'Gap-filler' health coverage sales rise 10%

Insurers are expanding efforts to sell workers critical illness insurance, hospital indemnity insurance, accident insurance and other products that can help them cope with high major medical insurance deductibles, co-payments and co-insurance bills.

Insurers’ increased focus on the market helped increase gap-filler product sales to $2 billion in the first half of the year, up 10% from the total for the first half of 2023, according to new issuer survey data from LIMRA.

Related: Younger workers shift to HDHPs, prompting employers to offer wider options

LIMRA did not break out the premium totals or case counts for specific supplemental health products, but it says that premiums from critical illness sales increased 17% between the first half of 2023 and the first half of this year.

Premiums from sales of new hospital indemnity policies climbed 12%.

The number of employers offering the products increased 14% for critical illness insurance and 37% for hospital indemnity insurance.

Insurers can sell supplemental health insurance products through voluntary, employee-paid group benefits programs and by marketing individual policies at the worksite.

The backdrop: Critical illness insurance policies protect the insured people against the cost of specific serious conditions, such as strokes, heart attacks and cancer.

Hospital indemnity policies pay cash when patients are hospitalized.

Congress has excluded the supplemental health policies from most provisions in federal health and benefits laws that apply to major medical insurance.

Insurers can fund the benefits with revenue from annual premium payments, without building large reserves, and they can usually adjust the premiums every year.

The relatively flexible regulatory framework and the short-term nature of the obligation have made offering supplemental health benefits popular with insurers looking for low-risk ways to build sales.

Eastbridge Consulting Group found that issuers of all kinds of voluntary and worksite products generated $9.3 billion in sales in 2023 and $53 billion in premium revenue from in-force coverage. “Takeovers” of employer groups that already had similar types of coverage in place accounted for 52% of the new sales.

For insurers and distributors, one challenge is federal health policymakers’ concerns that employers and workers could try to use supplemental health products to create a cheap alternative to major medical insurance. Federal regulators have reacted by adopting regulations that keep supplemental health benefits from looking too much like major medical insurance insurance.

Players: The list of companies that have rolled out new supplemental health products in the past few months or announced plans to focus more on the supplemental health market includes CNO Financial, Lincoln Financial, New York Life and Prudential Financial.

At CNO, for example, first-half supplemental health revenue increased to $360 million, from $355 million in the comparable period in 2023, and lower claims helped increase the “margin,” or what CNO had left from the revenue after paying the claims, to $130 million, from $123 million.

New sales increased to $21 million, from $18 million.

Ellen Cooper, the CEO of Lincoln, said during an analyst call her company organized that Lincoln’s workplace solutions division doubled sales of supplemental health insurance between the third quarter of 2023 and the third quarter of 2024.