Wait, you mean to tell me there is more than one way to get insurance?
The answer is Yes, there are many ways to get insured now days. The most popular and the most traditional will be with Major Medical Plans, another form of insurance is First Dollar Benefits or better known as Hospital Indemnity Plans. Even though there are more ways to get insured, on this post I want to discuss the major differences between the two mentioned above and what can be expected when using these plans.
First let us dive in to the traditional way of getting insurance, a Major Medical. Normally associated with Copays, Deductibles, Coinsurance and Max Out of Pockets. In this post we are not going to be discussing what these terms mean, but to learn more about these terms simply click here.
Major Medical plans are great because they are built to reduce out of pocket expenses in the event of a dr consult or Hospital stay. When there’s a need for a dr visit, this plan normally provides a said copay which one must pay as the insurance takes care of the rest. The dr visit might cost $300+ but since the plan has a Copay, the only cost for the insured is the actual copay, this provides great peace of mind when on a budget.
Now, where this plan shines is with hospitalizations, in most cases one must first meet the deductible and then the insurance and the insured split the rest of the bill (Coinsurance), up to the Maximum out of Pocket. If the Maximum out of Pocket is $5,000 then that will literally mean that the Max he/she will ever pay is $5,000 no matter the size of the bill. For example, if one happens to stay in the hospital for three days and the bill is $30,000. This person will pay the deductible and then pay the coinsurance up to the Max out of Pocket.
Below is a simplified example so that it may be easier to visualize these numbers.
$30,000 Hospital Bill
-$5,000 70/30 Coinsurance / Max Out of Pocket
$22,500 Insurance Pays
$7,500 What You Actual Paid
Now that we have covered Major Medical, let us discuss First Dollar Benefit or Hospital Indemnity Plans. These plans have no Copays, Deductibles, Coinsurance and Max Out of Pockets instead they work on fixed benefits. They only pay a fixed indemnity amount per incident without having to meet a deductible, which means the moment one walks in to the hospital the insurance kicks in. This might sound great until we actually do the numbers. Most of these plans will pay an average of a $1,000 on fixed benefits per day in the hospital. So let us do some numbers, say the client spent 3 days in the hospital, according to healthcare,gov the average cost for 3 day stay in a hospital is about $30,000.
In this scenario the insurance kicks ins and pays their part, a whole $3,000 and now there is a $27,000 bill left to pay and this actually belongs to the client. Here is a simplified example so it can be easier to visualize.
$30,000 Hospital Bill
-$3,000 Hospital Indemnity (1,000 per day)
$27,000 You Pay
$3,000 Insurance Actual Paid
As we compare both plans, it is very clear that Major Medical plans are the most comprehensive insurance plans and the safest way to feel insured, Hospital Indemnity Plans are great as supplements but not as stand alone product as they can destroy one’s savings account if not used correctly.
One can use a Hospital Indemnity as a last resort for insurance if there are no other options and regular plans are way out of one’s budget, Hospital Indemnity plans can still be used to reduce out of pocket expenses but as long as one understands that these plans can be very limited in benefits and can be used as a last resort vs not having any sort of coverage.
If you would like to know more about these plans, click Here and I can help you find a plan you can depend on.