Why You Need Hospital Indemnity Coverage

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A stay in the hospital can be a traumatic experience for you and your family but the pain often does not end there. Two-thirds of people who file bankruptcy claim medical issues as the primary reason for their financial misfortune. Hospital indemnity insurance is a supplemental insurance plan you can use to help offset inflated medical costs due to hospitalization. Think of it as a financial safety net for unplanned medical bills.

What Is Hospital Indemnity Insurance?

Hospital indemnity insurance is a coverage you can purchase outside of your current health insurance plan. You pay a monthly premium to receive a fixed cash benefit that comes directly to you to help cover expenses for each day you spend in the hospital. Depending on the type of plan you choose, you can use your benefit to help pay for your deductible, ambulance transportation, medications, or even home care costs.

One of the best features of a hospital indemnity plan is that it is much simpler than traditional health insurance. There are no deductibles, waiting periods (most of the time), or network restrictions that affect the way you can use your benefits. However, it is important to note that hospital indemnity works best alongside health plans to cover additional costs, not as a replacement.

Do I Really Need a Hospital Indemnity Plan?

The statistics say yes. According to Forbes.com (insert link to article) over 36 million people in the U.S. are admitted to a hospital every year. Out of that number, the average out of pocket costs for those who stayed 3 days in the hospital was around $30,000. That is a staggering number, especially when you consider most Americans don't have enough savings to cover any type of financial emergency.

‍ A recent study (link study) from the finance website Bankrate.com found that only 40 percent of Americans have enough money saved to cover a $1,000 emergency expense. Health insurance can help pay for a portion of medical costs but certainly not the entire sum, and not before paying deductibles out of pocket first. Below is a basic example to illustrate how hospital indemnity coverages works:

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Example Case

Let's say you have to take a trip to ER for severe abdominal pain. Scans show that you have a ruptured appendix and need emergency surgery to remove it, which results in a 2 day hospital stay.

You have medial insurance but your out of pocket expenses total $2000 because of your deductible ($1000) and other expenses that are not covered by your insurance. You have an indemnity plan that pays you a $500 per day cash benefit. Your out of pocket expenses have now decreased 50 percent, to $1000.

^{*These numbers are for illustrative purposes only. They are not meant to accurately show costs of medical procedures or benefits from a specific plan.}

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Again, hospital indemnity insurance should not replace your medical insurance, rather it should be used as a compliment to manage additional costs your health plan may not cover. Here are a few other examples where an indemnity plan could make sense:

• You have a chronic illness like diabetes that could lead to hospitalization
• You have an upcoming procedure that could require an extended stay in the hospital
• You want additional coverage for accidents
• You have a high deductible health insurance plan

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The Numbers Tell the Story

We can't predict the future but we know it is likely that we'll have to visit the hospital, ER, or urgent care at some point. If you are fortunate enough to have an employer sponsored health insurance plan, it may cover some of those costs. However there are still out of pocket expenses that you will be responsible for covering. An indemnity plan is a great way to supplement those costs.

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^References:

1. ^{https://www.forbes.com/advisor/health-insurance/hospital-indemnity-insurance/}
2. ^{https://www.cnbc.com/2019/02/11/this-is-the-real-reason-most-americans-file-for-bankruptcy.html}
3. ^{https://www.cnbc.com/2019/02/08/how-to-build-a-cash-cushion-when-your-income-is-cut-off.html}
4. ^{https://www.guardianlife.com/hospital-indemnity/how-it-works}

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