What is Hospital Indemnity Insurance and is it Right for Your Employees?

March 1, 2023

Hospital indemnity insurance is an inexpensive way to provide employees a financial safety net and greater sense of security.

What is Hospital Indemnity Insurance and is it Right for Your Employees?

Hospital indemnity insurance is supplemental coverage that helps people pay hospital expenses not covered by their health plans.

For example, Mary goes into the hospital for an emergency appendectomy. Her health insurance covers 80% of her hospital expenses. But she still must pay 20% out of pocket. That’s in addition to any remaining deductible.

The average cost of a three-day hospital stay is around $30,000. That means Mary owes $6,000.

This is where hospital indemnity insurance can help.

How does hospital indemnity insurance work?

Hospital indemnity policies pay a preset dollar amount for each day in the hospital. These plans pay $100-$600 per day while you’re in the hospital. If you’re in the ICU, you receive an additional per-day payment. These policies also pay a first-day payment of $1,000-$3,000 in addition to the per-day payments.

Let’s say Mary is in the hospital for three days, and her plan pays $250 a day. She’ll receive a first-day benefit of $1,000, then a $750 benefit for a total of $1,750 – in a lump sum. It’s paid directly to her, not to the hospital. And she can use it to pay for whatever she wants. Often people use these funds to pay for:

  • Deductibles
  • Coinsurance
  • Medications
  • Other healthcare expenses

They can even pay expenses during recovery with it, such as groceries and childcare.

What does hospital indemnity insurance cover?

Hospital indemnity policies can cover more than just hospitalization. Some also pay for:

  • Intensive care
  • Critical care
  • Outpatient surgery and procedures
  • Ambulances
  • Emergency room visits
  • Childbirth
  • Doctor office visits

This insurance has no deductible, coinsurance or network restrictions. There are policies for just individuals and for families.

Who should buy hospital indemnity insurance?

People’s healthcare needs vary greatly. So the reasons for buying this protection do too. People commonly buy this insurance to cover costs due to:

  • Chronic conditions, like heart disease or diabetes
  • Upcoming procedures or surgery requiring hospitalization
  • Pregnancy
  • Accidents
  • Out-of-network costs
  • High deductibles

How much does hospital indemnity insurance cost?

Like any insurance, premiums for this coverage differ by policy. The more days covered, the higher the premiums. The greater the daily benefit, the higher the premiums. Factors like age and location may affect rates too.

Plans also may pay different daily benefits depending on the type of care. And the specified number of hospitalized days vary by policy.

According to Cigna, individual coverage can start as low as $10 a month. Premiums for company-sponsored plans may be even lower.

Why add hospital indemnity insurance to your benefits?

A Kaiser Health Tracking Poll showed 45% of Americans said it would be difficult to pay an unexpected $500 medical bill without going into debt. More troubling, the American Bankruptcy Institute estimates 60% of bankruptcies are due to medical debt.

Hospital indemnity insurance helps protect employees against this potential burden. It’s especially helpful for employees with a high-deductible health plan.

How can your broker help?

Talk with your broker about hospital indemnity insurance. It might be just what you need to round out your voluntary benefits program. This coverage can be a retention tool too.

This is also a good time to review your full voluntary insurance program. You and your broker can ensure your program remains competitive and offers the best value. It provides an opportunity to explore new benefits in the marketplace too.

Look at offering health indemnity insurance to your staff. It’s an inexpensive way to provide them a financial safety net and a greater sense of security.

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