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Critical illness insurance is one of a handful of supplemental health insurance policies that workers covered by high-deductible health plans linked with health savings accounts can purchase under Internal Revenue Service rules.
An HSA is a tax-exempt trust or custodial account that members of a high-deductible health plan can set up to pay medical expenses within the deductible. However, if an individual has other insurance to cover expenses within the deductible amount, he or she will lose the tax-favored status of HSA contributions.
In 2013, the minimum annual deductible for an HSA-qualified high-deductible health plan for individuals is $1,250 and $2,500 for families. These minimum deductibles will remain the same next year.
Besides critical illness, other types of insurance permitted with high-deductible health plans linked to HSAs are accident, disability, dental, vision and long-term care, as well as insurance that pays a fixed amount per day of hospitalization.
“As more clients move to health savings account plans, it (critical illness insurance) is one of the few types of coverage that do not jeopardize the tax advantages of that plan,” said Beth Grellner, health and group benefits practice leader for the St. Louis office of Towers Watson & Co.
Employers' growing adoption of consumer-driven health plans is helping to drive sales of critical illness insurance as a supplement to help with employees' higher out-of-pocket costs, experts say.