Fixed Indemnity Health Insurance: What It Is, How It Works, and Who It's For

What Is Fixed Indemnity Health Insurance?

Fixed indemnity health insurance is a type of supplemental coverage that pays you a predetermined, fixed dollar amount when you receive a specific medical service. Unlike traditional health insurance, which pays a percentage of your bill or charges a copay, a fixed indemnity plan pays a flat amount regardless of what the service actually costs.

For example, your plan might pay $150 per doctor visit or $1,000 per day in the hospital. If your ER bill is $3,500 and the plan pays $300, you owe the remaining $3,200. If your doctor visit costs $80 and the plan pays $150, you keep the $70 difference. The payment is the same every time, no matter what the provider charges.

These plans are sometimes called hospital indemnity plans or limited benefit plans. They are not major medical insurance, not ACA-compliant, and not designed to replace comprehensive coverage. They exist to put cash in your pocket when a medical event occurs, helping cover out-of-pocket costs or everyday expenses while you recover.

How Fixed Indemnity Differs from Traditional Health Insurance

Payment model: Traditional insurance pays a percentage of covered services based on negotiated rates. Fixed indemnity pays a flat dollar amount per event with no connection to the actual cost of the service.

ACA compliance: Marketplace plans must cover essential health benefits, accept people with pre-existing conditions, and cap out-of-pocket costs. Fixed indemnity plans are exempt from all ACA requirements. They can deny coverage based on health history and impose no ceiling on your expenses.

Provider networks: Traditional plans require in-network providers for full benefits. Fixed indemnity plans have no network — you see any provider you want and the plan pays the same amount. The money goes to you, not the provider.

Deductibles: Traditional plans require meeting a deductible before coverage begins. Fixed indemnity plans typically have no deductible — benefits start with the first covered event. However, because benefits are limited to fixed amounts, this simplicity can be misleading.

Preventive care: ACA plans must cover preventive services at no cost. Fixed indemnity plans have no such requirement. Some offer a small wellness benefit, but many do not cover preventive care at all.

Real-World Scenarios: How Fixed Indemnity Payments Work

Scenario 1: Emergency room visit

Sarah falls off a ladder and goes to the ER. She gets X-rays, stitches, and a prescription. The total bill is $4,200. Her fixed indemnity plan pays $400 for the ER visit and $50 for the follow-up appointment — $450 total. Sarah owes the remaining $3,750 out of pocket. Had she carried a traditional PPO with a $2,000 deductible and 80/20 coinsurance, her total cost would have been roughly $2,440.

Scenario 2: Three-day hospital stay

Marcus is hospitalized for appendicitis for three days. His bill totals $38,000. His fixed indemnity plan pays $200 per hospital day ($600) plus $1,500 for surgery — $2,100 total. He faces the remaining $35,900. With even a high-deductible ACA Bronze plan, his annual out-of-pocket maximum would cap his costs at roughly $9,200.

Now consider a different angle: if Marcus had both a high-deductible ACA plan and a fixed indemnity plan as a supplement, that $2,100 payment could go directly toward covering his deductible and coinsurance. Used as a supplement, the indemnity plan does exactly what it was designed to do.

Typical Benefit Amounts

Benefit amounts vary by plan and insurer, but most products on the market fall within these ranges. Higher benefits mean higher premiums.

• Hospital confinement: $100 to $250 per day, with some plans offering a first-day admission bonus of $500 to $1,000.
• Emergency room visits: $250 to $500 per visit, often limited to one or two ER visits per year.
• Doctor office visits: $50 to $75 per visit. Some plans pay slightly more for specialists.
• Surgery: $500 to $2,000 per procedure, with inpatient surgery typically paying more. Some plans use a tiered schedule based on complexity.
• Diagnostic testing: $50 to $200 for lab work and imaging. Advanced imaging like MRIs may pay more.
• Ambulance: $100 to $250 per trip — a fraction of the $1,000 to $3,000 an ambulance ride typically costs.

Monthly premiums typically range from $40 to $200 per person, depending on benefit levels, insurer, age, and state.

What Fixed Indemnity Plans Do NOT Cover

What these plans do not cover is far more extensive than what they do. If you expect major medical protection, you will be in for a surprise.

