3 Ways to Know You Need Supplemental Health Insurance

Editor’s Note: Reviewed in 2024 to update citation sources and ensure compliance standards

So, you have health insurance—either through your employer or an individual insurance plan you purchased. You think you’re all set, right? Think again.

Many people have felt protected by doing solely that one step you have completed—enrolled in a health insurance plan. But, have you looked closely at your health insurance policy? Do you know how much you are expected to pay for your medical expenses? What about the gaps in your coverage? Do you need some kind of gap health insurance or supplemental health insurance?

Out-of-Pocket Gaps in Your Health Insurance

If you’ve looked closely at your individual insurance plan’s explanation of benefits (EOB) or your employer-sponsored health insurance EOB, you can quickly see that there are a lot of medical expenses that you must pay out of pocket before the health insurance company is responsible for care:

• Deductibles
• Coinsurance
• Copays

In fact, your coverage probably has a table that points out an “out-of-pocket maximum” amount. Take a close look at that figure. That’s how much you will need to pay if you have some serious medical expenses for you or your family. It’s probably a pretty high figure.

Almost all employer-sponsored healthcare plans have deductibles that are now $1,000 or more. That doesn’t even take into consideration the medical and other expenses not covered by your major medical health insurance that would hit you in an injury or significant illness situation. For those who pay for their own health insurance, the total out-of-pocket maximum for a Marketplace plan is $9,450 for an individual and $18,900 for a family as of 2024.

These gaps in coverage are why you need supplemental health insurance.

You’ve probably heard stories of people who felt they were well-insured—until they really needed the insurance due to an injury or sickness that put a real strain on their finances. You may have friends, neighbors, or even family members who have been in this situation, and it can be agonizing and costly.

Medical Debt, Bankruptcies and Health Insurance Gaps

It has been widely reported that unpaid medical expenses are at or near the top of the top 10 reasons for personal bankruptcy.

A recent study showed that medical expenses account for more than 62% of personal bankruptcies in the U.S. And it isn’t just the uninsured that have medical debt.

Many people expect this condition to get even more severe as deductibles and out-of-pocket costs continue to rise rather rapidly. In case you haven’t followed recent news, out-of-pocket costs continue to rise for insurance policyholders, both on and off the Affordable Care Act exchanges.

3 Reasons to Buy Supplemental Health Insurance

How do you know if your health insurance is leaving you with serious gaps that could cause you financial problems? Here are three ways to know:

1. Your deductible is greater than your savings account.

Almost all health insurance plans have annual deductibles that can start at $1,000 or more and may include about $9,450 in out-of-pocket expense limits.

Compare the deductible and the out-of-pocket maximum for your health insurance plan against the balance in your savings account. Would your savings cover your out-of-pocket maximum?

If you are like most people, your savings won’t cover that expense. In fact, a recent study showed that about 39% of Americans do not have enough money in savings to cover an unexpected $1,000 medical event.

So, what do you do if you can’t afford to pay your medical expenses?

• Use a credit card and pay double-digit interest on those funds and hope that you can pay it off in the next few years?
• Ask for a loan from family members and face them at every family event, knowing you owe one or more of them money?
• Take a second mortgage on your home or a title loan on your car or other assets and pay the often high-interest rates that those entail?

Supplemental health insurance, sometimes called gap health insurance can make a big difference for you and your family.

2. You have children who will need extra childcare expenses if you are ill or injured.

You are already juggling a lot, with a job, children to raise, a home to maintain and finding time to sleep and relax occasionally A serious illness or injury would put a lot more financial strain on you than just the actual medical expenses would. Sometimes people forget that when they are buying health insurance.

If you have young children, you know how expensive childcare is these days. Here are some national averages:

• The average cost of school-age home-based care starts at $5,357 a year, depending on which county you live in, according to the National Database of Childcare Prices.
• However, infant center-based care can start at $17,171, depending on the local county.

When you are seriously ill or injured, you may need even more childcare services, since you won’t be able to do all the things you usually do while you are recovering.

These days, most people don’t have a big support circle for this kind of situation either. Other family members and friends also have jobs that they must maintain, so there are fewer people in our society who you can lean on for support.

3. You don’t have savings to cover being off work for illness/injury.

It’s pretty well-known that many Americans live life to the fullest, spending all or most of what they make each week or each month. Many of us haven’t taken the time to do financial planning or really analyze how much we need to save and for what reasons or events.

It’s easy to say after the fact, “I should have saved …,” But we need to face the facts:

• Individuals age 34 or younger have savings of less than $3,240.
• That amount won’t go very far for you and your family if you should have an injury or illness, especially one that puts you off work for a time.
• Overall, the average person has less than $10,000 in savings. The closest age group to get near that number is over 75 years old.

Why Supplemental Gap Insurance Is Important for You

You may be responsible for thousands of dollars upfront before your regular health insurance coverage kicks in. With a supplemental health insurance plan, you get extra protection that helps pay for covered accidents and unexpected critical illnesses. This coverage also can help you pay for those other non-medical expenses that go along with an injury or serious illness.

Supplemental medical insurance can help you cover your insurance deductible, medical bills, the mortgage — whatever you need the funds for.

Supplemental insurance has another important benefit for those who purchase it: This insurance allows you to focus on the most important aspect of recovery, which is getting better.