Hospital indemnity is surging: Why now?
The answers are interrelated and center around two gaps in the typical family’s financial security: The cost of hospital-related services and the amount of savings available.
But “why hospital indemnity?” and “why now?” The answers center around two gaps in the typical family’s financial security: The cost of hospital-related services and the amount of savings available.
The cost of hospital-related services has been “ahead of the curve” for years when it comes to inflation. Many describe hospital indemnity as a “hot new benefit,” which is amusing since my experience with it goes back 50 years. And even then, it was not a new group product.
In the 1970s, I worked in the association group business, and our leading product was hospital indemnity. It was popular because most members were independent workers and not covered by an employer’s major medical plan. We were selling daily hospital benefit amounts of $50 or $100 with the double benefit for intensive care plus a few other options.
Let’s put the costs of hospital benefits into perspective. One of our daughters was born in 1974, and the daily hospital charge was $72. In 2021, the average daily cost in the U.S. for a hospital room was estimated at $2,600, according to debt.org. Total charges for childbirth, labor room, anesthesia, nursery services, and four days in the hospital for mother and child in 1974 were $767. By contrast, the average cost of childbirth today is $18,865, with $2,850 the average out-of-pocket cost not covered by major medical, according to Bloomberg.
As for the amount of savings available to the average family, the Federal Reserve recently found that only 64% of adults have cash savings to cover even a $400 expense, let alone the expenses described above. The only options available to many should a medical emergency develop are credit cards, refinancing, or depletion of their 401(k) plan. This is driving the surging interest in hospital indemnity plans, which have historically been less popular than accident, critical illness, and cancer products, despite the fact they can cover a much broader set of situations.
Hospital indemnity plans can be designed as HSA compatible, which means the tax benefits of a qualified HSA will not be lost if the product is properly designed.
Related: The detrimental effects of inflation is inescapable for medically vulnerable families
In addition to a daily hospitalization benefit, many boutique services and options may be built into the product when HSA compatibility is not required, including wellness programs, telehealth, mental health assistance, substance abuse treatment, alternative maternity care options, and many more.
Most advisors today help employers analyze the gaps in their medical plan and uncover potential areas of risk in their employee population. Adding hospital indemnity coverage, plus accident or critical illness coverage when appropriate, can provide employers with an optimum package of financial security for their employees.