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Hospital stays are a costly and stressful experience even if you’re covered by an excellent health insurance policy. Lost wages, deductibles, copays, coinsurance costs, and travel expenses can all eat away at your savings and contribute to a growing financial burden at a time when you should be focused only on healing and recovering.
Fortunately, hospital indemnity insurance offers indemnity, or protection, against the unexpected and increasing costs of a hospital stay or outpatient observation.
In 2018, 16.7 percent of seniors age 65 or older had a one-night hospital but could generally expect any stay to last for about five days.1,2 Hospital stays generally results in some out-of-pocket costs for which you are responsible.
Even if you are covered by health insurance, you may owe a copay or coinsurance fee or you may still have to meet your plan’s deductible before coverage kicks in. Lost wages or money spent on travel and lodging, especially if you want to see a renowned specialist or have loved ones visit you from afar, can also contribute to some unexpected costs. At the same time, bills don’t stop piling up simply because you’re hospitalized; the electric company still expects its payments, and your family still needs groceries to eat.
Hospital indemnity insurance pays out monetary benefits that can be used for any purpose—including paying your bills—so long as you’re confined to a hospital or undergoing outpatient observation (the specifics of which depend on your given policy).
Hospital indemnity insurance is supplementary insurance, which means it works in addition to your current health insurance. Hospital indemnity insurance does not replace your medical insurance but works to cover some of the costs for which you’re responsible with your current insurance policy.
Depending on your plan, your health insurance may not cover all the cost of your hospital treatment. Hospital indemnity insurance picks up the slack of what’s not covered to reduce your out-of-pocket expenses and give you some breathing room, protecting your financial well-being as you see to the health of your body and mind.
Monetary benefits provided from hospital indemnity insurance policy are paid out to you whenever you’re admitted to and stay in a hospital or receiving care in an observation unit. Your benefits vary depending on the length of your stay and your policy’s hospital coverage.
If you are covered by Medicare and placed into observation, your treatment may be considered an “observation service.” In this case, you would be considered an outpatient and your stay wouldn’t qualify as part of the three-day inpatient hospital stay required for Medicare Part A coverage to begin. This means you would be subject to out-of-pocket expenses in the form of copays, coinsurance, deductibles, and drug costs.3,4,5
A hospital indemnity plan that covers both a hospital stay or outpatient observation treatment would pay out benefits regardless of your Medicare coverage, thereby reducing your out-of-pocket expenses and helping you cover the slack left behind by Original Medicare or your existing insurance plan.
Hospital indemnity insurance is a supplement that pays out its benefits directly to you, with no stipulation as to how they’re used. Benefits may be used to offset the cost of copays, coinsurance, or drug costs. You may also use them to help pay bills while you’re out of work, cover the cost of plane tickets to fly out your family to visit you, or buy a meal you’ve been craving.
So long as you meet the terms of the policy and trigger a payout, what you choose to do with your benefits is up to you.
Hospital indemnity insurance begins providing benefits upon your admission and confinement to a hospital, regardless of whether the visit is scheduled or an emergency. Many plans either provide or offer optional coverage, called riders, for:
Emergency room visits
Care in a skilled nursing facility
Outpatient physician office visits for covered illnesses or injuries
A cancer diagnosis
Hospital indemnity insurance is available to people between the ages of 18 and 89. It may be offered via a group policy as part of your workplace benefits or purchased independently from an insurer of your choice.
Your hospital indemnity insurance policy will remain in force for as long as you make timely premium payments. The policy will only terminate upon your failure to pay by the policy’s grace period, your request to cancel the policy, or your death.
You should purchase a hospital indemnity plan if one is made available to you through your employer. Depending on your insurer, you may be able to convert a group policy to an individual hospital indemnity policy upon leaving your employer.
Individual hospital indemnity plans may be purchased at any time so long as you are between the ages of 18 and 89 and can afford your desired level of coverage.
Hospital indemnity plans are especially useful if you currently have major medical insurance with a high deductible or other costly out-of-pocket expenses or simply wish to reduce the cost you’ll bear for becoming hospitalized.
You may not be required to undergo a medical exam to qualify for coverage under a hospital indemnity plan. Pre-existing conditions, however, may not be covered by your policy if the given condition developed within the six months prior to you buying the policy and until the policy has been in force for at least three months.
Hospital indemnity policies are not one-size-fits-all plans and can be tailored and customized based on your needs, preferences, and budget. When purchasing a policy, you’ll be allowed to choose the size of the plan’s daily benefit and the number of days you want the benefit paid out within a given period of care.
For example, the minimum benefit of your hospital indemnity policy may be $15 per day for 31 days. If you fulfill the coverage requirements for a given event, you’ll receive $15 per day over the course of 31 days. In addition, you may have chosen to purchase additional coverage in $10 units, up to a given maximum, as well as an increase to your total period of care, all of which would pay out on top of the minimum payment.
Optional riders, or enhancements, may also be added to your specific plan. Riders expand coverage to events not originally covered by your policy, such as a stay in a skilled nursing home or receiving ambulatory care.
Increasing your benefits and period of care, as well as adding riders to your policy, will increase your policy premiums, but also help you create a hospital indemnity plan that suits your needs and protects you and your family’s financial health.
Benefits paid out through your hospital indemnity insurance plan are paid in one of two ways:
As a lump sum upon your hospital admission, up to the benefits limit as defined by your policy
As a daily amount for each day you’re confined to the hospital, up to your plan’s limits
In either case, benefits are only disbursed once per period of care, as defined by your individual policy. Additionally, your plan may specify a maximum lifetime benefit limit.
Observation stays that last fewer than 24 hours may pay only a portion of your daily benefit if you are not admitted to the hospital. Similarly, you may not receive your benefits for an observation stay if you are subsequently confined to the hospital during the same visit.
Hospital indemnity insurance is supplementary insurance and works in conjunction with your major medical insurance. Hospital indemnity insurance does not meet the requirements of major medical insurance under the terms of the Affordable Care Act, or ACA, and is not a replacement for major medical insurance, such as Medicare, Medicaid, Medicare Advantage, Medigap, or employer-provided health insurance, nor any other type of medical insurance.
Your hospital indemnity plan will not cover the cost of hospitalization or medical care. Benefits provided by hospital indemnity insurance are intended to supplement your income and offset the loss of income or savings during and following a hospital stay or other covered event. They are not a replacement for health or medical insurance, and you should not cancel or reduce your major medical coverage in favor of hospital indemnity insurance.
Hospital indemnity insurance works alongside Medicare and can be used to offset some of the out-of-pocket expenses associated with Medicare Parts A and B. It may also be used in conjunction with Medicare Advantage or a Medicare Supplement plan, or Medigap.
In the event of hospitalization, Medicare, Medicare Advantage, or Medigap would cover your hospitalization and physician care (as defined by your specific coverage). Hospital indemnity insurance would begin paying its benefits when you are admitted to the hospital or fulfill the terms of your policy’s specific riders.
Medicare is a powerful, but complex, system with a variety of coverage options. Our licensed agents specialize in everything Medicare. That means they can help you determine what combination of coverage is right for you.
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