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A fixed indemnity plan pays a preset cash amount when a covered event occurs, such as a set dollar figure per hospital day, office visit, or diagnosis, regardless of what the care actually costs. It is supplemental coverage, not major medical, and does not satisfy the ACA employer mandate.
Fixed indemnity coverage, sometimes sold as hospital indemnity, pays benefits on a schedule rather than as a percentage of charges. Benefits usually go to the member, who can apply them to deductibles, coinsurance, travel, or lost income. Because payment is not tied to actual expenses, the policy qualifies as an excepted benefit under HIPAA and sits outside most ACA market reforms, which is why it can impose annual limits and need not cover preventive care at no cost.
For the coverage to stay excepted in the group market, it must be offered under a separate policy, participants must have other group health coverage available, and employees must pay something extra for it or elect it separately. Federal regulators have tightened notice requirements and scrutinized arrangements marketed as if they were comprehensive insurance.
Employers usually pair it with a high-deductible plan to blunt first-dollar exposure, and it can be offered voluntarily with employee-paid premiums. Two cautions: if premiums run pre-tax through a premium only plan, the benefits generally become taxable income reportable on the W-2, and employees who mistake indemnity coverage for real health insurance can be left with large unpaid bills. Communicate the per-event limits plainly at enrollment.
On a schedule, such as a set amount per hospital day or per covered event, instead of a percentage of the actual charge. The payment normally goes to the member, who can use it for deductibles, coinsurance, travel, or lost income. Because it is not tied to expenses, the benefit may not come close to the bill.
Three conditions. It has to be offered under a separate policy, participants must have other group health coverage available to them, and employees must pay something extra for it or elect it separately. Miss any one of those and the coverage can be pulled into the ACA and HIPAA rules that govern major medical plans.
They generally become taxable income when the premium is paid pre-tax through a cafeteria plan, and the taxable amount belongs on the employee's W-2. Where employees pay with after-tax dollars, benefits are usually received tax free. Decide how premiums will run before open enrollment, because the tax treatment follows that choice.