Each industry in the United States faces challenges. Sometimes, though, healthcare seems to encounter more obstacles than other industries.
One of the biggest impediments is high healthcare expenditures. The U.S. spends $4.3 trillion annually on healthcare, 17.8 percent of the country’s gross domestic product (GDP). However, Americans die younger and are less healthy than residents of other high-income countries.
U.S. healthcare spending averages $12,914 per capita, and the average deductible is rising and outpacing wage growth. Some Americans are not able to afford the cost of healthcare — one in four say it’s the biggest concern facing their family.
More than one in every four workers with single coverage now has a deductible of at least $2,000, a marked increase from one in every 10 workers in 2010. Also, the increase in health plan premiums for 2023 was twice the increase in 2022 because of inflation and utilization trends.
That is one of the reasons many U.S. employees are turning to fixed-indemnity health plans. Although this type of health insurance is typically utilized as supplemental coverage, some individuals use it for their primary coverage. It’s especially beneficial for employees to fill in the gaps from high-deductible plans and those whose health benefits leave them with high out-of-pocket costs.
Roughly 90 percent of Americans say that these plans help pay for needed medical expenses and ease their concerns about their financial security. And, 92 percent of them are satisfied with their coverage.
In this blog, we’ll outline what fixed indemnity health insurance is, what types of services it covers — and doesn’t — and the advantages it offers to employees.
You’ve probably heard of level-funded insurance, fully-insured health plans and other types of traditional health insurance. Fixed indemnity insurance, though, does not provide coverage for essential health benefits. Instead, it pays fixed, predetermined cash payments on a per-period or per-incident basis, regardless of the total amount of medical charges incurred.
Unlike traditional types of health plans, fixed indemnity insurance is not regulated by the Affordable Care Act (ACA) and does not provide a full range of benefits and reimbursement certainty. It can exclude pre-existing conditions and have defined benefit limits for all services along with annual and lifetime benefit limits.
The three most common types of fixed indemnity health insurance are accident fixed indemnity, critical illness coverage and hospital indemnity plans. Accident fixed indemnity, as its name implies, pays some expenses in a covered accident, and critical illness coverage provides lump-sum or per-day payments to offset the costs of treating certain illnesses. Hospital indemnity health plans pay a predetermined amount for each day an employee is hospitalized.
A smart strategy is to keep a high deductible health plan for catastrophic health events and supplement that with fixed indemnity insurance to help offset that deductible or help with everyday living expenses if a serious injury or illness occurs. This not only achieves more comprehensive health coverage but also does so in a more affordable way.
Unlike traditional health insurance, fixed indemnity plans are not intended to serve as primary medical coverage but are designed to complement Minimal Essential Coverage. The insurance carriers that offer fixed indemnity plans do not enter into contracts with healthcare providers but pay employees regardless of what their major medical plan is.
Fixed indemnity plans also differ from indemnity plans in the following ways:
| Fixed Indemnity Plans | Traditional Health Insurance |
| Do not cap out-of-pocket costs | Typically limits the amount an enrollee must pay for covered services in a plan year |
| Payments are made on a per-period or per-incident basis | Employers pay a monthly premium in exchange for healthcare services |
| Policyholders are paid directly | Payment is made by the insurance company to the healthcare provider |
| No deductibles or copayments | Includes deductibles, co-pays and out-of-pocket percentages |
| Not regulated by the ACA | Regulated by the ACA |
| Unlimited choice of healthcare providers | Typically covers providers in a specified service area |
| May discriminate based on pre-existing conditions | By law, not allowed to discriminate based on pre-existing conditions |
| No referrals necessary | Referrals often required |
First, it is important to note that fixed indemnity plans often do not cover preventive care or what the Affordable Care Act categorizes as essential health benefits. According to Healthcare.gov, essential health benefits are a set of then categories of services health insurance plans must cover under the ACA. Examples are doctors’ services, inpatient and outpatient hospital care, prescription drug coverage, pregnancy and childbirth and mental health services.
Although fixed indemnity plans either exclude or limit coverage for prescription drugs, maternity, newborn care and infertility treatment, common benefits they offer include:
For these services, there are fixed cash benefits, and the benefits among different fixed indemnity plans vary widely. For example, the average fixed cash benefit an employee might receive for X-rays is $50. Hospital stays net an average fixed cash benefit of $800 per day — up to a certain number of days — and ambulance transportation has an average fixed cash benefit of anywhere from $100 to $200.
Fixed indemnity plans are an attractive option for individuals who want financial help to cover high out-of-pocket costs or those in plans with high cost-sharing requirements. For employees with primary medical insurance, these plans offer an extra level of coverage in the case of a serious injury or illness.
Other benefits of fixed indemnity insurance include:
With fixed cash benefits, employees enrolled in a fixed indemnity health plan know exactly what their benefits are. This enables them to budget based on pre-set reimbursement amounts without having to meet a deductible. These plans also offer low upfront out-of-pocket costs and typically have low monthly rates.
Those limitations in choice of providers in other types of health insurance are negated with fixed indemnity plans. Employees have the option to receive treatment from whomever they select — without the need for a referral from another physician. Enrollment is available anytime, and coverage can be canceled at any time.
As we discussed earlier in this blog, many employees choose fixed indemnity plans to supplement the major medical coverage offered by their employees. It is often utilized to help cover out-of-pocket expenses an employee incurs during the year, including deductibles, co-payments and coinsurance.
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Some individuals who have trouble getting approved for major medical health insurance or simply cannot afford traditional health insurance choose fixed indemnity plans. The stipulation with this is that these individuals might end up owing a lot of money if they experience a serious injury or illness. When purchasing a fixed indemnity product, it is always important to understand the plan and any exclusions or pre-existing condition clauses.
At StenTam Employer Services, our multidisciplinary team will collaborate with you to find the best health plan options for your business. We understand the complexity of healthcare and the importance of making benefits easy, transparent and predictable. And, we provide industry-specific solutions for your workforce along with ongoing compliance reviews, consulting and much more. Contact us today to find out more!
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