Product responds to needs and
advances in care and more
By Len Strazewski
Twenty-five years or so ago, hospital indemnity insurance was a throw-in benefit, an inexpensive supplemental insurance that paid per diem cash benefits to hospitalized employees that packaged well with accident insurance and other optional coverages.
Agents and brokers recommended that employers offer the benefits because they were not expensive for employers to provide since they were usually employee paid and had high recognition in employee communication tests.
The majority of hospital indemnity benefits were offered to employees on a guaranteed issue basis—not subject to medical underwriting—but on an employee-paid basis as part of a voluntary supplementary package with other voluntary benefits, such as critical illness insurance and term life insurance.
Employees usually purchased them at the same time as group benefits enrollment but, also, many hospital insurance benefits were marketed to individuals by direct mail advertising and association/affinity programs, and retirees often confused them with Medicare supplement coverage and bought them at the same time when they retired. But all of the policyholders rarely if ever recovered the cost of their premiums because individuals tended to spend only short periods being hospitalized, collecting the benefits.
But as the cost of hospitalizations increased and insurers broadened the benefits to include pre-hospitalization testing, maternity testing and care and mental health services and other inpatient and outpatient health benefits provided at hospitals and clinics, the coverage became more valuable and popular.
As health plans evolved to include coverage for high deductibles of major medical plans, employees were looking for ways to offset the deductibles when medical crises hit and hospitalization-related benefits made more sense than ever.
Andrew Marsh, vice president of product management, Employee Benefits, at The Hartford, leads life, supplemental health and specialty products for the carrier. He notes that the market has evolved—as have the digital tools that enable benefits administration. Advanced HR technology now allows carriers to integrate hospital indemnity insurance with absence management solutions, streamlining the process and improving the claimant experience.
“Workers usually notify their employer soon after hospitalization. When a carrier offers hospital indemnity insurance and combines it with absence management solutions, claims can be initiated promptly and payments processed quickly, providing timely assistance to workers.”
A better claimant experience has improved the popularity of the coverage. Hospital benefit adoption rates, which were typically low, have increased to more than 25%, indicating that more employees are recognizing the value of the benefits, notably the whole suite of benefits, for their families, he says.
“Employees also responded to online communication,” Marsh explains, as emails that could be shared with families proved to be more effective than brochures and flyers, which had been the standard of enrollment benefit communication.
One of the more recent product innovations relating to hospital indemnity insurance is the addition of a newborn benefit, which helps maternity patients by providing a direct payment to them, not to a provider, so they decide how to use it—whether it’s for medical bills, and household expenses like diapers, childcare and/or transportation, Marsh says. Even with excellent health insurance, the reality is that a maternity stay often triggers extra costs, so the newborn benefit can help make recovery smoother.
The biggest challenge overall remains education and benefits communication. Year after year, The Hartford’s Future of Benefits study indicates that education of benefits like hospital insurance is a challenge.
“When a carrier offers hospital indemnity insurance and combines it with absence management solutions, claims can be initiated promptly and payments processed quickly, providing timely assistance to workers.”
—Andrew Marsh
Vice President, Product Management, Employee Benefits
The Hartford
In 2025, the survey showed that a large majority of U.S. workers—about 69%—say having a better understanding of how to use benefits would help them feel less anxious about their finances. So, the insurer says it needs to partner with agents, brokers and employer customers to clearly explain how a benefit like hospital insurance complements health insurance, “which will improve uptake, help improve the employee experience and generally enhance overall worker well-being.”
Andy Schafer, vice president of workplace benefits solutions at Principal Financial, agrees that hospital-related benefits have become more popular as employees have become more aware of the benefits and better understand their value—and that the challenge is communicating the evolving value.
“The benefits have had pretty significant growth in recent years, as insurers and employers have provided more flexibility in the way the benefits can be paid,” he says.
Most hospital benefits are employee paid, packaged with other supplemental benefits such as accidental and critical illness insurance, he confirms, and voluntary term life insurance, which has always been a popular supplemental benefit, fits with the hospital-based benefit, he says.
One of the newest attractions is the way employees can pay for the benefits, he adds. Schafer says, “Most employees can pay for the package of benefits with cash accumulated with Health Savings Accounts that allow tax-free savings of portions of payroll to pay for benefits related to health and safety issues.” HSAs are most commonly used for medical services and uncovered treatments but are now considered usable for a broader range of needs, he explains.
Costs have been stable, and insurers have been able “to add more bells and whistles,” he says, as the coverage evolves in response to employee interest. “Education will continue to be key,” Schafer says. “Insurers need to inform employees and agents and brokers about the values of the coverages and how they can be introduced for benefits enrollment.”
“The benefits have had pretty significant growth in recent years, as insurers and employers have provided more flexibility in the way the benefits can be paid.”
—Andy Schafer
Vice President, Workplace Benefits Solutions
Principal Financial
“‘Observational’ stays … are becoming more common and may be payable out of non-major medical benefits. … It’s become an issue of broadening the coding of these benefits to match the broader understanding of these services.”
—Matt Ennis
Vice President, Product, Strategy and Marketing
Reliance Matrix
The insurer’s latest survey data supports the evolutionary trend. The 2025 Principal® Employee Life Stage Benefits and Utilization survey conducted from April 23-30, 2025, among 1,000 employees of small and mid-sized businesses, to capture employee understanding, enrollment, and utilization of benefits, with emphasis on employee life stage and the impact of life events on benefit election decisions, revealed a new understanding of employee recognition:
36% of employees say they understand what hospital indemnity insurance is when asked
50% understand accident insurance
43% understand critical illness
76% of employees want substantial or extensive information about their benefits options during open enrollment
Will hospital insurance continue to evolve? As long as group medical benefits evolve and medical treatment continues to respond to new health understanding, supplemental voluntary benefits are likely to continue to evolve, insurers say.
Matt Ennis, vice president of product, strategy and marketing at Reliance Matrix, notes that as much as 50% of health benefits such as mental health treatment, prescription drugs, physical therapy and out-of-pocket health expenses are not covered by major medical insurers but could be covered by variations of supplemental health insurance that could be rolled into hospital insurance.
Ennis also notes that, “many hospitals and medical centers are now billing for services in ways that are not recognized by major medical insurance. ‘Observational’ stays of limited duration of hours in the hospital but outside of emergency room settings are becoming more common and may be payable out of non-major medical benefits,” he says. Also, skilled nursing services out of synchronization with a hospitalization that may not be covered under major medical may be covered under new variations of hospital insurance.
“It’s become an issue of broadening the coding of these benefits to match the broader understanding of these services,” Ennis says.
For more information:
The Hartford
thehartford.com
Principal Financial
principal.com
Reliance Matrix
reliancematrix.com
The author
Len Strazewski is a Chicago-based writer, editor and educator specializing in marketing, management and technology topics. In addition to contributing to Rough Notes, he has written on insurance for Business Insurance, Risk & Insurance, the Chicago Tribune and Human Resource Executive, among other publications.
