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What’s a Hospital Indemnity Plan?

What’s a Hospital Indemnity Plan?

Posted Nov 01, 2016 by Jenifer Dorsey

How this fixed indemnity coverage works, why it could be worth it for you

We all know that a single night in the hospital can be enough to strain many households’ finances, but consider this:

  • $1,974 to $2,346 per day – cost of an average inpatient hospital stay[1]
  • $5,765 / $3,064 – the average bronze and silver health insurance plan deductibles, respectively[2]
  • 37 percent – the portion of Americans who say they have enough savings to pay for a $500 or $1,000 emergency[3]

If you’ve been hearing more about hospital indemnity plans lately, facts such as these may be why. The popularity of HIP, as it is sometimes known, has been growing.[4],[5] 

While a lot of us may be at least vaguely familiar with the term, a lot of us aren’t exactly sure what a hospital indemnity plan is or does.

Hospital indemnity definition

Hospital indemnity plans are considered fixed indemnity coverage, which means they provide completely separate benefits from your major medical insurance (i.e., Obamacare) plan. When you incur covered medical expenses resulting from hospitalization, surgery, chemotherapy and radiation services, your HIP will pay a fixed benefit (i.e., a set amount). That amount may be per day, per week, per month, per visit or per event, depending on the plan and the benefit that applies.

In the simplest of terms, a hospital indemnity plan is coverage that provides specified fixed-dollar-amount benefits for covered hospital services and durations, regardless of the actual cost of the service. HIP policies are standalone, which means they do not coordinate with your other health insurance coverage.

Some hospital indemnity plans cover additional services such as ambulance trips, second surgical opinions, and even chemotherapy and radiation. Optional health maintenance and diagnostic testing benefits that pay a fixed amount for preventive care, X-rays, urgent care and other services may also be available with some plans. As with any healthcare product, the options and benefits available to you will vary by plan.

How it works

We’ve established what hospital indemnity coverage is, but let’s look at a couple of examples illustrating the practical use of indemnity benefits.

Inpatient benefits[6]

Don is admitted to the hospital with pneumonia and acute respiratory failure. His stay lasts five days, two of which are in the intensive care unit. His condition was not pre-existing.

Don has purchased a hospital indemnity plan with a $0 per injury or illness deductible.

This is how his claims benefits break down:

Benefits covered by Don’s hospital indemnity plan Amount
Daily intensive care benefit          $6,000 ($3,000 per day x 2 days)
Daily inpatient hospital confined benefit $6,000 ($2,000 per day x 3 days)
Doctor visits while hospital confined benefit $250 ($50 per day x 5 days)
Benefits payable before per injury or illness deductible $12,250
Less per injury or illness deductible $0
Total benefits paid $12,250
 

Outpatient benefits[7]

Susan undergoes laparoscopic gall bladder surgery. The procedure is performed same-day at an outpatient hospital surgical facility. Her condition was not pre-existing.

Susan has purchased a hospital indemnity plan with a $1,000 per injury or illness deductible.

Benefits covered by Susan’s hospital indemnity plan

Amount
Outpatient surgery facility benefit   $1,200
Outpatient surgeon benefit $1,800
Outpatient assistant surgeon benefit $360
Anesthesiologist benefit $540
Benefits payable before per injury or illness deductible $3,900
Less per injury or illness deductible ($1,000)
Total benefits paid $2,900

 

Again, your actual hospital indemnity benefits will vary based on the plan and options you select as well as your specific medical situation.

What hospital indemnity coverage is not

Hospital indemnity plans are not major medical insurance and do not replace ACA-compliant coverage. As such, HIP is not subject to the Affordable Care Act, which means you can be denied coverage based on your health history. If you are not exempt from the individual shared responsibility provision (i.e., individual mandate) and purchase HIP instead of an ACA-compliant health insurance plan, you could owe a tax penalty.

However, hospital indemnity plans provide benefits to help with out-of-pocket expenses.

Is hospital indemnity insurance right for you?

