Voluntary Hospital Indemnity Insurance: How Employer Plans Work

Employers sort benefits into two buckets. Core benefits, like a major medical plan, are often partly paid by the employer. Voluntary benefits are extras you choose and pay for yourself. Hospital indemnity, accident and critical illness insurance are common voluntary benefits.

The employer still matters. It selects the carrier, chooses the benefit amounts, decides which family tiers to offer and sets the enrollment window. You cannot customize the plan the way you can with an individual policy. You pick from the options on the menu, usually a low plan and a high plan.

Benefit amounts are set by each employer group. These figures come from published employer plan summaries and show the typical shape of a voluntary plan.

Some plans add smaller benefits. The Cigna plan above pays for observation stays of more than 12 hours. The Aflac group brochure says it does not pay for emergency room treatment, outpatient treatment or observation units. Read the summary before you assume a benefit is included. For the full menu of benefit types, see hospital indemnity insurance plans.

Group rates are usually flat by tier, not based on your age or health. Two published examples:

Rates differ by employer, plan design and state. For a broader look at pricing, including individual policies, see hospital indemnity insurance cost.

Group plans are often issued without health questions for employees who are actively at work. The MetLife summary calls coverage “guaranteed provided” you are actively at work and dependents have no medical restrictions. That is a key advantage over many individual policies, which may ask health questions.

Guaranteed acceptance does not mean every claim is paid right away. The UNLV MetLife summary states there is a preexisting condition limitation for hospital sickness benefits. Guardian employer materials say birth benefits are not payable within the first 9 months of coverage.

If you are planning a baby, enroll well before you conceive and read the plan certificate. Our voluntary hospital indemnity for pregnancy guide covers this in detail. For general rules, see hospital indemnity and pre-existing conditions.

How your premium is deducted can change how your benefit is taxed. In Chief Counsel Advice 202323006 (2023), the IRS said that when employees pay for a fixed-indemnity wellness plan with pre-tax salary reductions, payments that do not depend on actual medical expenses are taxable wages. The same reasoning is widely applied to other fixed-indemnity benefits.

Most voluntary hospital indemnity plans are deducted after tax for this reason, but not all. Ask your benefits office. Our page on whether hospital indemnity is taxable explains the rules.

Many voluntary plans let you keep coverage after you leave, as long as you pay the premium directly. Cigna says its Hospital Care coverage is portable until age 100 under most plans. The UNLV MetLife summary says you can take coverage with you if your employment status changes, but it may end if the employer later offers similar coverage with another carrier, and portability may be subject to eligibility requirements.

Ported group coverage often costs the same or more once you are billed directly. Compare it with an individual plan before you decide.

Individual plans, such as those listed on our hospital indemnity insurance providers page, let you choose daily amounts, benefit periods and riders. They may require health questions, and pricing usually depends on your age. Self-employed people and retirees do not have a voluntary option, so individual coverage is the only route. For a direct comparison of employer coverage, see group hospital indemnity insurance.

It tends to make sense if your health plan has a high deductible or high inpatient copay, you have little emergency savings, or you expect a hospital stay you can plan for well in advance. It tends to make less sense if you have strong savings, a low out-of-pocket maximum, or you are already pregnant and the plan has a pre-existing limit.