4 Important Facts About Indemnity Health Insurance

Understanding Policies

pediatrician examining young boy
Indemnity Health Insurance Plans. AleksandarNakic/iStock

Indemnity health insurance plans allow you to choose the doctor, healthcare professional, hospital or service provider of your choice and allow the greatest amount of flexibility and freedom in a health insurance plan. Also known as a "traditional indemnity plan" or a "fee-for-service plan" the plan helps provide protection against the costs of medical expenses. A key feature of the indemnity health insurance plan is that it does not force you to choose a primary care doctor.

The indemnity health policy is different than policies offered by health maintenance organizations (HMOs) and preferred provider organizations (PPOs) because it allows you obtain medical care where you choose and then the indemnity health policy provides compensation for a set portion of the costs. In addition, indemnity health insurance plans are also unique because they allow you to self-refer to specialists, they do not require you to obtain a referral in order to get compensated if you choose to see a specialist.

The kind of freedom available by an indemnity health insurance plan can be valuable in terms of directing your own health care. This is significantly different than HMOs, IPAs, and PPOs which use managed care and may force you to choose a primary care provider as part of the plan. Indemnity health insurance plans do not involve a provider network.

Indemnity Health Insurance Plan Costs and Deductibles

Indemnity insurance plans pay a portion of your medical costs at the service provider of your choice but may be subject to a deductible.

With an indemnity plan, you will pay the first portion of medical costs until you have paid up to the limit of your portion, which is known as the deductible. The deductible in an indemnity plan may range from $100 for individuals and up to $500 on average for families and varies based on the service provider or insurance company.

Once you pay the deductible, the plan would pay for the remainder of your health insurance costs up to the maximum limits set forth in your contract agreement. Indemnity policies may also include co-pay or co-insurance clauses, as explained further below. Although indemnity health insurance plans may sometimes cost more out of pocket to individuals, the advantage of self-referring to specialists and having the freedom to access care where the individual wants, without geolocation limitations is well worth the investment to many.

Key Advantages of Indemnity Health Insurance Plans vs. HMO and PPO Plans

Unlike HMO and  PPO health insurance plans, most indemnity policies allow you to choose any doctor, specialist and hospital that you wish when seeking health care services. Indemnity plans are considered fee-for-service health insurance plans where you have the freedom to choose your health care services and as long as your services are eligible you may be charged a fee depending on how your policy rules are written. Sometimes indemnity health insurance plans cost more than HMOs and PPOs, but the payoff is the flexibility of choices.

Access to Specialists With Indemnity Health Insurance Plans

The ability to self-refer to a specialist can be a significant advantage in obtaining the best health care and is easily one of the greatest advantages with indemnity health care insurance plans.

4 Important Keys to Understanding an Indemnity Health Insurance Plan

If you have the opportunity to choose an indemnity policy for health insurance, here are four important points to remember:

1. Indemnity Plans and the Usual, Customary and Reasonable (UCR) Rate

UCR rates are the amounts that medical service providers in your area usually charge for services because indemnity plans are self-managed health insurance plans there is no network specifying the rates that your chosen providers will charge. As a result, you will want to familiarize yourself with the costs that your plan designates as usual and customary versus what your chosen provider will charge for services to avoid unexpected costs. In particular, if you go to other geographic regions. In general most providers meet the criteria, however it is important to be informed when you use a self-managed plan like an indemnity health insurance plan.

2. Understanding Deductibles and Co-Payments for Indemnity Health Insurance

You may have a deductible. The deductible is the amount you are required to pay before policy benefits are provided. If your health care charges are covered, or eligible for payment under the policy, your deductible will apply.

After the deductible, you may be required to pay a co-payment. A co-payment is a percentage you pay of the remaining charges after your deductible. For example: If your eligible charges are $800 and you have a $200 deductible, then that leaves $600 left. Say your co-payment is 20%. That means you are still required to pay 20% of the remaining amount of $600, which would be $120. Find out the deductible and co-insurance requirements of an indemnity health insurance plan to be sure you are able to cover the costs.

Some indemnity health policies also provide a maximum amount that you will have to pay as co-insurance. These policies become advantageous because once you hit the maximum payable, you no longer have to pay the co-insurance. Depending on your medical situation this can help manage the maximum costs you would pay as part of the policy.

3. Indemnity Health Plans Do Not Restrict Access Based on Geographic Location

As explained in our definition of the indemnity health plan above, in an indemnity plan, you have the freedom to choose your doctor, specialist, or hospital with few, if any limitations.

In some cases, HMO and PPO's may limit your options for a doctor, specialist, or hospital by geographic restriction, or area in which the provider is located. This gives a significant advantage to the freedom offered by an indemnity plan for many people.

4. Indemnity Plans and Preventative Health Care Services

Some indemnity health insurance plans may not cover preventative services, while others do. Preventative health care services include yearly check-up exams and other routine office visits that are designed to prevent illnesses. Before selecting a health plan, be sure and discuss how preventative services are insured, and how much compensation you can expect. This will help you make the choice for the best possible plan. In some cases, costs of these services may not count towards your deductible.

How to Know What is Covered by An Indemnity Health Insurance Plan

Your indemnity policy booklet or your employee benefit booklet will spell out the terms and conditions of what is covered and what is not covered. Read your policy or benefit booklet before you need health care services and ask your health insurance agent, insurance company or employer to explain anything that is unclear.

Is An Indemnity Health Insurance Plan Right for You and Your Family?

Indemnity health insurance plans are most advantageous when the following are important to you:

  • You do not have or want to commit to a primary care doctor. Unlike HMO and PPO's the indemnity health plan does not force you to select your primary care doctor, therefore this becomes and advantage in having freedom of choice.
  • You do not mind paying a little more for your health insurance costs or deductible
  • You are not worried about selecting providers that are not vetted for costs. Meaning that because you are not part of a network in an indemnity health insurance plan, the costs of the doctors and specialists you choose may extend beyond the definition of  the UCR. You will have to pay attention to how your choices affect your costs.
  • You live in a geographic region where access to the doctors and medical services you want would not be included in an HMO or PPO plan.