The Price of Survival

By Carol Harnett/Benefits Columnist

My eyes were opened in January when I heard Dr. Marius Barnard speak at a client conference about how he created the concept of critical-illness insurance 30 years ago. Barnard is not your typical insurance-product-development manager. A South African cardiac surgeon, he was a member of the team -- led by his brother, Dr. Christian Barnard -- that performed the world's first human-to-human heart transplantation in 1967.

Throughout his career, Barnard witnessed the transition of patients dying from diseases such as cancer, cardiac disease, heart attacks and strokes to people surviving. And he realized one key fact from this evolution: Survival entails a price.

In his book, Defining Moments, Barnard cites an estimate that the cost of a cancer diagnosis for a patient is one part medical expenses and two parts indirect costs. He eventually became obsessed with how to provide his patients with the money they needed in the event they survived a life-threatening condition -- the odds of which are going up all the time.

Barnard says he worked for years to create a critical-illness product, "not because you're going to die, but because you're going to live." He finally was able to help launch a "dread disease" insurance product through Crusader Life in his home country in 1983. The product covered four conditions: heart attack, stroke, cancer and coronary-artery-bypass surgery. And, it was designed like a life-insurance benefit in that it paid a lump sum and paid "real money" -- generally, dollar amounts in excess of $250,000. This would allow the insured to address his or her most pressing money issues, such as paying off a home mortgage.

As Barnard's longtime colleague, Marcia Johnson, puts it: Life insurance pays for dying, but not the consequences of surviving; health insurance pays for the treatment of illness; disability insurance provides income, but not all the money necessary for the consequences of being disabled; and critical-illness insurance pays for the consequences of the event, not the event itself.

There's a growing interest in this type of insurance today, possibly related to the continuing increase in the number of employees covered under high-deductible health-insurance plans. If an HR executive is interested in providing employees with the opportunity to purchase critical-illness insurance, the following are some considerations to keep in mind:

* If you are making changes to your medical plan and are moving to high-deductible coverage (or are increasing the amount of your deductible), you may want to consider coupling this plan alteration with a base employer-paid group-critical-illness policy of $5,000. You can give employees the right to buy-up from this base.

* Simplicity in plan design is important to keep in the forefront.

* Finally, be aware that all insurance carriers are both pleased and concerned by the number of brokers who are promoting critical-illness coverage. The major apprehension is that brokers will attempt to move the business every few years to take advantage of larger first-year commissions.

Carol Harnett, an expert in the field of employee benefits, can be emailed via http://about.me/carolharnett.

Jun 9, 2014
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