The Pre-Tax PlaybookThe employer's briefing on Section 125 benefits
Read it asOwnersCFOs & shareholdersHR & recruitingPEOs & brokers

Guide

Fixed hospital indemnity: what it is and isn't

A fixed dollar benefit that sits next to major medical. Here's what that does and doesn't mean.

Reviewed November 12, 2026 · Pre-Tax Playbook editorial team · Not tax or legal advice

Required federal noticeFixed indemnity insurance

IMPORTANT: This is a fixed indemnity policy, NOT health insurance

This fixed indemnity policy may pay you a limited dollar amount if you're sick or hospitalized. You're still responsible for paying the cost of your care.

  • The payment you get isn't based on the size of your medical bill.
  • There might be a limit on how much this policy will pay each year.
  • This policy isn't a substitute for comprehensive health insurance.
  • Since this policy isn't health insurance, it doesn't have to include most Federal consumer protections that apply to health insurance.

Looking for comprehensive health insurance?

  • Visit HealthCare.gov or call 1-800-318-2596 (TTY: 1-855-889-4325) to find health coverage options.
  • To find out if you can get health insurance through your job, or a family member's job, contact the employer.

Questions about this policy?

  • For questions or complaints about this policy, contact your State Department of Insurance. Find their number on the National Association of Insurance Commissioners' website (naic.org) under "Insurance Departments."
  • If you have this policy through your job, or a family member's job, contact the employer.

Fixed hospital indemnity insurance (noun): insurance that pays a set dollar amount when a covered event happens, such as a hospital admission or a day in the hospital, regardless of the size of the medical bill.

What it is

  • A policy that pays a fixed dollar amount on a covered event, not a share of the bill.[1, 2]
  • In the program this site covers, the hospital benefit comes with $0-copay virtual urgent care, primary care, behavioral health and generic prescriptions (Elysian-stated; amounts vary by plan).[3, 4, 5, 6, 7]
  • Sold as a supplement that sits next to an employer's major medical plan.[8]
  • Elysian states the coverage is fully insured by a licensed carrier, not self-funded by the employer.[9] Elysian is a licensed producer appointed with Federal Life and U.S. Fire, and your policy documents name the issuing carrier.[10, 11]

What it isn't

  • Not health insurance. It doesn't pay based on your bill, may cap payments, and doesn't carry most federal consumer protections. That's why a federal notice must appear on marketing materials.[2]
  • Not a substitute for major medical. Employers with 50+ full-time-equivalent employees still face the ACA employer mandate, and hospital indemnity doesn't count toward it.[12]
  • Not “free money.” Employees pay a real premium and the carrier pays real claims. The net gain comes from taxes that aren't paid, so it depends on the tax treatment being right.[13]

The “excepted benefit” rules

A group hospital indemnity policy avoids full ACA health-plan rules only if it's offered independently of the employer's health plan and, in the group market, pays a fixed dollar amount per day or other period of hospitalization or illness, not per service.[2] For plan years beginning on or after January 1, 2025, a federal fixed indemnity notice must appear prominently on the first page of marketing, application and enrollment materials, including websites, in at least 14-point type.[2] That's the notice you see near the top of every page on this site.

Why “pre-tax” changes everything

Most hospital and fixed indemnity premiums are paid after tax, and when they are, benefits are generally not taxable.[14] When premiums are paid pre-tax, benefits are tax-free only to the extent they reimburse real, unreimbursed medical expenses under Section 213(d).[1, 15] The pre-tax choice creates both the savings and the IRS scrutiny. See The lines the IRS has drawn.

Key takeaways

  • Fixed indemnity pays set amounts. It isn't health insurance.[2]
  • It supplements ACA-compliant major medical and never replaces it.[12, 8]
  • Paying premiums pre-tax moves the tax question to the benefit payments.[1, 14]

Sources & footnotes

  1. Verified Section 105(b): benefits are tax-free only to reimburse real medical expenses. Treasury/DOL/HHS final rule, 89 FR 23338; IRS CCA 202323006. Proof library P-48
  2. Verified Fixed indemnity rules: excepted benefits and the required notice. Treasury/DOL/HHS final rule, 89 FR 23338; Evidence request E-2 (group vs. individual policy form). Proof library P-52
  3. Elysian-stated Hospital indemnity cash benefits. Elysian PEO implementation guide (provided by Elysian). Proof library P-20
  4. Elysian-stated $0-copay virtual urgent care. Elysian client flyer (JobsRUs, 2025). Proof library P-21
  5. Elysian-stated $0-copay virtual primary care. Elysian client flyer (JobsRUs, 2025). Proof library P-22
  6. Elysian-stated $0-copay virtual behavioral health. Elysian client flyer (JobsRUs, 2025). Proof library P-23
  7. Elysian-stated $0-copay generic prescriptions. Elysian member prescription letter (provided by Elysian). Proof library P-24
  8. Verified A supplement — it does not replace major medical. Elysian client flyer (JobsRUs, 2025). Proof library P-28
  9. Elysian-stated Fully insured — not self-funded by your company. Holland & Knight memorandum to Elysian Healthcare (confidential; available on request, subject to Elysian's permission). Proof library P-19
  10. Verified Elysian is a licensed insurance agency appointed with two carriers. Nevada Division of Insurance — agency license record. Proof library P-2
  11. Pending NDA doc Which carrier issues the policy. Evidence request E-2 (policy form, certificate, SERFF filing). Proof library P-14
  12. Verified The ACA employer mandate still applies. IRS — Employer Shared Responsibility Provisions. Proof library P-53
  13. Analysis It's not free money. Our analysis of P-30, P-32, P-33, P-58. Proof library P-36
  14. Verified Section 104(a)(3): the after-tax alternative. Treasury/DOL/HHS final rule, 89 FR 23338. Proof library P-49
  15. Verified Section 213(d): what counts as medical care. IRS — FAQs on nutrition, wellness and general health. Proof library P-50