Traditional Indemnity Health Insurance Plans

Patient with an indemnity health plan speaking to her doctor of choice in an exam room
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Health insurance has made some drastic changes over the last few decades, but it is still possible to control your healthcare choices by choosing the right type of health insurance plan. Traditional Indemnity Health Insurance Plans are also referred to as “fee-for-service” plans. It is the traditional type of insurance that was what most health insurance companies offered to insurance consumers before the prevalence of PPO (Preferred Provider Organizations) and HMO (Health Maintenance Organizations).

Types of Indemnity Health Insurance Plans

Different types of traditional indemnity health insurance plans are available to you including:

  • Hospital and surgery insurance coverage
  • Major medical insurance coverage
  • Comprehensive coverage—a combination of hospital and major medical plans

Most Indemnity Health Insurance Plans will provide coverage for hospital stays, outpatient procedures, prescription medications, doctor’s visits, and preventative care.

More Doctor and Hospital Choices

With a traditional indemnity health insurance plan, you will not be limited to choices of health service providers that are within a preferred provider list or network. These limitations are common with a PPO or HMO plan. With many indemnity plans, there are no referrals needed. Also, many policyholders enjoy the freedom of being able to choose any health care facility or doctor they wish.

How It Works

Indemnity health insurance works much like auto insurance in that you will pay your health insurance deductible before the insurance company picks up the remainder of your bill. This deductible amount will vary based upon the specific type of health insurance policy option you chose.

With a traditional indemnity health insurance plan, you will be billed based upon usual, customary and reasonable fees (UCRs). These UCR—fixed fee amounts—are set by the insurer and monitored for necessary changes. They base the fee on the procedure and price ranges in the area. The UCR is the amount that the insurance company will pay for a specific disease, illness or medical procedure.

You will want to check and see if a medical procedure or fee—such as plastic surgery, maternity, or other procedures—is covered by your particular type of medical insurance before having the procedure performed. In some cases, these procedures must be pre-authorized by your insurance company. If in doubt, give your insurance company a call and talk to a representative.

You will then submit this bill to your insurance company, or in some cases, the health care provider will submit the bill to your insurance company as a courtesy. The insurance company will then pay its portion of the medical bill less your deductible based on the amount of the UCRs covered under your health insurance plan.

Pros & Cons

One of the best advantages of a Traditional Indemnity Health Insurance Plan is the freedom you can choose the health care facility and provider without any restrictions.

One of the downsides to this is that you may have to pay more for your health insurance coverage than if you choose a PPO (Preferred Provider Organization) Plan or an HMO (Health Maintenance Organization) Plan. There may also be more paperwork involved in filing claims. In addition, some preventive care services such as wellness checkups and other routine care may not be covered by a Traditional Indemnity Health Insurance Plan.

One other thing to take into consideration is who is responsible for the balance of the bill the insurance company does not pay. With PPOs and HMOs, many providers have mutual agreements that the patient will not be billed above the pre-agreed fee for a service. The Traditional Indemnity Plans have no agreements with providers, so you may be responsible for paying the balance of the bill the insurance company does not cover.

Is It Right for You?

A Traditional Indemnity Health Insurance Plan is not right for everyone, but it may be the right choice for you if you want to choose your own healthcare facility and doctor and want the ability to visit a specialist without having to obtain a referral. You also do not have to choose a primary care doctor or obtain services from a preferred provider network. While you could lose some discounts available through an HMO or PPO, you are gaining the freedom to make your own healthcare choices.

Of course, no one can tell you which type of plan is right for you. It is an individual choice you will have to make for yourself and for your family based on your unique health insurance needs and financial situation. You may want to sit down with your family insurance agent and discuss the benefits of each type of health insurance plan, so you can make a decision that will give you and your family the best value on a health insurance policy.

Where to Buy

If you are an individual who wants the freedom of being able to choose your health care provider and not be restricted to those within a preferred provider organization, then a Traditional Indemnity Health Insurance Plan may be right for you. Many different health insurance companies offer Traditional Indemnity Health Insurance Plans including Aetna, Blue Cross-Blue Shield, Humana, and Kaiser Permanente.

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