The Wall Street Journal - 21 Feb 1996
Nancy Ann Jeffrey, Staff Reporter of The Wall Street Journal

But the option that is most popular with Avnet's 7,500 domestic employees is cancer insurance. About one-fifth pay anywhere from $16 to $27 a month for the coverage.

Once the province of agents hawking door to door, cancer insurance and other "limited-benefit" medical policies are a hot new offering in employee-pay-all benefit programs at many small and midsize companies. Such insurance, usually offered as a supplement to an employer's comprehensive health plan, includes policies for cancer, heart disease and hospital stays.

Insurers say these limited-benefit policies offer important protection at a cheap price. But, while hospital-stay policies can be helpful in certain situations, cancer insurance and other "dreaded-disease" policies generally are a bad deal, consumer advocates say.

"When you insure your auto, you insure the whole thing, not just the right front fender," says James H. Hunt, a consultant for the Consumer Federation of America.

About 10.6 million people had cancer or other specific-disease policies in 1994, while about 3.5 million had a supplemental hospital policy, according to the most recent data from the Health Insurance Association of America.

Insurers acknowledge that supplemental policies, which largely faded when comprehensive coverage came on the scene, are no substitute for a major medical plan. Still, as employers raise deductibles and co-insurance on comprehensive plans, such policies can be a valuable safety net for employees who could be on the hook for several thousand dollars a year or more if illness strikes, insurers say.

"To sustain their family's routine in the face of illness, people may need more than major medical," says Kathelen Spencer, a senior vice president for Aflac Inc.'s American Family Life Assurance Co., of Columbus, Ga.

Aflac, which offers four cancer policies, sends a payment of $1,500 to $5,000 once a person is diagnosed with any cancer except skin cancer. The insurance then offers limited payment -- usually in the form of cash paid to the policyholder -- for such expenses as hospitalization, radiation and chemotherapy, surgery, and physician fees. It also has an allowance for treatment-related transportation and lodging. Aflac also sells plans that pay a daily benefit for time spent in the hospital or intensive-care unit.

Companies that offer similar insurance include Colonial Life & Accident Insurance Co., a subsidiary of UNUM Corp., and Mutual of Omaha Cos. Such policies usually pay benefits regardless of any comprehensive coverage.

Consumer advocates say cancer and other dreaded-disease policies are like insuring your house against an earthquake, but not buying coverage for fires, floods and other catastrophes.

"What happens if you get hit by a truck?" says Bob Hunter, director of insurance for the Consumer Federation of America.

If you're worried that the deductible on your comprehensive health coverage is too high, you may want to pay more for richer coverage or just stash some money away to cover the gap. Dreaded-disease policies may look cheap, but high distribution costs tend to eat up a large chunk of your premium dollars while offering relatively meager benefits in return, says Lawrence Singer, a senior vice president at Segal Co., a benefits-consulting firm in New York.

Insurers sometimes argue that limited-benefit policies offer some freedom to members of managed-care plans, who may want to go outside their plan's approved network of doctors. But, such policies would likely cover only a fraction of the cost of outside treatment and many managed-care plans already offer some coverage for out-of-network care.

Besides, "if you wouldn't want to use your health plan when you get really sick, you probably shouldn't be in it," Mr. Hunter says.

Cancer insurance has a history of abusive sales tactics, consumer advocates say. In the 1970s and 1980s, seniors often were sold multiple policies with redundant benefits. A few states, including New York, New Jersey and Connecticut, ban sales of specific-disease policies altogether.

Federal law restricts sales to Medicare beneficiaries of supplemental policies other than standardized Medigap plans. But a provision in the vetoed congressional budget bill would have relaxed such protections, says Gail Shearer, health policy director for the Washington office of Consumers Union. The National Association of Insurance Commissioners recently set up a working group to focus greater scrutiny on the entire limited-benefit market.

Unlike dreaded-disease policies, hospital-indemnity plans can be a valuable tool for some seriously ill people, financial planners say. Aflac's two hospital plans, for example, pay $100 or $200 a day for the first 30 days in the hospital and $200 or $400 a day for the next 150 days.

Since benefits usually are paid in cash regardless of any comprehensive coverage, such policies can help pay for food, rent, the added cost of a private hospital room and anything else regular insurance won't cover, says David Petersen, president of Affording Care, a nonprofit group in New York.

Mr. Petersen, who has been hospitalized for a total 44 days since testing positive for the AIDS virus in 1988, pays $1,400 a year for six hospital policies. He has used the benefits to help pay his $7,000 monthly prescription drug bill and once -- to boost his spirits -- to buy a $700 watch.

Because hospital policies do virtually no underwriting, they can be a useful source of cash for someone whose illness carries serious and predictable costs down the road, says Jill Peetluk, a fee-only financial planner in Kings Park, N.Y. AIDS and some types of cancer often present such expenses. Such policies, however, often have a waiting period of about a year for people with pre-existing conditions.

Also, with more diseases being treated on an outpatient basis, you could become gravely ill and yet never collect a dime. Some policies offer limited outpatient benefits.

There also are other options. Disability insurance is usually the best way to replace lost income. Terminally ill people may be able to get accelerated death benefits from a life insurance policy or sell the policy -- albeit, often at a deep discount -- in a so-called "viatical" settlement. Finally, very high-deductible health insurance can be a smart way to pay out-of-pocket costs for certain illnesses, Ms. Peetluk says.

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