By Heidi Wiesenfelder
Although health maintenance organizations (HMOs) and preferred provider organizations (PPOs) represent the majority of insurance plans currently available, some employers and insurance companies still offer indemnity plans. These are traditional plans that were common before the rise of managed care. While some people prefer the lower premiums of HMO and PPO policies, others appreciate the flexibility of a conventional insurance plan.
Indemnity health insurance plans are also known as fee-for-service plans. Once the plan deductible has been reached, the company covers a certain amount or percentage of the cost any time the insured obtains medical care. For instance, the plan might cover 80 percent of all costs once a $500 deductible has been met. There are no provider networks nor are specialist referrals required.
The availability of traditional plans has fallen in the last couple decades with the rise of managed care. According to the Kaiser Family Foundation’s survey of employer health benefits, 73 percent of workers with health insurance had conventional plans in 1988. By 2009, however, that proportion had fallen to a mere 1 percent of covered employees. Only 4 percent of companies surveyed offered conventional plans in 2009.
The primary benefit of an indemnity plan is the freedom the insured has to pick the doctor or facility of his choice. This contrasts with the way managed care works, in which selecting an out-of-network provider results in either no coverage or increased costs to the insured. People who already have a doctor or facility they like or who do not want to be limited in their choices benefit most from this feature. Also, these plans do not require selecting and working through a primary care physician.
Because indemnity policies do not involve a provider network, there is no agreement between providers and the insurance company to provide care at specific rates. Thus, the costs for service can be higher, and a patient may be required to cover costs beyond what is considered “usual, customary and reasonable” (UCR). In many cases, the patient has to pay the provider directly, then file paperwork with the insurance company for reimbursement. In addition, indemnity plans often do not cover preventive care and may not cover prescriptions before the deductible has been exhausted, unlike most managed care plans.
Traditional insurance plans typically have higher premiums and require greater out-of-pocket costs compared with other plan types. But for many people, the freedom in selecting doctors and self-referring to specialists is worth the added cost. Also, indemnity plans can differ in how reimbursement works. Some reimburse a specific percentage of service costs, and some reimburse costs in full up to UCR limits. Others pay a set amount per service or per day in the hospital, so it is worth comparing options to choose the one that seems best.