• No comprehensive coverage. A $200-per-day hospital benefit does not come close to covering a stay that may cost $3,000 to $10,000 per day.
• No essential health benefits mandate. ACA plans must cover ten categories including maternity, mental health, prescriptions, and rehab. Fixed indemnity plans can exclude any or all of these.
• No preventive care guarantee. No requirement to cover annual checkups, immunizations, or cancer screenings at no cost.
• No prescription drug coverage. Most plans do not cover medications. If you take daily prescriptions, you pay full retail price.
• No out-of-pocket maximum. There is no annual cap on your spending. A catastrophic event has no ceiling on what you could owe.
• No pre-existing condition protections. Insurers can deny your application, charge more, or exclude conditions you already have.

Pros of Fixed Indemnity Health Insurance

• Lower premiums. Monthly costs of $40 to $120 are common, compared to $300 to $700 or more for unsubsidized ACA marketplace plans.
• Simplicity. No deductibles to track, no coinsurance to calculate. The plan pays a flat amount per event and you know exactly what that amount is before you receive care.
• No network restrictions. See any doctor, visit any hospital, use any provider. The plan pays the same regardless of where you go.
• Cash paid directly to you. Many plans pay benefits to you, not the provider. You can use the money for medical bills, lost wages, childcare, or any other need.
• Supplements other coverage. Paired with a high-deductible health plan, fixed indemnity payments can help cover your deductible and coinsurance gap.
• No waiting for deductibles. Benefits typically begin with the first covered event. There is no annual deductible to satisfy before the plan pays.

Cons of Fixed Indemnity Health Insurance

• It is not real health insurance. Fixed indemnity does not satisfy the need for comprehensive coverage. If you rely on it as your only protection, you are essentially uninsured for any major medical event.
• Massive gaps in coverage. When a hospital stay costs $30,000 and your plan pays $600, you are left with $29,400 in medical debt. Fixed benefits barely scratch the surface of modern healthcare costs.
• No out-of-pocket maximum. ACA plans cap individual exposure at $9,200 in 2025. Fixed indemnity plans have no cap. A catastrophic illness can wipe out your savings.
• Not ACA-compliant. Does not count as minimum essential coverage. Some states — California, Massachusetts, New Jersey, Rhode Island, and DC — still impose individual mandate penalties for being uninsured.
• Pre-existing condition exclusions. Many plans exclude or limit benefits for conditions you had before enrolling, with waiting periods of six to twelve months or permanent exclusions.
• Benefit caps. Plans often cap the number of times you can use certain benefits per year or impose annual dollar maximums on total payouts.
• Misleading marketing. Some plans are marketed in ways that make them look like comprehensive insurance. Consumers may not realize until they file a claim that their plan pays only a fraction of costs.

Who Should Consider Fixed Indemnity Insurance

• People supplementing a high-deductible health plan. If you have an ACA-compliant HDHP with a $3,000 or $5,000 deductible, a fixed indemnity plan provides cash to help cover that deductible when a medical event occurs. This is the most effective use of fixed indemnity coverage.
• People between jobs. If you are in a coverage gap and need some protection quickly, a fixed indemnity plan provides a basic safety net while you wait for new benefits. COBRA or a special enrollment ACA plan would be preferable if affordable.
• Self-employed individuals and gig workers. Freelancers who buy their own insurance sometimes pair a fixed indemnity plan with a marketplace plan to reduce total out-of-pocket exposure.
• People who want to cover non-medical costs during a health event. Because payments go directly to you, the cash can cover rent, groceries, childcare, or transportation while you recover.

Who Should NOT Buy Fixed Indemnity Insurance

• Anyone who needs comprehensive coverage. If fixed indemnity would be your only health coverage, you are taking an enormous financial risk. One surgery or extended hospital stay can generate bills of $50,000 or more. A plan that pays $200 a day cannot protect you.
• People with chronic health conditions. Diabetes, heart disease, asthma, autoimmune conditions, and mental health disorders all require ongoing care that fixed indemnity plans cannot meaningfully cover. Many plans exclude pre-existing conditions entirely.
• People who take prescription medications regularly. Most fixed indemnity plans do not cover prescriptions. If you rely on daily medications — especially expensive specialty drugs — you need a plan with a pharmacy benefit.
• People planning a pregnancy. Prenatal care, delivery, and postpartum care can cost $15,000 to $30,000. Fixed indemnity plans typically exclude maternity or pay only a token amount.
• People who qualify for ACA subsidies. If your income qualifies you for premium tax credits, you may get comprehensive coverage for less than a fixed indemnity plan costs. Check HealthCare.gov before choosing a limited plan.

