What Is Hospital Indemnity Insurance?

Hospital indemnity insurance is a type of supplemental health insurance that provides a cash benefit to policyholders when they are hospitalized for a covered illness or injury.

How does it work?

Some companies offer guaranteed issue between ages 60 and 79, so there is no qualification process in that regard. However, there is a six-month pre-existing condition clause that prevents use of the policy for anything currently happening in your life.

For example, a hospital stay due to diabetes would not be covered for the first six months. After that initial period, it would be covered for as long as the policy remains in place. Cataract surgery or removal of topical skin cancers may also fall under pre-existing conditions during the first six months.

On the other hand, if you were in a car accident two days after signing up for the policy, the resulting hospital stay would be covered because it would be considered a new event.

How much does it cost?

Hospital indemnity coverage can be quite reasonable. The average policy for a 65-year-old is about $28 to $35 per month, which may be less than what you spend at Starbucks each month.

For a typical senior, when paired with an Advantage plan, it can take the majority of high copays out of the picture. You would still pay the smaller copay to see your doctor, imaging costs, and drug costs. But for the most part, other major events may be covered. This can be a helpful way to reduce unexpected costs, and in some cases you may even receive money back.

How would you get money back?

Here is a typical example of how clients may receive extra money from the policy:

A client hurts themself playing pickleball, and their doctor recommends physical therapy. Their Advantage plan charges a $25 specialist copay, so each physical therapy visit has a $25 copay. The hospital indemnity plan has a physical therapy rider for up to 30 visits per year and pays up to $50 per visit.

When the client goes to physical therapy, they show the office both their insurance card and hospital indemnity card. The hospital indemnity company then pays the physical therapy office $25 per visit and sends the client a check for $25 per visit, up to 30 times.

Are there rate changes?

No. The younger you are when you buy the policy, the lower the cost. Whatever price you purchase at is the premium you pay as long as you keep the policy.

What if I change my Advantage plan?

Hospital indemnity insurance works with whichever Medicare plan you are currently on. The amounts for each item are set when you purchase the policy. If copays are higher than your hospital indemnity benefit, the policy pays the amount it was written for and you pay the difference.

For example, if your new Advantage plan has a $200-per-day copay for hospital stays but your original policy was written for $175 per day, you would be responsible for the additional $25 per day. However, if your new Advantage plan has a $150-per-day hospitalization copay, the indemnity plan would pay $150 to the hospital and mail you a $25 check for each day you are admitted.

Coverage, benefits, limitations, exclusions, and availability vary by policy. Review plan materials carefully before purchasing.