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Advantages And Disadvantages Of Fee-For-Service (Indemnity) Health Insurance


Each type of health insurance has it's own advantages and disadvantages.

Advantages of a Fee-For-Service (Indemnity) Health Insurance Policy

  • Unlimited choice of doctors, hospitals and other health care providers, and non-experimental treatments 
    • The greatest advantage to indemnity health coverage is freedom of choice -- both when deciding which doctors to see and when to see them.
    • The only provision of an indemnity policy which could limit choice is the "Usual, Customary and Reasonable" (UCR) clause because it sets a limit on how much the insurer will pay. You have the freedom to go to the most expensive doctor in town, but you will have to pay the difference between UCR and the doctor's fee.
    • It's up to you to decide what kind of treatment you want and who will provide the treatment, as well as when and where you want to receive it.
  • No delay-- Unlike a managed care type policy, there is no waiting or fighting for a referral to an in-network specialist or for approval of a treatment.

Disadvantages of a Fee-For-Service (Indemnity) Health Insurance Policy

  • Expense -- Indemnity plans are the most expensive of all the health insurance plans both in terms of premiums and what the patient must pay out-of-pocket. In addition to the deductible, and the 20% - 30% co-insurance, the patient may have to pay for any amount the doctor bills over what the insurance company determines to be a "usual, customary, and reasonable" charge.
  • Paperwork -- Typically the doctor will bill the insurance company and the patient at the same time, leaving you to determine what portion of the bill you owe. You, the patient must reconcile the payments and know what you owe to each provider. Even worse, some doctors require that you pay "up front," leaving you to handle the claim submission to the insurance company.
  • Little or no preventive benefits -- Indemnity plans typically only cover medical charges with respect to an actual health problem. General preventive measures, such as an annual physical, and educational programs are not usually covered.
  • Uncertainty about how much money the company will pay as "usual, customary and reasonable" and whether the doctor visit, test and/or treatment are "medically necessary."  (As a general matter, insurance companies do not advise about  these matters before a service is rendered.)

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