Regulatory Changes: The 2024 CMS and DOL Final Rule

In March 2024, CMS, the Department of Labor, and the Department of the Treasury jointly issued a final rule tightening regulations around fixed indemnity coverage. The rule addresses widespread consumer confusion and prevents these plans from being marketed as substitutes for comprehensive insurance.

• Truly fixed amounts only. Benefits must be a fixed dollar amount that does not vary based on cost, provider, or diagnosis. Plans that structured benefits to mimic percentage-based insurance no longer qualify as excepted benefits.
• Must supplement, not replace. In the group market, fixed indemnity coverage may only be offered to employees enrolled in the employer's primary health plan. In the individual market, insurers must obtain an attestation confirming the consumer has other comprehensive coverage.
• Enhanced disclosures. Plans must include a prominent notice in marketing materials and the policy itself stating the coverage is not comprehensive health insurance, does not satisfy ACA requirements, and does not cover all medical costs.

These changes reflect federal concern that fixed indemnity plans have been sold to consumers who believed they were purchasing real health insurance. If you are shopping for a plan, look for insurers that comply with the updated regulations and be wary of anyone who downplays these distinctions.

How to Buy Fixed Indemnity Insurance

If a fixed indemnity plan makes sense for your situation — ideally as a supplement to comprehensive coverage — here is where to find one and what to evaluate.

Where to find plans:

• Through your employer. Many employers offer hospital indemnity as a voluntary benefit during open enrollment, often at lower group rates.
• Licensed insurance agents. An independent agent can show you options from multiple insurers and help compare benefit levels.
• Directly from insurers. Companies like Aflac, Colonial Life, Allstate Benefits, and UnitedHealthcare offer fixed indemnity products online or over the phone.

What to compare:

• Benefit amounts for the services you are most likely to use
• Annual and lifetime benefit caps
• Waiting periods, especially for pre-existing conditions
• Exclusions — what the plan explicitly will not pay for
• Per-event limits on how many times you can collect a benefit per year
• The insurer's AM Best financial strength rating

Read the entire policy document before you buy — not just the summary. The details about exclusions, caps, and waiting periods are where most unpleasant surprises hide.

The Bottom Line

Fixed indemnity health insurance occupies a narrow but useful niche. It is not health insurance in the traditional sense — it will not cover the full cost of care, it is not ACA-compliant, and it will not protect you from catastrophic bills. What it does is provide a predictable cash benefit when specific medical events occur, and that can be genuinely helpful as a supplement to comprehensive coverage.

The best use is alongside an ACA-compliant plan, particularly a high-deductible plan where out-of-pocket costs add up quickly. The fixed payments help bridge the gap between what your insurance covers and what you owe. The worst use is as your only coverage — one serious diagnosis away from financial devastation. A plan that pays $200 per day cannot offset a hospital bill of $10,000 per day.

Before you buy, check what you qualify for on the ACA marketplace. Premium subsidies have been significantly expanded, and many people can get comprehensive Silver or Gold plans for less than they expect. If you already have comprehensive coverage and want extra protection, a fixed indemnity plan can be a smart, affordable addition to your safety net. Just know exactly what you are buying — and what you are not.

Frequently Asked Questions

Is fixed indemnity insurance the same as health insurance? No. Fixed indemnity is a supplemental product that pays a fixed dollar amount per event. It is not ACA-compliant, does not cover essential health benefits, and does not cap your out-of-pocket costs. It should not be your only coverage.

Does a fixed indemnity plan count as minimum essential coverage under the ACA? No. Fixed indemnity plans are classified as excepted benefits. While the federal penalty for not having coverage was reduced to zero in 2019, some states — including California, Massachusetts, New Jersey, Rhode Island, and DC — still impose their own mandate penalties.

Can I use a fixed indemnity plan with an HSA? Yes, in most cases. Because fixed indemnity plans are excepted benefits, they generally do not disqualify you from HSA contributions. However, specifics depend on plan structure, so consult a tax professional if you are unsure.

Are fixed indemnity benefits taxable? Generally, if you pay premiums with after-tax dollars, benefits are not taxable income. If your employer pays premiums, benefits may be taxable. Consult a tax advisor for your specific situation.

How much does a fixed indemnity plan cost? Monthly premiums typically range from $40 to $200 per person, depending on benefit levels, age, location, and insurer. Group plans through an employer usually cost less.

Can I buy a fixed indemnity plan at any time? Yes. Because these plans are not ACA-compliant, they are not subject to open enrollment periods. You can generally apply year-round. However, employer-sponsored plans may only be available during your company's benefits enrollment window.