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Hospital Indemnity Plans: An Important Addition to Medicare Advantage

A hospital indemnity plan, otherwise known as a hospital benefit plan, is an extra insurance policy that reimburses you a fixed amount for every day you spend in the hospital. This helps offset some of the out-of-pocket costs associated with Original Medicare or a Medicare Advantage plan.

How Do Hospital Indemnity Plans Work?

Hospital indemnity plans reimburse enrollees for an inpatient hospital stay and other services. Private insurance companies sell these plans, so each can have different benefits. However, regardless of which plan you buy, hospital reimbursement is the key element of these plans.

Once you choose which carrier to purchase a plan from, you’ll need to select how much reimbursement you want. You’ll choose a fixed amount and a certain number of days. For example, you may want $300 per day for six days. The higher the reimbursement, the higher the premium.

Plans may also include reimbursement for hospital observation. Many people don’t realize that even when they are in the hospital, they may not have actually been admitted as an inpatient, even if they’re kept overnight. In many cases, your primary insurance plan won’t include benefits for observation. A hospital indemnity plan will alleviate some or all of those costs.

Another common feature of a hospital benefit plan is emergency room reimbursement. The plan will reimburse you a certain amount if you visit an emergency room and do not require inpatient admission.

Most plans also allow you to add riders if you elect to do so. These could include inpatient mental health, transportation, outpatient therapy, chiropractic services, surgeries, urgent care visits, lump-sum cancer payouts, and skilled nursing. 

Why Purchase Hospital Indemnity Insurance?

More and more Medicare beneficiaries are choosing to enroll in Medicare Advantage plans. The number of enrollees increases every year as more providers choose to accept contracts with the private companies offering MA plans. Most Medicare Advantage plans offer low premiums (as low as $0 per month!) and lots of extra benefits. The problem is they also have high inpatient hospital costs.

Most Advantage plans require you to pay a fixed amount per day for the first few days of an inpatient hospital admission. This is the highest out-of-pocket cost of a Medicare Advantage plan. They’re all a little different, but the average costs are around $300 for the first five days of an inpatient stay. If that happens, you can see how that would unexpectedly cut into your budget!

In addition, many plans don’t pay when you are only in the “observation” status. In that case, the entire cost is transferred to you as the patient. This occurs for people who have Medicare Advantage or just Original Medicare (Parts A and B).

Speaking of Original Medicare, if you do not have any kind of policy on top of Parts A and B, you’ll be on the hook for even higher amounts. Most Medicare beneficiaries choose to enroll in a Medicare Advantage or Medicare Supplement plan for this reason. Let’s talk about those costs.

Medicare Part A is what you’ll use if you require inpatient hospitalization. First, you’ll be responsible for the deductible. In 2023, that deductible is $1,600. Many people don’t realize that this deductible applies to every “benefit period.” A benefit period begins on the first day of your hospitalization and ends when you’ve been hospital-free for 60 days in a row. So yes, you could have to pay the Part A deductible multiple times in one year.

If that wasn’t enough, Part A also requires coinsurance costs. Medicare covers the first 60 days, but after that, you’ll be responsible for a fixed amount per day. In 2023, you pay $400 per day from day 61 through day 90. After that, you pay $800 per day if you have any of the 60 lifetime reserve days left to use. Once those have been depleted, the entire cost per day is your responsibility. Ouch!

Clearly, in this instance, a hospital benefit plan would greatly lower your medical bills.

hospital hallway, a good place for a hospital indemnity plan

How to Choose Your Hospital Benefit Plan

When choosing a hospital indemnity policy, you’ll need to consider your current health insurance plans. If you are enrolled in a Medicare Advantage plan, take a look at your out-of-pocket costs for a hospital stay. If you owe $250 for the first four days, choose those numbers for your policy amount. Of course, you can go higher or lower if you’d like.

What are the other costs associated with your plan? You may want to add riders to fill in the gaps in your current coverage.

Hospital indemnity plans aren’t just for those on Medicare. Suppose you have an insurance policy that has a high deductible or only helps with catastrophic events. In that case, a hospital indemnity plan can give you more peace of mind for when the unthinkable happens.

The great thing about these plans is that they are often very affordable, and you can customize them to fit your budget and coverage needs. Chat with a local insurance agent today if you’d like to learn more about hospital benefit plans and get a quote. The advisors at Local Medicare Specialists will help you evaluate your current insurance plan and identify the gaps that need to be filled.

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