What is a Fixed-Indemnity Health Plan?

Jenifer Dorsey
2018-09-19 January 20th, 2017 |
Read time: 8 minutes

Making Sense of Hospital Indemnity Insurance

Sometimes, just as you are getting a grasp on major medical plan lingo and how the coverage works, you come across yet another health insurance term you don’t quite understand. Let’s say, for instance, fixed-indemnity plan.

It can be easy to dismiss such coverage as unnecessary because, to be perfectly honest, trying to understand it makes your head hurt. However, a fixed-indemnity plan could be something that helps you save money on out-of-pocket healthcare costs this year, so we’d like to help you make sense of it.

Let’s start by looking at the core definitions. You already know that in this context, a plan is a group of specified health benefits. As for the terms fixed and indemnity:

Fixed1 = established; settled; set

Indemnity2 = protection or insurance against loss, damage, etc.

Put it all together and here’s a basic explanation:

A fixed-indemnity health plan pays set benefit amounts for covered healthcare services related to illness or injury, thereby providing some financial protection against unexpected medical expenses.

Fixed-indemnity plan benefits apply to a specific duration (e.g., number of days, weeks, visits) and the amount remains the same regardless of the actual cost of those services (e.g., $X per day, week, visit).

Fixed-indemnity plans are commonly referred to as hospital indemnity plans because they typically cover medical expenses resulting from hospitalization, surgery, chemotherapy and radiation services.

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How HIP insurance works, an example

Sue is admitted to the hospital with pneumonia and stay for three days – the condition is not pre-existing. She has a fixed-indemnity plan with a $0 per injury or illness deductible.

Here is how her plan benefits might look on paper3 – keep in mind, this is only for Sue’s fixed-indemnity plan, not her major medical plan:

Sue’s covered benefits Amount
Daily inpatient hospital confined benefit $6,000 ($2,000 per day x 3 days)
Doctor visits while hospital confined benefit $150 ($50 per day x 3 days)
Benefits payable before per injury or illness deductible $6,150
Less per injury or illness deductible $0
Total benefits paid $6,150

This is only an example and actual benefits will vary by plan and circumstances.

View more examples

Fixed-indemnity plans ≠ major medical plans – here’s the difference

It is important to understand that fixed-indemnity plans are standalone policies that do not coordinate with your other health insurance coverage. Fixed-indemnity or hospital indemnity plans are not the same as major medical insurance and do not replace major medical insurance (aka, Obamacare plans), which means they are not subject to the Affordable Care Act. Unlike major medical insurance, they:

  • Do not include essential health benefits or covered preventive services as outlined by the ACA
  • Do not qualify as minimum essential coverage, which means they do not fulfill the individual shared responsibility provision and will not prevent you from owing a tax penalty (i.e., individual shared responsibility payment)
  • Are not guaranteed issue, which means you can be denied coverage based on your health history

However, fixed-indemnity plans do:

  • Include inpatient and outpatient benefits that help you pay for covered out-of-pocket healthcare expenses related to hospitalization, surgery, chemotherapy and radiation services
  • May include critical illness benefits for conditions such as cancer, heart attack, stroke and more
  • Allow you to enroll at anytime of year; there is no specified open enrollment period

If you are looking for extra financial protection against unexpected, high-cost healthcare, then a fixed-indemnity plan may be worth adding to your household’s annual benefits.

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Originally Published On November 1st, 2016

Footnotes

  • 1 Webster’s New World College Dictionary. “Fixed.” Accessed January 17, 2016.
  • 2 Webster’s New World College Dictionary. “Indemnity.” Accessed January 17, 2016.
  • 3 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.