Hospital Indemnity Coverage On the Rise

By Michael Waddell

As a way of offsetting high out-of-pocket medical expenses following a hospital stay, including ambulance costs, more employees are adding supplemental hospital indemnity coverage to their plans through their employers. With the cost of the average hospital stay at nearly $20,000 in Tennessee and the average cost per night topping $4,800, “gap plans” are becoming more popular ways for people to bridge the gap on potential expenses.

“The trend has been years in the making,” said Tom Wiffler, UnitedHealthcare Specialty Benefits CEO. “Indemnity products have been around for decades. I think employers are recognizing that there is real value in providing these kinds of plans.”

Roughly 21 percent of employers with more than 500 employees now offer hospital indemnity coverage, according to the Mercer National Survey of Employer-Sponsored Health Plans.

“The benefit can be found in just basic peace of mind that the employee gets from covering expenses that are associated with hospital stays that may exceed their own means to cover,” said Wiffler, who points out that two-thirds of Americans have less than $1,000 in the bank. He expects more employees in Middle America to take on the additional coverage.

With hospital indemnity coverage, an employee who has a hospital stay will receive a lump sum of money, determined by the plan he or she has, that can be used however he or she chooses to handle medical bills or other household bills.

Smaller plans can cost as low as $100 to $125 per year.

“So one hospital stay will more than pay for itself for the premium that you’re paying,” said Gary Harger, UnitedHealthcare vice president of supplemental health products. “The beauty of this plan is its broad appeal. Unlike a critical illness or accident plan where there might be a more definitive target demographic, this plan really applies to any demographic because it’s about a hospital stay regardless of what age you are and what reason you are going in for your hospital stay.”

HRO Partners, an enrollment services company and human resource/benefits consulting firm for large and small employers, represents a variety of supplemental insurance carriers.

AUSTIN BAKER

“Supplemental or gap plans have been one of our strongest trending lines in terms of requests and offerings,” said Austin Baker, president of HRO Partners. “We’ve seen great growth there, and we’ve seen a lot of value for both employers and employees.”

HRO gets to hear from employees one-on-one about their coverage and what they are looking for, and the company works with employers to design programs to help meet employee needs.

Baker cites a rural Tennessee school system with about 300 employees, where the employer and employees saved a combined $1.1 million in health insurance premiums in the first year by using supplemental gap coverage like hospital indemnity/confinement. In another case, a public sector entity with 6,000 employees saved more than $20 million by making the supplemental coverage a volunteer offering.

“It’s an excellent strategy when used in the right way,” said Baker, who has also personally benefited from having the supplemental coverage, due to major medical incidents that required a hospital stay over the past couple of years.

Research shows that adding ancillary benefits to a core medical benefits offering can help improve companies’ bottom lines by increasing productivity and employee engagement. According to a report by LIMRA, a worldwide association of insurance and financial services companies, ancillary benefits can help attract and retain employees while improving morale.

Tim Finnell, principal of Group Benefits LLC, is seeing more employees adopting the coverage as a payroll deduction.

“We are not seeing employers purchasing supplemental hospital indemnity at a high rate (just a few),” Finnell said. “However, many are offering it to employees on a voluntary payroll deduction basis. As deductibles continue to rise, employees are purchasing supplemental plans to protect against the cost of a hospital stay.”

As an example, one indemnity plan with premiums of $11.75 per month for a 35-year-old and $16.75 per month for a 55-year-old pays a lump sum of $1,000 per admission to a hospital.

“If you stay in the hospital, you’re going to hit your deductible. There’s not many ways around it,” Baker said. “Sixty percent of Americans can’t pay a $500 bill. We need to change that. We need to help people save and have more of a nest egg, and we need to help people afford to do that out of their checks by saving money on their premiums. These gap programs are just so affordable.”

UnitedHealthcare’s Hospital Indemnity Protection plans are available to businesses with 51 or more eligible employees in 45 states and Washington, D.C., and the company also offers the plans to individuals who buy their own health insurance in 32 states.

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