Helping Employees Choose Benefits: What Is Hospital Indemnity Insurance?

Navigating the complex world of benefits, particularly healthcare benefits, can be confusing — even to those well versed on the subject. Assisting employees with making the right choices about benefits can mean the difference between their ability to focus on getting healthy instead of worrying about how medical bills will be paid.

Hospital indemnity insurance is one type of insurance not well known to most workers. Available for purchase in addition to, or even without, standard medical coverage, these supplemental plans can help cover the costs not paid for by standard, and even gold-standard, healthcare plans.

Hospital indemnity insurance is available to anyone, including those on Affordable Care Act and Medicare plans. While many costs are covered under medical insurance, out-of-pocket expenses — like deductibles and copays — are often left to the employee. When hospitalized, out-of-pocket expenses can quickly skyrocket. Hospital indemnity plans can help lessen and even eliminate these costs for policy holders.

What does hospital indemnity insurance provide?

Hospital indemnity insurance, at the most basic level, provides a predetermined cash benefit per day of hospitalization. For example, a plan may pay $100 to $500 per day for every day the policyholder or family member is in the hospital. Once the base plan has been purchased, most providers allow buyers to add options — like ER visits — for an additional cost.

If the employee is hospitalized, even for a single day, the plan pays that daily cash amount — which can be used to offset the costs of deductibles, copays, or provide additional cash for household expenses during treatment and time off work.

Generally, employees are free to purchase hospital indemnity insurance coverage based on their anticipated needs. Most policies allow buyers options on daily cash benefits and a duration period. The decision on how much they want to be paid per day, and how many days they want to be paid, determines the cost of the hospital indemnity coverage.

If the employee is hospitalized, even for a single day, the plan pays that daily cash amount — which can be used to offset the costs of deductibles, copays, or provide additional cash for household expenses during treatment and time off work. These plans are separate from other healthcare plans, so payments are made by the insurance company directly to the employee who can then choose to use the money as they prefer.

What types of services are covered?

Plans vary, offering a wide range of covered services, costs, and benefits. Generally, hospital indemnity pays a cash benefit per day for any hospital admission. But there are a host of available options. Depending on the needs of the buyer, some plans cover:

• Mental health as well as physical health services
• Emergency room visits that do not result in a hospital admission
• Ambulance rides and outpatient (or same day) surgeries that send a patient home without an overnight hospital stay

Some plans offer an initial payment for hospital admission, then an additional cash benefit per day. Some provide coverage for services like X-rays, in-home care, surgical costs, doctor visits, etc. Depending on the type of plan purchased, employers may find all their out-of-pocket costs paid with some money left over to cover household expenses.

The fine print 

The cost of these plans varies, based on several factors. Some factors are:

• Where you live
• Your age
• Whether or not you are a tobacco user
• Whether or not the plan covers additional family members

Most plans average $100 to $150 per month, but base plans can start around $10 per month.

For most plans, there are no medical exams required, and no one is denied coverage.

There are typically waiting periods for coverage under a hospital indemnity plan of around 30 days. For accidental injuries, the waiting period may be waived, depending on the plan. Most plans have a pre-existing condition limitation that requires a waiting period of 6 to 12 months before payments will be allowed.

Giving birth typically costs about $4,500 per child (even with insurance). While most hospital indemnity plans do not cover normal childbirth, some cover pregnancy-related complications that result in hospitalization.

Hospital indemnity plans are not available under the ACA exchanges. However, the coverage is portable – it can be taken from one employer to another or to ACA coverage without interruption. They can even be used to supplement Medicare coverage for retirees.

While indemnity plans are not pre-tax medical expenditures, employees can opt to pay for hospital indemnity plans with funds they’ve set aside in flexible healthcare spending accounts, offsetting some of their taxable income.

Are hospital indemnity plans worth the cost?

The average annual deductible for single coverage is over $4,000; almost $8,500 for family coverage in 2020. Employees that purchase hospital indemnity coverage at $1,800 per year ($150 per month), could eliminate their portion of deductibles as well as other out-of-pocket costs.

The average American pays about $450 per month for single healthcare coverage: about $1,150 for family coverage. The average annual deductible for single coverage is over $4,000; almost $8,500 for family coverage in 2020. Employees that purchase hospital indemnity coverage at $1,800 per year ($150 per month), could eliminate their portion of deductibles as well as other out-of-pocket costs. A hospital indemnity plan may ease the financial burden of an unexpected illness or injury, so workers can focus on getting well.