Any household's financial health, no matter how strong, can be affected by unforeseen medical expenses. Fixed-indemnity health insurance, also known as hospital indemnity insurance, can help you tackle these situations by paying a benefit for a predetermined amount, which will allow you and your loved ones to manage some of the most common medical costs not covered by traditional insurance.
What Is Fixed-Indemnity Health Insurance?
A fixed-indemnity health insurance plan pays a predetermined amount of money for a medical service you receive that is covered by the policy. For example: if your plan offers a $60-per-day benefit for x-rays, and you have a fracture and need an x-ray, then you will receive $60. Fixed-indemnity insurance is also known as "fixed-benefit insurance" or "fee-for-service insurance." This is because the benefit is predetermined and will be paid no matter what the final billed amount is for this specific service.
Main Features of Fixed-Indemnity Health Insurance
Fixed-indemnity insurance is very different from primary health insurance. A typical primary health insurance plan will pay all or part of the covered expenses after you have paid the deductibles or copays, or you incur out-of-pocket expenses for a set amount. Simply put, if there are expenses, most of the time you will have to pay first and then the insurance company will cover the rest.
A fixed-indemnity plan offers limited advantages and is designed as a supplement to a traditional health insurance plan. Basically, fixed-indemnity insurance changes the way in which you receive compensation, compared to what happens with primary health insurance. With this type of plan, after you've incurred a specific medical expense, you will receive payment for a predetermined amount. You will then be responsible for the rest beyond that.
It's important to note that fixed-indemnity insurance is not a type of primary health insurance and does not offer the necessary coverage for avoiding the penalty under the Affordable Care Act (ACA). It does not cover all the essential health services included in the ACA. It also likely won't cover expenses relating to conditions you had before you bought the insurance.
Fixed-indemnity coverage plans are a type of supplemental insurance and offer a cash benefit for a predetermined amount in the event you have a specific disease or injury that is covered by your policy.
Remember: this is not a form of primary health insurance and does not offer the minimum essential coverage necessary for avoiding a penalty under the ACA, as it does not cover all the necessary basic services specified by this law. Unlike an ACA-based plan, for example, fixed-indemnity insurance does not cover expenses related to the policyholder's preexisting conditions. For this reason, when purchasing this type of medical coverage, we recommend that you read over the situations that are covered carefully and note which ones are not included. What's more, fixed-indemnity insurance plans provide limited benefits. You pay a set amount for each of the covered services up to a maximum amount per calendar year.
What Does Fixed-Indemnity Health Insurance Cover?
We've learned that fixed-indemnity insurance does not exempt you from buying the required coverage to avoid the penalty. So, why should you purchase this type of insurance? Keep in mind that all health insurance plans incur out-of-pocket costs that you, the insured, will have to pay. These can be:
- Deductibles, the amount that you must pay before the insurance begins to pay;
- A percentage of the covered costs that you will have to pay even after you've met your deductible, which is called "coinsurance"; or
- A fixed fee, called a copay, that you will have to pay for a specific medical service.
Beyond that, your health insurance plan includes other types of costs for you. Fixed-indemnity insurance is designed as a supplemental plan that will help you tackle some of these costs. How? By paying you a set amount of money for specific expenses covered by the policy. You can then request this amount as assistance to pay a deductible, copayment or coinsurance, whichever you want. In short, this plan can help you manage the out-of-pocket expenses required by your health insurance.
Here are some reasons why the right fixed-indemnity insurance plan can help you cover any gaps in your health coverage. Keep in mind that the list of coverage varies from insurance company to insurance company:
- You receive cash to cover copays for buying prescription drugs.
- The insurance can help you pay the fees for laboratory or diagnostic tests, such as blood tests and x-rays.
- It gives you a sum of money for those unforeseen expenses that might result from a surgical operation, whether it's scheduled or not.
How Does Fixed-Indemnity Health Insurance Work?
This type of insurance plan works differently than other types of health insurance you might be accustomed to. Maybe you already have experience in paying part of the total covered costs, or in being responsible for a deductible before your insurance company will make a payment. Now, if you have fixed-indemnity insurance, you will receive a predetermined benefit for this medical service, as specified in the plan—without having to first pay a deductible or cost sharing. You receive a specific medical service, and then are paid a set benefit for this service.
In contrast, you're already familiar with primary health insurance plans, which pay all or part of the covered expenses once you've paid specific deductibles, copays or out-of-pocket costs. Your insurance company's payments are often made directly to healthcare providers. Later on, you will see them reflected in a document that breaks down these benefits.
Fixed-indemnity insurance payments function differently. You are paid a specific predetermined amount for a series of healthcare expenses specified in the plan. There is no deductible. You just have to fill out a claim form for an expense set out in the policy and you will receive a payment for the amount your plan covers for this service. The amount is fixed and will be given directly to you so you can use it as you see fit.
Fixed-indemnity plans do not have copays, deductibles or coinsurance. A fixed-indemnity plan pays a set amount per day or other period, with limits on the number and types of services. Once you've used up the number of services, the plan will no longer pay for this type of service. Payments from the fixed-indemnity plan can be used any way you choose. As the plan pays a set amount, you might owe the provider more than what the plan has paid. Before you enroll in this plan, look over the list of benefits to see what the plan will pay.
A fixed-indemnity plan is the perfect option for you if:
- You're looking for the greatest degree of freedom possible in selecting your doctor or hospital;
- You don't want to designate a primary care physician or be referred to a specific specialist;
- You want the freedom to visit the doctor you choose.
Fixed-indemnity plans don't replace your primary health coverage, but rather supplement it. Unlike most health plans, this plan doesn't have catastrophic coverage or out-of-pocket limits. This means that you might have to pay high out-of-pocket costs if you have a serious or chronic disease. In contrast, primary health plans provide more coverage, which is why they cost more. In general, these more comprehensive plans meet the ACA mandate for minimum essential coverage, which is not the case with the fixed-indemnity plan.
Frequently Asked Questions
- Is it the same as mandatory health insurance?
- Absolutely not. Having fixed-indemnity insurance doesn't exempt you from buying the primary health coverage plan required by the ACA (also known as "Obamacare").
- How are benefits paid?
- In cash, directly to you.
- What are the steps for using indemnity insurance?
- You incur an expense covered by the policy.
- You submit a claim.
- You collect the payment.
- When can I submit the claim?
- As soon as you have the receipt for the expense. Submit this receipt, along with a completed claim form, and you will receive the payment for the predetermined amount that corresponds to this expense.
- Will I have to pay anything before I receive the benefit from the plan?
- Apart from what you pay to purchase the plan (the "premium"), no. There are no deductibles or copays with fixed-indemnity insurance that you will have to pay in advance. If you have an expense that's covered by the policy, just submit your claim and receipt, and you will receive the benefit directly.
- If my health insurance already covers this cost, will I receive another payment from the indemnity plan?
- Yes. This is an example of coordinated benefits, in which the coverage of two different insurance policies overlap. With your fixed-indemnity insurance, these coordinated benefits will not be a problem. You will receive the set benefit for the covered expense whether or not this expense is also covered by your other plan.
- Can I see my personal doctor?
- Of course. There is no specific physician or hospital network for this coverage plan. You will be paid a set amount for the service up to an annual maximum; where you receive that service is up to you.