What is Hospital Indemnity Insurance?

Hospital indemnity insurance is an additional insurance policy you can buy that pays you a fixed amount for each day you spend in a hospital. It can help cover out-of-pocket hospitalization costs that Original Medicare or a Medicare Advantage plan will not.

Terry Turner, writer and researcher for RetireGuide
  • Written by
    Terry Turner

    Terry Turner

    Senior Financial Writer and Financial Wellness Facilitator

    Terry Turner has more than 30 years of journalism experience, including covering benefits, spending and congressional action on federal programs such as Social Security and Medicare. He is a Certified Financial Wellness Facilitator through the National Wellness Institute and the Foundation for Financial Wellness and a member of the Association for Financial Counseling & Planning Education (AFCPE®).

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  • Edited By
    Matt Mauney
    Matt Mauney, Senior Editor for RetireGuide

    Matt Mauney

    Financial Editor

    Matt Mauney is an award-winning journalist, editor, writer and content strategist with more than 15 years of professional experience working for nationally recognized newspapers and digital brands. He has contributed content for ChicagoTribune.com, LATimes.com, The Hill and the American Cancer Society, and he was part of the Orlando Sentinel digital staff that was named a Pulitzer Prize finalist in 2017.

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    Kim Krebs-Murnane
    Kim Krebs-Murnane, Medicare expert & reviewer for RetireGuide

    Kim Krebs-Murnane

    Licensed Agent at Insuractive

    Kim Krebs-Murnane joined the Insuractive team as a licensed agent in 2018 and has stayed busy helping her clients meet their insurance needs ever since. She is currently licensed to sell insurance in over 40 states.

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  • Published: August 3, 2020
  • Updated: September 19, 2022
  • 4 min read time
  • This page features 8 Cited Research Articles
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A licensed insurance professional reviewed this page for accuracy and compliance with the CMS Medicare Communications and Marketing Guidelines (MCMGs) and Medicare Advantage (MA/MAPD) and/or Medicare Prescription Drug Plans (PDP) carriers’ guidelines.

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APA Turner, T. (2022, September 19). What is Hospital Indemnity Insurance? RetireGuide.com. Retrieved September 25, 2022, from https://www.retireguide.com/medicare/supplement-insurance/hospital-indemnity/

MLA Turner, Terry. "What is Hospital Indemnity Insurance?" RetireGuide.com, 19 Sep 2022, https://www.retireguide.com/medicare/supplement-insurance/hospital-indemnity/.

Chicago Turner, Terry. "What is Hospital Indemnity Insurance?" RetireGuide.com. Last modified September 19, 2022. https://www.retireguide.com/medicare/supplement-insurance/hospital-indemnity/.

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How Does Hospital Indemnity Insurance Work?

Hospital indemnity insurance is sold by private insurance companies and can help you cover your out-of-pocket hospital costs not covered under Medicare or Medicare Advantage.

Original Medicare and Medicare Advantage plans have limitations to the amount they will pay toward hospital stays.

Original Medicare covers 90 days hospitalization with an additional 60 days that include high coinsurance — $778 per day in 2022 — that you have to pay out of your own pocket.

Observation Hospital Stays

If your doctor hospitalizes you for observation, Medicare will generally not cover that hospital stay. The costs of an observation stay can add up quickly and you may be responsible for paying the full amount.

Hospital indemnity insurance can help cover those costs. When you purchase these private policies, you choose how much daily coverage you want.

The more coverage you want, the higher your premiums. If you are hospitalized, the policy pays an agreed upon rate for each day you’re in the hospital.

Did You Know?
The average cost of an inpatient hospital stay in the United States is $2,517 per day. It ranges from a low of $1,371 per day in Mississippi to a high of $3,552 in Washington state.

Types of Hospital Indemnity Insurance Coverage

Different hospital indemnity insurance plans offer benefits beyond inpatient hospitalization. These options may cost more, but they can cover out-of-pocket costs for specific situations your Original Medicare or Medicare Advantage may not.

It’s important to consider what options you want and whether or not your other plans cover what you believe you will need in the future.

