Hospital Indemnity Insurance: Everything You Need to Know
What is Hospital Indemnity Insurance?
Hospital indemnity insurance is a type of voluntary benefit that provides fixed payments directly to policyholders for events like emergency room visits, hospital stays, certain surgical procedures, and ICU care.
Hospital indemnity policies typically will also provide direct payments for many of the services that policyholders may receive at the hospital, certain diagnostic procedures like x-rays or MRIs, complementary treatments such as anesthetics and recovery care, and maybe even follow-up appointments and rehabilitation therapies after the policyholder has completed their hospital stay or out-patient procedure.
While traditional health insurance usually covers some of the same hospital-related costs as the services and items outlined in hospital indemnity insurance policies, those insurance payments will only kick in once the policyholder’s deductible has been met.
Given that high deductible policies are become increasingly prominent in the US - not to mention the copays and coinsurance built into many policies - and given how expensive hospital bills have become even for relatively short stays and minor procedures, it is extremely likely that a patient will be expected to cover a substantial sum out of their own pocket.
Should I Get Hospital Indemnity Insurance?
Even when a policyholder is conscientious about going to an in-network hospital, it is probable that some element of the care they receive will not be covered at in-network rates, whether that be outsourced lab work, radiology, ambulance service, or any other number of itemized entries. All of this can lead to much larger hospital bills than a patient is prepared to pay or even capable of paying in many cases.
It is in this all-too-common instance when patients are presented surprisingly large hospital bills that hospital indemnity insurance is most valuable.
Further, the waiting period between when a new policy is written and when it will begin paying out claims is often as little as 30 days for illness-related hospital treatment (as opposed to injury-related treatment, which will usually activate and payout immediately).
And because many covered procedures, often including elective surgeries, can be scheduled more than a month out, hospital indemnity insurance may essentially pay for itself almost immediately at the outset of the policy.
How Hospital Indemnity Insurance Works
The path toward obtaining hospital indemnity insurance typically begins with the first step of contacting a business insurance broker and determining which policy is a good fit, whether that be a personal/family policy purchased independently for themselves, or a group policy offered to employees by an employer as voluntary coverage that is complementary to their existing benefits package.
After collecting standard demographic data about potential policyholders including age, gender, and sometimes additional data like occupation, tobacco use and family medical history, policy underwriters will determine premium rates and the amounts set for each of the services and events that can trigger claims to be paid out. In certain circumstances with some insurers, medical exams may be required, although that is less common.
Once the policy has been purchased and any relevant waiting periods have expired, the application of hospital indemnity insurance is fairly straightforward, with all of the events and services listed clearly in the policy itself alongside the amount that the policyholder will be paid for each covered service or event.
For example, assume that a given policy pays out $1500 for hospital admittance, $1000 for certain surgeries, $500 for each overnight stay in a hospital, $250 for ambulance service, $200 for a trip to the Emergency Room, $100 dollars for x-rays, and $50 for initial diagnostics.
Now, imagine a scenario in which a policyholder is injured in a car accident that results in an ambulance ride to the ER where initial diagnostics and x-rays indicate a broken pelvis that then requires hospital admittance, surgery, and three nights of hospital care and recovery.
In that scenario, the policyholder can expect a prompt pay out of $4,600 which can be used as the policyholder sees fit, including anything from covering a high deductible to buying a new car to replace the one that was totaled in the accident.
It is important to note that the monetary payouts attached to each of the above services is unrelated to whether or not the hospital or treating physicians are in-network (which can be a relevant issue depending on where the car accident takes place and where the ambulance delivers the injured policyholder).
The actual price of each service received is also irrelevant to the money that will be paid out for the claim, which can begin being processed and paid immediately upon the rendering of each service. For example, it is not necessary to wait until being discharged from the hospital before filing a claim. Hospital admittance can be filed on the very first day before a policyholder knows how many days or nights they will be staying there.
Why Do Employers Offer Hospital Indemnity Insurance?
In a labor environment where there is often considerable competition for top talent, the more comprehensive the benefits package that employers can offer to employees, both current and prospective, the better.
This is especially true of voluntary, opt-in coverage like hospital indemnity insurance, which can be used in coordination with a traditional health insurance policy as well as other voluntary policies to allow employees to very narrowly tailor their insurance portfolio to their given needs.
Enabling employees to choose their own complementary combination of opt-in insurance offerings can be particularly valuable for companies with a large number of employees and/or a pool of employees with especially varied needs. The customization that can be accomplished through robust voluntary coverage options can ultimately have more perceived value to employees than more expansive and expensive traditional insurance offerings, even that which is supported by significant employer contributions.
To that point, from an employer’s perspective, voluntary benefits like hospital indemnity insurance have the added advantage of premiums that are typically paid exclusively by the employees.
Not only can such benefits provide employees with peace of mind, but hospital stays tend to lead to time away from work, so being better equipped to handle the financial strains that regularly accompany hospitalizations can ensure that employees return to work as quickly and productively as possible.
What’s the Difference Between a Good and Bad Hospital Indemnity Policy?
With hospital indemnity insurance, there is not a lot of mystery when evaluating a policy. The services and events are all clearly laid out, as is the price of premiums and the process for filing claims and payouts.
Thus, the relevant question is typically more along the lines of, “Is this hospital indemnity insurance a ‘good’ or ‘bad’ fit for me and my employees?”
As with most types of insurance, a good hospital indemnity policy is one that has a glove-like fit to the policyholders’ overall needs, keeping risk at manageable levels without purchasing so much coverage that the premiums become cumbersome.
Maybe even more important, however, is that a good policy is one that is part of a well-rounded insurance portfolio, because no one single type of policy could provide optimized coverage and effectively manage the risk of adverse events on its own.
When considering potential hospital indemnity policies, one thing you’ll want to think about is how high the deductibles are in your employees’ traditional health insurance plans. If most employees have high deductible policies, which is often the case given the rapidly growing frequency by which high deductible plans have been chosen in recent years, it can be advantageous to offer hospital indemnity insurance.
Making available additional voluntary insurance offerings with a broad coverage range like hospital indemnity insurance, especially paired with benefits like critical illness insurance, which has a narrower scope of coverage, enables employees to assemble an insurance portfolio with significant breadth of coverage at a reasonable price point.
High deductible health insurance policies are defined as those that are more than $1400 for an individual annually or $2800 for a family, so it’s wise to check with your broker in order to determine if your employees’ plans fall into this category. The higher the average deductible, the greater the necessity of hospital indemnity and other opt-in, voluntary insurance policies.
Ultimately, the best way to ensure that your hospital indemnity insurance policy is a good one that works well within the framework of your existing insurance offerings and is ideally suited to the needs of your employees is to speak with your broker and find out how hospital indemnity insurance could potentially help fill some gaps in your employees’ coverage.
To find a broker in your area with experience in hospital indemnity insurance, search Mployer Advisor today.
About Mployer Advisor
At Mployer Advisor, our focus is creating transparency in the insurance and insurance broker, consultant and advisor space to the advantage of the employer. Analytics is our core and we will bring to light new information, tools and resources to aid employers in making more cost-effective decisions. As a phase I, we are here to help employers find the right broker or consultant and the right insurance company for them. Giving choice and initial transparency is a first step in creating an employer centric insurance marketplace.