What is Indemnity Health Insurance?

With an indemnity plan (sometimes called fee-for-service), you can use any medical provider (such as a doctor and hospital). You or they send the bill to the insurance company who pays part of it. Usually, you have a deductible, the amount of the covered expenses you must pay before the insurer starts to reimburse you -- such as $200 -- which you pay each year before the insurer starts paying.

Once you meet the deductible, most indemnity plans pay a percentage of what they consider the usual and customary charge for covered services. The insurer generally pays 80 percent of the usual and customary costs and you pay the other 20 percent known as coinsurance. If the provider charges more than the usual and customary rates, you must pay both the coinsurance and the excess charges.

For example, if the usual and customary fee for a medical service is $100, the insurer will pay $80 and you will pay $20. However, if the doctor charges $105, you will pay $25. Note that many fee-for-service plans pay hospital expenses in full; some reimburse at the 80/20 level as described above. policies typically have an out-of-pocket maximum. This means that once your expenses reach a certain amount in a given calendar year, the usual and customary fee for covered benefits will be paid in full by the insurer and you no longer pay the coinsurance. If your doctor bills you more than the usual customary charge, again you may still have to pay a portion of the bill.

There also may be lifetime limits on benefits paid under the policy. Most experts recommend that you look for a policy whose lifetime limit is at the very least $1 million. Anything less may prove to be inadequate.

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