Your health insurance plan covers costs after you have met your deductible and paid your copays. What insurance does not pay is expenses you may incur when you are kept in the hospital overnight. Hospital indemnity insurance pays a per-day amount for each night you stay in the hospital. A study by the University of Michigan found that out-of-pocket costs for a hospital stay in 2013 was around $1,000, and it has steadily increased. In fact, that figure was already 37 percent higher than it was in 2009. To mitigate these costs, hospital indemnity plans can help.
What are Hospital Indemnity Plans?
Hospital indemnity plans provide completely separate benefits from your regular insurance. The plan pays a specified amount for covered hospital services and durations no matter what the service actually costs. They are standalone policies, which means they don’t coordinate with your other insurance. Depending on the plan, you may receive payment for hospitalization, surgery and even cancer treatments. Some plans cover ambulance trips, second opinions as well as preventive care.
How Hospital Indemnity Plans Work
A plan that offers inpatient benefits will pay a daily benefit for each day you are in the hospital. For example, if you were hospitalized for three days and had a hospital indemnity plan that paid a $2,000 per-day benefit, you would receive a payment directly from the insurance company for $6,000. If your plan also paid $50 per doctor visit while you were in the hospital and your doctor visited you each day, you would receive an additional $50. This is above what your traditional insurance pays for your hospital stay.
There are also plans that cover outpatient surgeries that operate much the same way as inpatient services. Hospital indemnity plans are designed to help you with the out-of-pocket expenses that can result from a hospital stay or surgery. They can even be used to pay the deductible on your traditional health insurance. The benefits are paid directly to you unless you authorize them to be sent to the healthcare provider.
Warnings About Hospital Indemnity Plans
It’s important to remember that a hospital indemnity plan is not designed to replace your regular health insurance but should be viewed as a supplemental policy. These plans not subject to the regulations of the Affordable Care Act (ACA), which means you can be denied coverage for pre-existing conditions. This also means that they don’t meet the standards for minimum essential coverage required under the ACA. You could face a tax penalty at the end of the year if the only coverage you have is a hospital indemnity plan. Coverages vary depending on the plan, so review your plan’s fine print carefully.
Hospital indemnity coverage is designed to help you cover out-of-pocket expenses that can be incurred when you are hospitalized or face surgery. It is not designed to take the place of your regular health insurance policy. With out-of-pocket costs for hospital stays continuing to rise, hospital indemnity coverage could provide you with added protection from surprise medical expenses.