Hospital Indemnity Plans

Hospital Indemnity Plans (HIP) are an important voluntary product option for your customers, particularly in the way they support the overall ideal of consumerism in health care. These types of products may play an important role in the industry as health care reform is legislated. Contact your Aetna representative for more information about our Hospital Indemnity Plan and about its availability for your customers.

With all of the recent debate on health care reform, there seems to be one thing that everyone can agree on – we must do more to improve cost and quality across the health care system if we are to truly deliver valuable, affordable benefits for the consumer in the future.  While health care reform legislation may not do enough in these areas, we know that the role of the consumer will continue to evolve from passive participant to engaged and informed decision-maker.  In order to help people navigate an increasingly complex world of health care services, the health care sector needs to extend the pricing and quality transparency that exists in nearly every other consumer industry. Transparency will help people become more educated health care consumers and allow them to make the health care purchasing decisions that provide them with the best value.

While the passage of The Patient Protection and Affordable Care Act will do much to provide greater access to health care, it falls short on addressing the underlying issue of controlling rising medical costs.  This challenge presents an opportunity for organizations within the health care system to invest in technology as well as product and service innovations to help consumers find new ways to understand quality and cost metrics across the system.

The early stages of consumer-driven health care have been focused on high-deductible health plans coupled with a health fund – either a Health Reimbursement Arrangement (HRA) or a Health Savings Account (HSA). There has also been a strong focus on developing innovative decision support tools to help consumers better manage their health care needs.  As the adoption rate of these consumer-directed health plans (CDHPs) continues to rise, adjacent products and services that complement CDHPs will be brought to market.  One key to the success of CDHPs is their impact on controlling discretionary health care spending, and therefore only those products and services that support this positive impact on utilization are truly complementary in nature.

Hospital Indemnity Plans: A natural CDHP complement
One such product that exists in the market today and is poised for substantial growth is the Hospital Indemnity plan.  This type of plan pays cash benefits directly to the insured for inpatient hospital confinements for non-occupational injury or sickness. These benefits are separate from, and in addition to, benefits paid under the underlying health plan.  Proceeds can be used for any purpose, but are typically used to help offset out-of-pocket expenses associated with hospital admission.  This may include directly related costs such as deductibles, co-pays, and coinsurance, but may also include indirect costs such as travel expenses, child or elder care, and loss of income.

Common Uses of Benefit Proceeds

• Deductible / Copays
• Out of network care
• Higher tier drugs
• Alternative / holistic care
• Experimental treatments
• Travel expenses
• Child / elder care
• Loss of income

Medical insurance carriers are particularly well-suited to offer Hospital Indemnity plans because of the potential for seamless integration with the underlying major medical plan.  For example, the cash benefit to the insured can be automatically triggered to pay once the carrier receives confirmation of an inpatient confinement.  With no need to submit a claim, the consumer with the Hospital Indemnity plan can be assured that he or she will realize the full value of his or her benefits.  Packaging this type of plan with a major medical plan also provides greater transparency into the nature of the product, namely that it should be used only as a supplement and not as a replacement for comprehensive medical coverage. 

Hospital Indemnity Plan benefits
There are usually two benefit components associated with Hospital Indemnity plans.  The first is a flat dollar payment for the hospital confinement, typically ranging from $1,000 to $2,000 and aligning closely with the deductible on the underlying health plan.  The second is a per diem, typically around $100 for each day in the hospital, up to an annual maximum.  While a Hospital Indemnity plan is a good complement to any type of health plan due to the unrestricted nature of the benefits, it is particularly useful during the initial transition to a CDHP offering when deductibles haven’t begun accumulating and health fund balances are low.

While Hospital Indemnity plans are typically sold to group employees on a voluntary basis, it may be in the best interest of the employer that offers multiple plan options to fully fund the Hospital Indemnity plan for its employees during the first year. This would help the employer make the transition and maximize enrollment in the CDHP plan, which typically will reduce the total cost of benefits.  Assuming the pricing spread between plan options is more than the cost of the Hospital Indemnity plan, the short-term benefit of the employer contribution is that the subsequent shift of employees into the CDHP plan will likely reduce the total case premium.  The long-term benefit is the potential reduction of future medical trend and corresponding premium increases. This is a result of having more employees in a plan where they can control medical spend by having the data and tools needed to make informed decisions about their health care expenditures.

Coverage gap solutions
In addition to providing supplemental coverage to major medical plans, Hospital Indemnity plans can complement other health-related products:

• Limited Benefit Plans:  Supplemental protection for high-cost events that are typically not covered under these types of plans.
• Short Term Disability:  Supplemental protection when the inpatient stay is only a few days and does not trigger STD benefits; supplemental loss of income protection during the STD waiting period.
• Long Term Care:  Supplemental protection providing the ability to lower LTC premiums by purchasing lower-priced products with longer elimination periods or limited benefit periods.

Looking ahead: The role of Hospital Indemnity Plans
As health care reform legislation is implemented, questions will come up around the role for fixed-indemnity products such as the Hospital Indemnity plan.  While there will be less of a need for plans like these as a standalone option for the uninsured and underinsured, there will still be a strong and growing market for supplemental benefits that help fill the coverage gaps that are inherent in health-related products.  Companies that recognize this trend will be well-positioned to bring to market innovative products and services that meet the supplemental health care needs of consumers.

This article was authored by Jim Boyman and appeared in the June 10, 2010 edition of Voluntary Benefits Magazine.com.  Jim is the Head of Distribution & Channel Management for Aetna's Voluntary Business.  In this role, he is responsible for leading Aetna's Voluntary sales and service organization as well as identifying new and growing existing distribution channels.  In the five years prior, he was a key contributor to the Local and Regional Businesses organization with leadership roles in strategy, planning and sales.  Jim has been with Aetna for 16 years and has held a variety of financial and operational positions within staff areas, shared services and business segments.  Founded in 1853 in Hartford, Connecticut, Aetna is one of the nation's leading providers of health care, dental, pharmacy, group life, and disability insurance, and employee benefits.