© Copyright 2002 Rogers Media. The following article first appeared in the April 2002 edition of BENEFITS CANADA magazine.

There is considerable interest in critical illness insurance these days. Industry commentators have praised the benefits of this type of coverage, and insurers are adding new products and improving existing ones. With all this attention, it would appear that critical illness coverage is in high demand. Surprisingly, this is not the case. Despite an aging population and increased concerns about hospital and treatment waiting lists, few employers are actually offering critical illness in their benefits package.

Industry analysts are divided on the future of this benefit. In the present environment of premium increases and cost containment, many question the place for critical illness insurance in employee plans. Others say it is on the cusp of a major breakthrough. To wade through the hype and cynicism, let's examine its origins, plan options and implementation strategies. This way plan sponsors can decide for themselves whether it's right for their plan.

Critical illness insurance pays a lump-sum benefit to plan members who are diagnosed with and survive a serious, life-threatening illness specified in the plan. Insurance providers point out this benefit is not a replacement for disability plans. Since members are allowed to spend the funds as they choose, it bridges the gap between life and disability insurance by providing a predetermined lump-sum payment to members. While over time, long-term disability may offer a larger benefit, critical illness provides immediate funds, relieving survivors and their families from some of the financial burden associated with the illness.

Neither the insurance company nor the plan sponsor can set restrictions or guidelines on how the benefit is used. Individuals may choose to:

- Cover expenses associated with a lifestyle change or mobility issues resulting from their illness/condition.

- Bypass medical waiting lists for treatment or diagnosis, seeking medical assistance outside of the country.

- Receive experimental treatment not covered by the public healthcare system.

- Enjoy their remaining time by pursuing activities ordinarily beyond their financial means.

EVOLUTION OF CRITICAL ILLNESS
Marius Barnard, the brother of the late world-renown South African heart transplant surgeon, Dr. Christiaan Barnard, identified a need for critical illness insurance in 1983. He noted his brother's patients survived organ transplant surgeries thanks to medical technology, but the financial impact of survival weighed heavily on families. Barnard developed an insurance product that would help people cope. Since then, critical illness insurance has slowly expanded. It is now offered in Canada, the U.S., U.K., Australia and Japan.

The benefit has been available to Canadian employers since the mid-1990s. But only one carrier in Canada among the 'big five' offers critical illness insurance as a group product. Smaller insurance companies are the main promoters of it.

This may explain why it has not taken off among employers. "Information may be slow to trickle through the consulting industry. As a result, it's not at the top of the agenda when meeting with plan sponsors," says Cindy Gawlik, a consultant with Aon Consulting in London, Ont.

With advances in medicine there is an increasing chance individuals will survive a serious illness. Promoters of critical illness insurance point to worrisome health statistics, including the fact that 75,000 Canadians have heart attacks every year, and over 80% of those admitted to hospital survive.

The change in living conditions and abilities of the survivor are often overlooked. "Everyone knows someone who has gone through a serious illness and has watched how it has affected their family," says Art Babcock, vice-president with Aon Consulting in Edmonton. "This might require remodelling a home, ongoing attendant care, a change in job or early retirement. All of these lifestyle changes add an additional financial burden to an already difficult situation."

Changes to the public system have also led to a renewed interest in critical illness insurance. Cuts in some areas and advances in non-traditional medicine mean a growing list of treatments are not covered by most provincial healthcare plans. An individual may be faced with treatment costs that could significantly deplete his or her savings.

DIFFERENT OPTIONS
Most insurance companies offer two major plan designs for critical illness: a basic and an enhanced plan. The basic group plan is usually restricted to four or six major illnesses, including heart attacks, strokes and life-threatening cancers. Coronary artery bypass surgery, paralysis, blindness and kidney failure may also be added. The payout ranges from $10,000 to $150,000. But it can go as high as $500,000.

Basic plan premiums are less expensive than enhanced group or individual plans. But the savings come at the price of reduced coverage. The very condition that prompted Barnard to conceive critical illness insurance--organ transplant surgery--is not typically covered in a basic plan. "I recommended one client select a plan with slightly higher premiums, but more extensive coverage," says Babcock. "The last thing you want to have happen is someone to get a serious disease and not have it covered under the plan."

Optional or enhanced group plans cover a much wider range of diseases and pay up to $1 million. However, a medical history is usually required before an insurer will issue coverage. Enhanced plans cover 15 or more illnesses, including multiple sclerosis, organ transplant, Alzheimer's, deafness and Parkinson's. More insurers are expanding the list of diseases covered and extending coverage to spouses and dependents. In addition, some plans now provide coverage for dismemberment.

When a plan member is diagnosed with an illness specified in the contract, the benefit is paid out provided the individual survives the waiting period. Waiting periods are about 30 days following diagnosis or surgery. For some conditions, such as multiple sclerosis, the waiting period is longer. No benefit is payable if the individual passes away during the waiting period. As well, plan members diagnosed with multiple diseases are only eligible to claim the benefit once. In addition, group critical illness plans usually allow coverage for certain pre-existing ailments as long as the condition is inactive or cured at the time of coverage.

The benefit is priced in age-bands with rates for men, women, non-smokers and smokers. All employees can apply to a group plan but the benefit is more expensive with age--especially for smokers who are 40 or older. Premiums for a 60-year-old male smoker in a $100,000 plan cost $5,500 or more a year. Still, costs are decreasing. A $100,000 benefit for a 40-year-old male non-smoker ranges between $225 and $325 a year.

CURRENT STATUS
Critical illness insurance is becoming more popular, but not at the rate one would think. In 2000, 65,000 Canadians were covered under individual and group plans, according to the Canadian Life and Health Insurance Association. That's up 20% over the previous year. During the same period, though, over 8.2 million Canadians had group disability coverage.

Cost is the reason most plan sponsors cite for not offering the benefit. Other employers are wary of the restrictions in medical conditions.

A few plan sponsors provide critical illness to senior executives to attract and retain top talent. More professional associations are also offering the benefit to attract new groups to their plan, says Babcock. But in most cases, it is an optional benefit and the plan member assumes the full cost. Another option is to offer critical illness insurance as part of a flexible benefits plan where plan members can purchase it with flex credits.

Although critical illness is off to a slow start in Canada, it should not be dismissed. With more plan options emerging, illnesses being added, reductions in premiums and cuts to the healthcare system, the environment is ripe for demand to rise. BC

The Romanow Commission has released its final report on the future of healthcare in Canada.

For Commissioner Romanow's recommendations, click here.

Click here for Senator Michael Kirby's report, "The Health of Canadians – The Federal Role: Recommendations for Reform."