What Is Hospital Indemnity Insurance? How It Works with Medicare

A hospital stay is one of the most expensive events in healthcare. Even with good insurance, you can face thousands of dollars in out-of-pocket costs from deductibles, copays, and coinsurance. For Medicare beneficiaries, the Part A deductible alone is $1,676 per benefit period in 2026, with additional coinsurance kicking in for longer stays. Hospital indemnity insurance is a supplemental product designed to help cover these costs by paying a fixed cash benefit when you are hospitalized.

This guide explains what hospital indemnity insurance is, how it pays, how it works alongside Medicare and other health plans, what it costs, and who should consider adding it to their coverage.

What Is Hospital Indemnity Insurance?

Hospital indemnity insurance is a type of supplemental insurance that pays you a fixed, predetermined cash amount when you are admitted to the hospital. It is not health insurance and does not replace your medical coverage. Instead, it works alongside your health plan or Medicare to provide extra cash during a hospital stay.

The benefit is paid directly to you, not to the hospital or your doctors. You can use the money for any purpose, including your hospital deductible, coinsurance, lost wages, travel expenses, childcare, or everyday bills. The payment amount is the same regardless of what the hospital charges for your care.

Hospital indemnity insurance is classified as an excepted benefit under the Affordable Care Act. This means it is not regulated like comprehensive health insurance. It does not need to cover essential health benefits, and it is not subject to ACA rules on pre-existing conditions or out-of-pocket maximums. It is a voluntary product available through many employers and also sold as individual policies.

How Hospital Indemnity Insurance Pays

Hospital indemnity policies use one of two payment structures, and some use a combination of both.

• Daily benefit. The policy pays a fixed amount for each day you spend in the hospital, typically $100 to $500 per day. If you are hospitalized for five days and your daily benefit is $200, you receive $1,000.
• Per-admission benefit. The policy pays a lump sum each time you are admitted to the hospital, typically $1,000 to $3,000 per admission regardless of how long you stay.

Some policies combine both, paying an initial admission benefit plus a daily benefit for each day of the stay. For example, a policy might pay $1,500 upon admission plus $200 per day. A four-day hospital stay under that plan would pay $1,500 plus $800, for a total of $2,300.

The average hospital stay in the United States is approximately 4.6 days. At $200 per day, a typical stay would generate about $920 in benefits. At $500 per day, the same stay would pay $2,300. These amounts can go a long way toward covering your hospital deductible and other out-of-pocket costs.

How Hospital Indemnity Insurance Works with Medicare

Hospital indemnity insurance is particularly popular among Medicare beneficiaries because Medicare Part A, while covering hospital stays, still leaves significant out-of-pocket costs.

In 2026, Medicare Part A requires a $1,676 deductible per benefit period. This is not an annual deductible; it resets each time a new benefit period begins. If you are hospitalized more than once in a year and each stay starts a new benefit period, you pay the deductible each time. Beyond 60 days of hospitalization, Medicare requires daily coinsurance of $419 per day for days 61 through 90, and $838 per day for lifetime reserve days 91 through 150.

A hospital indemnity policy can help cover these costs. A per-admission benefit of $1,500 to $2,000 could cover most or all of the Part A deductible. A daily benefit helps with the coinsurance for longer stays. For Medicare beneficiaries who chose Original Medicare without a Medigap supplement, hospital indemnity insurance provides a layer of financial protection against hospital-related costs.

Hospital indemnity insurance is also commonly paired with Medicare Advantage plans. While Medicare Advantage plans cap your total out-of-pocket spending, they often charge copays or coinsurance for hospital stays. A hospital indemnity policy helps cover those costs.

How Hospital Indemnity Works with Other Health Plans

Hospital indemnity insurance is not only for Medicare beneficiaries. It also works alongside employer-sponsored health insurance and ACA marketplace plans. The value proposition is similar regardless of your primary coverage: the policy pays you cash to help with the out-of-pocket costs and non-medical expenses that come with hospitalization.

For people with high-deductible health plans, hospital indemnity insurance is especially useful. If your health plan has a $3,000 to $7,000 deductible, a single hospital admission can generate a large out-of-pocket bill. A hospital indemnity policy that pays $1,500 to $2,500 per admission covers a significant portion of that deductible.

Hospital indemnity benefits are paid in addition to whatever your primary health insurance covers. There is no coordination of benefits. Your health plan pays the hospital for your treatment, and your hospital indemnity plan pays you a separate cash benefit. You receive both.

What Does Hospital Indemnity Insurance Cost?

Hospital indemnity insurance is relatively affordable because it only covers hospital stays, not the full range of medical services. Premiums depend on the benefit amount, your age, and the specific insurer.

• Employer-sponsored plans: $20 to $60 per month for individual coverage with moderate benefit amounts.
• Individual policies: $20 to $100 per month depending on the benefit level, your age, and the insurer. Higher daily or per-admission benefits cost more.

Premiums increase with age because the likelihood of hospitalization increases as you get older. A 35-year-old will pay less than a 65-year-old for the same benefit level. Some policies offer level premiums that stay the same over time, while others adjust annually.

Who Needs Hospital Indemnity Insurance?

Hospital indemnity insurance can be valuable in several situations.

• Medicare beneficiaries without Medigap. If you have Original Medicare without a Medigap supplement, hospital indemnity helps cover the Part A deductible and potential coinsurance for extended stays.
• Medicare Advantage enrollees. Many Medicare Advantage plans charge copays or daily coinsurance for hospital stays. Hospital indemnity insurance helps offset these costs.
• People with high-deductible health plans. If your health insurance deductible is $3,000 or more, a hospital admission can trigger a large out-of-pocket bill. Hospital indemnity provides cash to cover part or all of that deductible.
• People with chronic conditions that may require hospitalization. If you have a condition like heart disease, COPD, or diabetes that increases your risk of hospital stays, the policy provides ongoing financial protection each time you are admitted.
• People without large emergency savings. If an unexpected hospital bill of $1,500 to $3,000 would strain your finances, hospital indemnity insurance provides a cash buffer.

Limitations and Excluded Conditions

Hospital indemnity insurance has limitations that are important to understand before purchasing a policy.

• Hospital stays only. Most policies pay benefits only for inpatient hospital admissions. Outpatient procedures, doctor visits, and prescription costs are not covered even if they are related to the same condition that caused the hospitalization.
• Pre-existing condition exclusions. Some policies exclude hospital stays caused by conditions you had before buying the policy, typically for the first 6 to 12 months of coverage.
• Benefit caps. Policies may limit the number of days per stay, the number of stays per year, or the total annual benefit. Read the fine print to understand these limits.
• Mental health and substance abuse. Some policies exclude or limit benefits for hospitalizations related to mental health treatment or substance abuse programs.
• Not a replacement for health insurance. Hospital indemnity insurance pays fixed amounts that are far less than the actual cost of a hospital stay. It supplements your health coverage but cannot stand on its own.

The Bottom Line

Hospital indemnity insurance is a straightforward supplemental product that pays you a fixed cash benefit when you are admitted to the hospital. It works alongside Medicare, Medicare Advantage, employer health plans, and ACA marketplace plans to help cover the deductibles, copays, and non-medical expenses that come with hospitalization.

At $20 to $100 per month, it is relatively affordable. It is most valuable for Medicare beneficiaries without Medigap coverage, Medicare Advantage enrollees with hospital copays, people with high-deductible health plans, and anyone who would struggle to pay a large hospital bill out of pocket. Review the benefit amounts, caps, exclusions, and waiting periods carefully before purchasing, and make sure it complements rather than duplicates your existing coverage.