What is a hospital indemnity plan?

It's important to know your options when it comes to health insurance plans, especially if you want to protect yourself during medical emergencies. Among them is the hospital indemnity plan, which provides a unique form of coverage that complements traditional health insurance policies. Knowing the ins and outs of this type of plan can greatly benefit your overall financial well-being in times of crisis.

In this article, we'll go over what hospital indemnity insurance is, how it can help you, and whether it's the right fit for your needs.

Takeaways from this blog post:

• Hospital indemnity plans provide cash benefits for hospitalization and other medical services that primary health insurance doesn’t cover.
• These plans provide cash benefits directly to the insured individual for medical expenses and other essential costs, such as childcare, transportation, and living expenses.
• Premiums for hospital indemnity plans can start at around $10 per month.

How does a hospital indemnity plan work?

Hospital indemnity insurance is a type of supplemental coverage that individuals can use alongside primary health insurance coverage. If you're hospitalized due to an injury or illness, your hospital indemnity plan provides you with cash benefits.

Most hospital indemnity plans cover the following medical services:

• Hospital admission, with or without surgery
• Intensive care unit (ICU) admission
• Critical care unit (CCU) admission

For a higher monthly premium, you can also get coverage for these additional services¹:

• Outpatient surgery
• Outpatient X-rays and laboratory procedures
• Outpatient diagnostic imaging procedures
• Emergency room visits
• Ambulance services
• Continuous care

The insurer predetermines the benefit amount, which may vary based on the type of service or treatment you receive. This means that regardless of the actual costs incurred, you'll receive a fixed amount of money from the insurance company. Insurers often pay according to how long you stay at a hospital.

The insurance company sends fixed cash benefit payments directly to you, not to your doctor or hospital. This allows you to cover expenses not included in your health insurance, such as deductibles, copays, or coinsurance. You can also use this money to pay for childcare during hospitalization, transportation costs, and other cost-of-living living expenses.

What does a hospital indemnity insurance plan cost?

According to Cigna², hospital indemnity insurance premiums can start at around $10 per month. Like many medical plans, the average cost depends on factors such as age, location, deductible, insurance provider, and coverage level. You'll also pay a higher premium for additional coverage.

What are the benefits of a hospital indemnity plan?

According to the American Hospital Association³, more than 33 million people in the U.S. are admitted to a hospital every year, with many of them unprepared for the cost of their medical care. In this situation, a hospital indemnity plan can help them avoid massive debt.

This supplemental insurance plan provides coverage for various medical services. It helps you avoid the financial burden that often comes with unexpected medical expenses. This can be particularly useful if you have a high deductible health insurance plan (HDHP) or if you anticipate needing medical treatment that your primary medical insurance may not fully cover

How does it differ from other types of health insurance plans?

Hospital indemnity insurance is similar to accident insurance or critical illness insurance. These supplemental insurance policies offer coverage for expenses that traditional health plans might not cover.

Hospital indemnity plans differ from general indemnity insurance in that they specifically provide coverage for hospital-related expenses. An indemnity insurance plan, also referred to as a fee-for-service plan, is a type of health insurance that provides reimbursement for covered services. While some individuals use it as their main health coverage, it’s more frequently used as a supplement to another health plan.

Unlike traditional health insurance plans that pay for a portion of your covered medical expenses, a hospital indemnity insurance policy pays you a lump sum of money if you’re hospitalized or undergo certain medical treatments. Since most supplemental plans don’t cover the 10 essential health benefits or preventive care, they aren't a substitute for comprehensive health coverage.

Hospital indemnity plans are exempt from the Affordable Care Act (ACA), meaning insurers can deny coverage based on factors like pre-existing conditions.

Is there a better alternative for additional medical coverage?

If hospital indemnity coverage doesn't sound like the best fit for your situation, there are other insurance options and health benefits out there for individuals, like a health savings account (HSA).

If you're an employer looking to offer more comprehensive coverage to your employees, you can supplement your group medical plan with a tax-advantaged health reimbursement arrangement (HRA).

With the group coverage HRA (GCHRA) or excepted benefit HRA (EBHRA), you offer your employees a tax-free monthly allowance for their qualifying out-of-pocket costs. Your employees pay for their own covered services and submit receipts for reimbursement. Once the expense is approved, you reimburse them up to their allowance amount.

Let's look at each HRA in more detail below.

Group coverage HRA (GCHRA)

With a GCHRA, also known as an integrated HRA, employers provide employees with a monthly budget they can use for additional costs related to their medical care. Combining a GCHRA with a group plan like an HDHP helps balance quality healthcare benefits for employees with cost savings for employers.

Employees can use their GCHRA allowance for the following out-of-pocket costs:

• Deductibles
• Coinsurance
• Copays
• Other qualified medical expenses

GCHRAs don’t have annual contribution limits. Employers can give their employees as much or as little allowance as they choose.

Excepted benefit HRA

EBHRAs allow employers to provide tax-free reimbursement to employees for medical costs and premium benefits that are exempt from the Affordable Care Act's (ACA) regulations.

Some reimbursable expenses under an EBHRA include:

• Limited scope vision and dental insurance
• COBRA continuation
• Cost-sharing of copays, deductibles, and other eligible medical expenses
• Short term limited-duration insurance premiums
• Long-term care coverage

There are annual contribution limits with EBHRAs. The annual limit for 2024 is $2,100.

Conclusion

A hospital indemnity plan can provide financial protection and peace of mind by offering fixed benefit payments for specific medical services or events. If you're looking for a cost-effective way to supplement your health insurance coverage and protect yourself from unexpected medical expenses, a hospital indemnity plan or a more personalized option like an HSA may be best for you. But, a GCHRA or EBHRA may be worth considering for employers looking to enhance their benefits packages.

1. https://www.midfloridaagencies.com/hospital-indemnity-insurance.html
2. https://www.cigna.com/individuals-families/shop-plans/supplemental/hospital-indemnity-insurance
3. https://www.aha.org/statistics/fast-facts-us-hospital