Hospital indemnity insurance is gaining in popularity as a way to deal with increasingly
higher out-of-pocket expenses.
It’s not health insurance, but it provides a cash benefit you can use to pay for expenses health insurance
doesn’t cover.
The Centers for Disease Control and Prevention estimated that the average hospital stay in 2017 was
five days and cost more than $30,000. Inflation alone has made that number even higher today. Few
families are prepared for such costs. In a February 2021 study conducted by West Health and Gallup, 18
percent of Americans said that they had serious financial challenges when trying to pay their medical
bills, even with health insurance.
One reason medical expenses are a challenge for many people is that health insurance companies limit
what they will pay for many services. Also, as premiums have increased to keep pace with higher costs,
consumers have been opting for higher deductibles (the out-of-pocket amount a policyholder must pay
before insurance kicks in) to keep premium costs down. The average deductible for a bronze Obamacare
policy in 2019 was $5,900. Other costs policyholders must pay are coinsurance, the percentage of costs
paid after the deductible is met, and the copay, a fee that must be paid for a covered health care
service.
Hospital Indemnity Insurance pays you directly when you go to the hospital. Policies differ, but most pay
you for any of the following:
- Hospital confinement
- Hospital outpatient costs
- Emergency room or urgent care treatment
- Rehabilitation at a qualified facility
- Physician care for covered accidents and illnesses
- Wellness and preventative services
- Prescription drugs
- Labs, x-rays, imaging, and diagnostics when these services are connected to a covered illness or Accident
- Ambulance — ground or air
- Many plans offer additional or optional benefits (for an additional fee) such as ICU confinement, outpatient surgery and other services
To use indemnity hospital insurance, you must inform your insurance company immediately and submit a claim. When your claim is approved, your benefit payments will begin. Many hospital indemnity insurance plans pay based on a fixed cash benefit. Here’s an example: You are admitted to the hospital and your policy pays $250 for the emergency room; $1,000 for the hospital admittance; and $9,000 for being in the hospital for three days.
You can then use the money to pay your deductibles, copays, coinsurance, or any other expenses, such as your mortgage, transportation and food.
One of the benefits of hospital indemnity insurance is that you can opt for a higher deductible healthcare insurance policy with lower premiums knowing that you have hospital indemnity coverage for worse-case situations. Other benefits include:
- This coverage provides financial protection, limiting your out-of-pocket costs.
- You can use the money for whatever you want — paying for either hospital costs or living expenses.
- The plan is portable, meaning that it’s yours even if you change jobs, move to a different state or go on Medicare.
- Unlike health insurance premiums, hospital indemnity insurance premiums usually stay the same unless your state’s insurance commission approves and allows the carrier to increase the rates on all policies of the same type.
- Your policy can be renewed, as long as you pay the premiums on time.
- Your plan might include free telemedicine consultations or a bill negotiator who can help you if you have problems.
Although it is possible to rely solely on this type of insurance for medical costs, experts do not recommend it. Hospital indemnity insurance doesn’t cover normal doctor visits, prescription drugs and various other regular health care costs. Hospital indemnity insurance is actually designed to supplement your health insurance.
Another option is to save enough money to pay your deductible and out-of-pocket maximum on your plan. However, if you don’t think you can save enough money for a substantial emergency fund, talk to your broker about a hospital indemnity insurance policy that might be just right for you.