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[Free-standing indemnity health insurance is mostly a thing of the past. That is because, on the average, indemnity health insurance by itself is significantly more expensive both in raw claims cost and extra administrative cost per claim. With indemnity health insurance there is no prior contracted charge for each procedure and no prior arrangement on how providers should submit claims.]
Indemnity Plan
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, which pays part of it. Usually, you have a deductible—such as $200—to 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, which is known as coinsurance. If the provider charges more than the Usual and Customary rates, you will have to pay both the coinsurance and the difference.
The plan will pay for charges for medical tests and prescriptions as well as from doctors and hospitals. It may not pay for some preventive care, like checkups.
[Not all individual indemnity health insurance plans will necessarily pay for prescriptions and may limit coverage for certain tests. Check the limitations and exclusions carefully. - ed.]
Managed Care
Preferred Provider Organization (PPO). A PPO is a form of managed care closest to an indemnity plan. A PPO has arrangements with doctors, hospitals, and other providers of care who have agreed to accept lower fees from the insurer for their services. As a result, your cost sharing should be lower than if you go outside the network. In addition to the PPO doctors making referrals, plan members can refer themselves to other doctors, including ones outside the plan.
If you go to a doctor within the PPO network, you will pay a copayment (a set amount you pay for certain services—say $10 for a doctor or $5 for a prescription). Your coinsurance will be based on lower charges for PPO members.
If you choose to go outside the network, you will have to meet the deductible and pay coinsurance based on higher charges. In addition, you may have to pay the difference between what the provider charges and what the plan will pay.
Health Maintenance Organization (HMO). HMOs are the oldest form of managed care plan. HMOs offer members a range of health benefits, including preventive care, for a set monthly fee. There are many kinds of HMOs. If doctors are employees of the health plan and you visit them at central medical offices or clinics, it is a staff or group model HMO. Other HMOs contract with physician groups or individual doctors who have private offices. These are called individual practice associations (IPAs) or networks.
HMOs will give you a list of doctors from which to choose a primary care doctor. This doctor coordinates your care, which means that generally you must contact him or her to be referred to a specialist.
With some HMOs, you will pay nothing when you visit doctors. With other HMOs there may be a copayment, like $5 or $10, for various services.
If you belong to an HMO, the plan only covers the cost of charges for doctors in that HMO. If you go outside the HMO, you will pay the bill [i.e., there is no indemnity health insurance option - ed.]. This is not the case with point-of-service plans.
Point-of-Service (POS) Plan. Many HMOs offer an indemnity-type option known as a POS plan. The primary care doctors in a POS plan usually make referrals to other providers in the plan. But in a POS plan, members can refer themselves outside the plan and still get some coverage.
If the doctor makes a referral out of the network, the plan pays all or most of the bill. If you refer yourself to a provider outside the network and the service is covered by the plan, you will have to pay coinsurance.
[To reduce plan costs, some of these plans may also have coinsurance in-network, not just the indemnity health insurance portion. - ed.]
Primary Care Doctors
Your primary care doctor will serve as your regular doctor, managing your care and working with you to make most of the medical decisions about your care as a patient. In many plans, care by specialists is only paid for if your are referred by your primary care doctor.
An HMO or a POS plan will provide you with a list of doctors from which you will choose your primary care doctor (usually a family physician, internists, obstetrician-gynecologist, or pedicatrician). This could mean you might have to choose a new primary care doctor if your current one does not belong to the plan.
PPOs allow members to use primary care doctors outside the PPO network (at a higher cost). Indemnity plans allow any doctor to be used.
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[Many doctors would prefer that patients have indemnity health insurance, but join networks to keep patients whose employers have purchased managed care coverage. The fees for services are not pre-set by contract as they are in a network agreement. Indemnity health insurance coverage is included along with HMO or PPO coverage as an option in some plans, especially some employer sponsored plans. - ed.]