NIA | In The News | PLUS Convention Contains Warnings for Agents/Brokers E&O

Dave Murphy hoped another opinion would save his wife, Piera, who was succumbing to a rare form of cancer in her early 40s. The California couple reached into their savings for a couple of thousand dollars to meet with specialists their health plan didn't cover.

But the doctors couldn't help. Last year, after emerging from the deep pain of his wife's death, Murphy decided to protect himself against the unexpected expenses of critical illness. Through his job, he signed up for cancer insurance.

In workplaces, door to door, through banks and associations, insurance companies are selling "dread disease" insurance, which covers individuals upon the diagnosis of a specific disease, usually cancer. Single policies cost an average of $300 to $400 yearly, depending on the coverage, and normally pay the policyholder set amounts directly, no matter how much the individual actually spends on care. Some packages cover spouses or entire families.

Charlene Morse Hines, 47, of Georgia said she used about half the money from her husband's cancer insurance policy -- about $7,000 -- for funeral expenses. John Hines Jr. died Oct. 15 at age 69 from bladder cancer.

She said Medicare and a supplemental insurance policy paid for his cancer treatments and hospice care, and the cancer insurance money will help keep her savings intact.

Consumer advocates advise against buying this type of supplemental insurance. They argue that the money for premiums is better used to boost major medical insurance, to save or invest.

The insurers say cancer or other such diseases touch many Americans each year, and dread-disease policies can save a family from bankruptcy.

"My reasons for purchasing cancer insurance were obvious," said Murphy, 51, of Harbor City, Calif. "I watched my wife die of uncontrollable metastatic sarcoma at 41 years of age. That had an effect on me."

Hines said her husband, who sold insurance, had a family history of cancer. He thought the cancer policy was a good buy.

Health care costs have been climbing steadily. According to the federal government, the average American had $931 in medical bills and paid $253 out of pocket in 1980. By 2001, the average quadrupled to $4,370, with $726 paid outside claims.

Nearly half of all bankruptcies involved medical problems and more than a half-million middle- class families filed for bankruptcy in 1999 "for help after illness or injury," according to a survey of bankruptcy filings in the New York University Law Review in 2001.

Sales pitches for disease-specific insurance typically include statistics outlining the prevalence of the disease and treatment costs. A common example: According to the American Cancer Society, one in two men and one in three women will develop cancer.

"It absolutely plays on fear; that's the nature of this industry," said Gail Shearer, Washington- based director of health policy analysis for Consumers Union, the advocacy group that publishes Consumer Reports magazine.

But insurers say people often buy disease-specific policies because they know others with illness who had trouble paying for uncovered expenses, including travel, babysitters, wigs, the mortgage.

"The good news is that people are living through cancer, because it's being detected early," said Monica Francis, director of product marketing for Colonial Supplemental Insurance in Columbia, S.C. "The bad news is that it could bankrupt you."

Disease-specific policies came under scrutiny during the 1980s, when they piqued the interest of state and congressional leaders. A 1988 report from the General Accounting Office, which researches issues for Congress, concluded that disease-specific policies were of limited worth. Several states banned their sale.

Since then, the policies have made a comeback. States eventually lifted the bans -- some say because of lobbying efforts by the insurance industry.

At one point, New Jersey prohibited insurers from offering disease-specific policies, but the ban was lifted in 2001, according to Bill Heine, a spokesman for the state Department of Banking and Insurance.

"We were one of the last states to allow it," Heine said. "The reason was that we didn't want people to spend their money on a disease they might not get instead of buying health insurance."

Marketing of such policies has expanded into the workplace, banks, labor unions and professional and pastime groups, including the National Air Traffic Controllers Association, the American Society of Interior Designers, the National Rifle Association and the Washington, D.C., area's Chevy Chase Bank.

"The increased availability of these products may be a response to the current economic climate and may also reflect an increased awareness of consumers to the expense of treating diseases such as cancer and heart disease," said Janie Miller, who heads the Kentucky Department of Insurance.

Insurers gauge a disease's frequency and severity when developing and pricing products, said Robert Hartwig, senior vice president and chief economist at the Insurance Information Institute, an industry-funded center based in New York. The incidence rates and costs of cancer, combined with the growing number of uninsured Americans, inspired state regulators to change their minds about disease-specific insurance and prompted insurers to explore the market.

The newer disease-specific policies are easier to understand than the older versions and have simpler claims procedures, said Harlan Sher, president of Einstein Benefit Communications, a Scottsdale, Ariz., company that enrolls employees in benefit plans.

Bob Hunter, director of insurance for the Consumer Federation of America, said the consumer advocacy group has long frowned on cancer insurance.

"It's not an appropriate way to buy insurance," Hunter said. "You could also get hit by a truck or have a heart attack. There are many other ways you could get hurt or sick."

Generally, cancer policies pay the policyholder directly for specific events. For example, in Michigan, the top-level cancer insurance sold through employers by AFLAC will pay $75 for yearly cancer screenings and $5,000 upon diagnosis. It will pay $300 a day for hospital stays for the first 30 days and $600 daily thereafter as well as cash for travel, on top of what the person's health insurance pays.

The Society for Human Resource Management, based in Alexandria, Va., reports more employers are offering cancer insurance, paid for by the employee. In 2001, 16 percent of employers surveyed offered the benefit. Last year, that grew to 21 percent and to 28 percent this year.