Be sure to ask for the options you think you will need and compare supplemental insurance if you are considering an indemnity plan.

Options for Hospital Indemnity Insurance Coverage
Emergency Care Before Hospitalization
Some indemnity plans cover visits to urgent care or emergency rooms and ambulance transport that end up as inpatient hospitalization. Coverage is usually a lump-sum cash payment for each service.
Family Assistance During Hospitalization
Options may include daily payment for transport and lodging for family members to be near you when you are hospitalized.
Treatment After Hospitalization
If you need additional treatment after you’re discharged from the hospital, this option can help cover out-of-pocket costs for physical therapy or other therapy. It can also cover your stay in a skilled nursing facility.
Outpatient Hospitalization (Observation)
Medicare and Medicare Advantage plans consider observation care as outpatient hospitalization and pay different amounts than for inpatient hospitalization. An indemnity plan can help cover the gap in what you have to pay.

Hospital Indemnity Insurance for Medicare Advantage

Medicare Advantage plans may impose additional out-of-pocket costs if you have an accident, long-term illness or other hospital stay. You may face large copays for your first few days in the hospital. Your deductibles, copayments and coinsurance can add up quickly.

Your maximum out-of-pocket (MOOP) expenses can be as high as $11,300 for a hospital stay.

Hospital indemnity insurance pays you a fixed amount for each day you’re hospitalized to help offset your MOOP.

But hospital indemnity is not for everyone on Medicare Advantage. You should look closely at your Medicare Advantage plan and compare it to the indemnity plan you are considering to see if it fits your needs.

What to Consider Before Buying a Hospital Indemnity Plan
Cost of Hospital Stays
In addition to an average cost of $2,500 per day for a hospital stay, consider that in 2012, the average stay lasted 4.5 days according to the Healthcare Cost and Utilization Project.
Your Health
Consider your general health and whether you might require a hospital stay. Consider the chances of accidents, any chronic conditions and unexpected health issues based on age and family history.
Your Finances
Think about how you would be able to afford a hospital stay that isn’t covered by Original Medicare or Medicare Advantage and how that might affect your financial security.
Coverage
Look carefully at the gaps in your Medicare or Medicare Advantage plan’s hospitalization coverage and determine how much daily coverage you might need to fill those gaps based on your needs.
Last Modified: September 19, 2022

8 Cited Research Articles

  1. First Citizens Bank. (2022, June 9). What Is Hospital Indemnity Insurance? Retrieved from https://www.firstcitizens.com/personal/insights/insurance/what-is-hospital-indemnity-insurance
  2. U.S. Centers for Medicare & Medicaid Services. (2021, October). Medicare & Other Health Benefits: Your Guide to Who Pays First. Retrieved from https://www.medicare.gov/sites/default/files/2021-10/02179-Medicare-and-other-health-benefits-your-guide-to-who-pays-first.pdf
  3. Ellison, A. (2019, January 4). Average Hospital Expenses per Inpatient Day Across 50 States. Retrieved from https://www.beckershospitalreview.com/finance/average-hospital-expenses-per-inpatient-day-across-50-states.html
  4. Kaiser Family Foundation. (2019). Hospital Adjusted Expenses Per Inpatient Day. Retrieved from https://www.kff.org/health-costs/state-indicator/expenses-per-inpatient-day/
  5. Healthcare Cost and Utilization Project. (2014, October). Statistical Brief #180; Overview of Hospital Stays in the United States, 2012. Retrieved from https://www.hcup-us.ahrq.gov/reports/statbriefs/sb180-Hospitalizations-United-States-2012.pdf
  6. U.S. Centers for Medicare & Medicaid Services. (n.d.). How Medicare Works With Other Insurance. Retrieved from https://www.medicare.gov/supplements-other-insurance/how-medicare-works-with-other-insurance
  7. U.S. Centers for Medicare & Medicaid Services. (n.d.). Retiree Insurance. Retrieved from https://www.medicare.gov/supplements-other-insurance/retiree-insurance
  8. U.S. Centers for Medicare & Medicaid Services. (n.d.). Inpatient Hospital Care. Retrieved from https://www.medicare.gov/coverage/inpatient-hospital-care