ transplant, paralysis, and coronary artery bypass. Key mechanics:

• Benefit is paid regardless of actual medical expense and the insured spends it on anything.
• Some conditions pay a partial benefit (for example 25% for an angioplasty) which reduces the remaining benefit.
• Policies commonly impose a survival period — the insured must live a stated number of days after diagnosis, often 14 or 30, to collect.
• A pre-existing condition limitation and a benefit reduction at older ages are typical.

Cancer and specified (dread) disease

A cancer policy pays only for loss caused by cancer; a specified disease policy names a short list. Benefits may be a lump sum, a schedule of amounts per treatment type (surgery, radiation, chemotherapy, hospital days), or both. If the diagnosis is anything other than the named disease, the policy pays nothing — which is precisely why the disclosure rules exist.

Hospital indemnity (hospital confinement indemnity)

Pays a fixed dollar amount per day (or per week or month) of hospital confinement, regardless of actual charges and regardless of what other coverage pays. A $300-per-day policy pays $300 whether the hospital bills $1,200 a day or $9,000. Because it is a valued benefit rather than an expense-reimbursement benefit, it does not coordinate with medical coverage and is not reduced by it. Confinement is normally required, so outpatient surgery triggers nothing.

Accident-only

Covers loss resulting from accidental injury and pays nothing for sickness. Benefits may include accidental death, dismemberment, hospital confinement, and disability income from accident. These are inexpensive precisely because they exclude the far larger sickness exposure. Note the interaction with the reinstatement provision covered earlier: accident coverage resumes immediately on reinstatement, while sickness coverage waits 10 days.

Accidental death and dismemberment (AD&D)

Pays the principal sum for accidental death and a capital sum — a stated percentage of the principal sum — for dismemberment or loss of use. Losing two limbs or the sight of both eyes typically pays the full principal sum; a single loss typically pays half. Death must usually occur within a stated period after the accident, commonly 90 days. AD&D is a named product on the outline and appears as both a standalone policy and a rider.

Short-term limited duration insurance (STLDI)

Sold as a bridge between comprehensive plans — between jobs, or waiting for an ACA open enrollment. STLDI is not ACA-compliant, which has four consequences the exam tests:

1. It may be medically underwritten and the applicant may be declined.
2. It may exclude pre-existing conditions.
3. It need not cover the ten Essential Health Benefits, and often excludes maternity, mental health, and prescription drugs.
4. It is not minimum essential coverage, so buying it does not qualify a person for a special enrollment period later and it does not entitle the buyer to a premium tax credit.

Maximum duration and renewability are set by federal rule and further restricted by many states.

Worksite (employer-sponsored voluntary) products

Worksite marketing sells individual policies to employees at their place of employment, typically with 100% employee-paid premium and payroll deduction. The employer sponsors access but usually pays nothing. Features:

• Coverage is individually owned and portable — the employee keeps it when leaving the job.
• Underwriting is simplified or guaranteed issue because the worksite provides a natural risk pool and payroll deduction reduces lapse.
• Typical worksite products are exactly the limited ones above: accident, critical illness, cancer, hospital indemnity, dental, vision, and short-term disability.

Comparing the Payment Triggers

The pattern worth memorizing: everything except major medical and STLDI pays without regard to what the care actually cost. That is what makes them supplements rather than coverage.