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How Employers Can Build a Medical Safety Net

Would it surprise you to learn that 66% of all bankruptcies are due to medical expenses? Even more startling, 80% of these medical-related bankruptcies involve individuals with health insurance. Clearly, there’s a pressing issue that needs to be addressed.

employee medical safety net

This article will outline three essential steps to establish a “medical safety net” for your employees, and why it is crucial for their well-being.

Take for instance the story of a freelance journalist, John, that recently tied the knot with Lisa. While their life wasn’t without its challenges, in many ways, it was the existence they had dreamed of. Lisa worked full-time as a nurse in a nearby clinic, while John, with the flexibility of freelance work, managed household chores, took their dog on daily walks, and enjoyed being the cook in the house.

In their prime, dedicating 40-50 hours weekly to their professions, the couple was passionate about their careers. However, financial constraints were a perpetual concern. By being judicious with their spending—like reserving dining out for special occasions and steering clear of premium beverages like $8 Pumpkin Spice Lattes—they managed to make ends meet.

Living paycheck to paycheck meant every expenditure counted, with even a $50 deviation making a significant difference. Concerned about unforeseen expenses, Lisa opted not to contribute to their 401K this year, and they minimized optional benefits costs.

In a recent episode of the SECURE podcast, I learned about a poignant interaction between Lamont Thurston, the Founder and CEO of BeneRē, and John. John was working as a marketing contractor for BeneRē. During one of Lamont and John’s initial project discussions, John, typically stoic, became visibly emotional. Inquiring about John’s well-being, Lamont discovered that he had recently been diagnosed with Stage Four brain cancer.

Heartbreakingly, just a few months prior to his diagnosis, John had the option to enroll in both critical illness and hospital indemnity insurance but chose not to. For someone living paycheck to paycheck, as John and Lisa were, the potential $20,000 – $30,000 payout from such insurance would have been invaluable for them as they navigated this devastating diagnosis. Their decision to forgo this coverage stemmed from a combination of insufficient understanding and budgetary constraints.

Overcome with emotion, John lamented, “I just didn’t know better.”

Does the story of John represent an isolated event, or is it symptomatic of a broader issue surrounding financial vulnerability within health plan designs? Let’s consider the larger context of medical debt and bankruptcy in the U.S.

Disturbingly, nearly half of American workers can’t cover an unexpected $1,000 expense from their savings, according to data from the Commonwealth Fund. Consequently, when faced with unforeseen medical expenses such as accidents, critical illnesses, or hospital stays, the average family lacks the financial resources for out-of-pocket costs.

As a result, 100 million Americans shoulder a collective debt of over $200 billion. As KFF Health News reports, much of this patient debt remains concealed, manifesting as credit card balances, personal loans, or staggered payments to hospitals and medical providers – who are now suing their patients!

The prevalence of high-deductible plans is increasing, as are the maximum out-of-pocket expenses that individuals and families must bear. Given the aforementioned data, it’s clear that many American workers are stretched to their financial limits.

This raises a critical question: How can HR executives and plan administrators support their employees and participants in navigating the financial pitfalls associated with accidents, critical illnesses, and hospitalizations—the last of which accounts for 31% of all healthcare costs?

Rethinking Supplemental Products: Making Them Core Benefits for Employees

Traditionally, companies often recognizable by playful cartoon mascots and exorbitantly expensive Super Bowl ad campaigns, have offered Accident, Critical Illness, and Hospital Indemnity insurance as voluntary benefits. These have been primarily targeted towards individuals and small businesses. Such marketing strategies have unintentionally positioned these benefits as ancillary or even financially questionable in the eyes of medium to large enterprises.

As a result, during benefit enrollment, these offerings frequently take a back seat, typically presented after less impactful voluntary benefits like Vision, Dental, and Life. This hierarchy has contributed to a modest enrollment rate amongst eligible employees, with figures often below 20%.

Given the surplus of choices, which employees are most likely to opt for Accident, Critical Illness, and Hospital Indemnity insurance?

There should be no surprise: it tends to be the upper third of the financial health bracket within the workforce—those most equipped to weather unexpected medical expenses. However, it’s a universal truth that accidents and illnesses can strike anyone, irrespective of their financial standing.

The pressing question becomes: Why aren’t employers subsidizing these coverages for all their employees?

Mitigating the Financial Impact of Medical Emergencies

While supplemental benefits can offer relief, they often don’t encompass the entirety of out-of-pocket expenses (OOP) that arise during significant medical events. Moreover, beyond OOPs, individuals and families confront additional costs like childcare, travel expenses for family, lost wages for caregivers, over-the-counter medications, non-emergency transport, specific dietary requirements, home cleaning services, educational resources, and more.

Given these financial burdens, many resort to continuous credit card debt or seek assistance from family.

Employers have a golden opportunity here—in addition to covering 100% of their employees with Accidental, Critical Illness, and Hospital Indemnity insurances, they can establish employee relief funds and offer affordable credit options for those facing such emergencies.

Considering the magnitude of the issue, it won’t require substantial changes for employers to make a profound impact. A small portion of the workforce, typically 10-15%, is likely to encounter a catastrophic medical event in a given period.

To support them, here are three big takeaways:

  • Integrate Critical Illness and Hospital Indemnity insurances as fully employer-funded components within your company’s benefits offering.
  • For those facing qualifying life events, ensure the availability of affordable credit options to manage out-of-pocket expenses.
  • Establish a third-party administered employee-relief fund to offer grants for outlying hardships.

The potential for these benefits to create a profoundly positive impact is immeasurable. Just take Lisa’s experience as an example. A mere four months after John’s discussion with Lamont’s team, he succumbed to his illness. Would insurance and affordable credit solutions have addressed all of their concerns?

Certainly not, but they would have undoubtedly provided a semblance of financial relief during life’s most challenging moments.

Charles Lattimer is the Chief Innovation and Growth Officer at FinFit and host of “SECURE: Building a Financially Resilient Workforce” podcast. He is the former CEO of Cooperative Leadership Institute founded at Virginia Tech and co-author of the college textbook “Management: A Balanced Approach to the 21st Century,” published by Wiley in 2012.

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