Only you can determine whether or not hospital indemnity coverage will be a valuable addition to your healthcare benefits. If you are interested in additional benefits to pay for hospitalizations or outpatient surgeries, HIP may be worth your consideration. Working with a health insurance professional may help you decide. This fixed-dollar-amount hospital indemnity coverage is available exclusively to members of America’s Business Benefit Association (ABBA).

To learn more about HIP and ask specific questions, call the number at the top of your screen to speak with a licensed producer or find a local agent who can discuss hospital indemnity options with you.

Find a local agent

 


[1] The Henry J. Kaiser Family Foundation. “Hospital Adjusted Expenses Per Inpatient Day By Ownership.” 2014. http://kff.org/other/state-indicator/expenses-per-inpatient-day-by-ownership/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D

[2] Rae, Matthew, et al. “Patient Cost-Sharing in Marketplace Plans, 2016.” The Henry J. Kaiser Family Foundation. Nov. 13, 2015. http://kff.org/health-costs/issue-brief/patient-cost-sharing-in-marketplace-plans-2016/

[3] McGrath, Maggie. “63% of Americans Don’t Have Enough Savings To Covera A $500 Emergency.” Jan. 6, 2016. http://www.forbes.com/sites/maggiemcgrath/2016/01/06/63-of-americans-dont-have-enough-savings-to-cover-a-500-emergency

[4] Lilleston, Randy. “‘Gap insurance’ for Healthcare Grows in Popularity.’” HR Dive. Oct. 12, 2016. http://www.hrdive.com/news/gap-insurance-for-healthcare-grows-in-popularity

[5] Sable-Smith, Bram. “Would You Like Some Insurance With Your Insurance?” NPR. Sept. 13, 2016. http://www.npr.org/sections/health-shots/2016/09/13/493695824/would-you-like-some-insurance-with-your-insurance

[6] The benefit examples shown are intended for illustrative purposes only. These examples do not contemplate the provider’s actual charges for services rendered nor the full extent of the covered person’s out-of-pocket costs.

[7] Ibid.

This document is for general informational purposes only. While we have attempted to provide current and accurate information, this information is provided "as is" and we make no representations or warranties regarding its accuracy or completeness. The information provided should not be construed as legal or tax advice or as a recommendation of any kind. External users should seek professional advice from their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.

America’s Business Benefit Association (ABBA)
America’s Business Benefit Association (ABBA) is a national not-for-profit association that provides individuals, small businesses and self-employed consumers with business benefits, services and health-related options, including access to valuable association endorsed health insurance benefits..

HOSPITAL INDEMNITY
THIS IS A SUPPLEMENT TO HEALTH INSURANCE AND IS NOT A SUBSTITUTE FOR THE MINIMUM ESSENTIAL COVERAGE REQUIRED BY THE AFFORDABLE CARE ACT (ACA) LACK OF MAJOR MEDICAL COVERAGE (OR OTHER MINIMUM ESSENTIAL COVERAGE) MAY RESULT IN AN ADDITIONAL PAYMENT WITH YOUR TAXES.

About The IHC Group
Independence Holding Company (NYSE: IHC) is a holding company that is principally engaged in underwriting, administering and/or distributing group and individual disability, specialty and supplemental health, pet, and life insurance through its subsidiaries since 1980. The IHC Group owns three insurance companies (Standard Security Life Insurance Company of New York, Madison National Life Insurance Company, Inc. and Independence American Insurance Company) and IHC Specialty Benefits, Inc., which is a technology-driven insurance sales and marketing company that creates value for insurance producers, carriers and consumers (both individuals and small businesses) through a suite of proprietary tools and products (including ACA plans and small group medical stop-loss). All products are placed with highly rated carriers.

IHC Specialty Benefits, Inc.
IHC Specialty Benefits, Inc., doing business as Health eDeals Insurance Solutions is a full-service marketing and distribution company that focuses on small employer, individual and consumer products. Health eDeals markets products via general agents online, telebrokerage, advisor centers, private label and directly to consumers. For more information about Health eDeals visit http://www.HealtheDeals.com.