An indemnity health insurance plan is a healthcare plan that allows you to choose the doctor, healthcare professional, hospital or service provider of your choice and gives you the greatest amount of flexibility and freedom in a health insurance plan.
What Is an Indemnity Health Insurance Plan?
Indemnity health plans are also known as:
- traditional indemnity plan
- fee-for-service plan
The plan helps provide protection against the costs of medical expenses.
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 providing compensation for a set portion of the costs. A key feature of the indemnity health insurance plan is that it does not force you to choose a primary care doctor. 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.
The kind of freedom available by an indemnity health insurance plan can be valuable in 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.
Is an Indemnity Health Insurance Plan Right for You?
Indemnity health insurance plans have the most advantages if the following are important to you:
- You do not want to commit to a primary care doctor. An indemnity health plan does not force you to select your primary care doctor, therefore this gives you 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 usual, customary and reasonable (UCR) amount. 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.
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 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 insurance company.
Once you pay the deductible, the plan would pay for the remainder of your health insurance costs up to the maximum limits in your contract agreement.
Indemnity policies may also include co-pay or co-insurance clauses.
4 Important Keys to Understanding Indemnity Plans
If you have the opportunity to choose an indemnity policy for health insurance, here are four important points to remember:
1. 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 UCR versus what your chosen provider will charge for services to avoid unexpected costs. 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. Deductibles and Co-Payments
The deductible is the amount you are required to pay before policy benefits are provided. 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 give you an advantage 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. 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. 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.
Indemnity Plans vs. HMOs and PPOs
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
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.
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.