What Is An Indemnity Plan (Non-Managed Care)?
Indemnity plans, which are the traditional form of health insurance, were the most common form until the early 1990's, when managed care plans began to gain in popularity. An indemnity plan (also called a reimbursement plan) reimburses you for your medical expenses regardless of who provides the service, although in some cases your reimbursement amount may be limited.
How Is The Benefit Amount Calculated?
Different plans use different methods for determining how much you will receive for your medical expenses. Following are descriptions of the most common methods:
Under this type of plan, the insurer will reimburse you for the actual cost of specified procedures or services, regardless of how much that cost might be.
Example(s): Your plan might cover the cost of a semiprivate hospital room on an actual-charges basis. At Hospital A, a semiprivate room is $350 per day. At Hospital B, a semiprivate room is $325 per day. Regardless of which hospital you choose, you would receive full reimbursement for the cost of your semiprivate hospital room. If, however, you chose to stay in a private room at Hospital A, which costs $400 per day, you would still only receive a reimbursement of $350, because you are only covered for the cost of a semiprivate room. The extra $50 would have to come out of your own pocket.
Reimbursement--Percentage of Actual Charges
Under this type of plan, the insurer pays a percentage of the actual charges for covered procedures and services, regardless of how much those procedures and services cost. A common reimbursement percentage is 80 percent. This has the same effect as a 20 percent co-payment.
Example(s): Joe and Jane are each covered by a plan that reimburses them for 80 percent of covered expenses. Joe and Jane both need the same medical treatment, but each chooses a different provider. Joe's expenses total $800, while Jane's treatment costs only $750. Joe will be reimbursed $640 (80 percent of $800), while Jane's reimbursement will be $600 (80 percent of $750).
Under this type of plan, the insurer pays a specified amount per day for a specified maximum number of days. Although your reimbursement amount does not depend on the actual cost of your care, your reimbursement will never exceed your expenses.
Example(s): Joe and Jane are each covered by a plan that reimburses them up to $300 per day for up to 30 days of hospitalization. Joe is admitted to Hospital A, where his expenses are $350 per day. He is hospitalized for seven days. Although his expenses total $2,450, Joe is reimbursed $2,100 ($300 per day for seven days). Jane is admitted to Hospital B, where her expenses total $250 per day. Jane is reimbursed $1,750--an amount equal to her expenses ($250 per day for seven days).
What Are The Advantages of an Indemnity Plan With No Managed Care Element?
Allows You to Retain Free Choice of Health-Care Provider
Indemnity plans with no managed care element do not require you to see any particular doctors, nor does your reimbursement rate depend on your utilization of network physicians. You are free to see any health-care provider you choose. You can continue to see your long-time family physician or the specialist on the other side of the country. As long as the treatment you receive is covered, your insurer provides the same level of coverage regardless of which provider you see.
Out-Of-Pocket Maximums Are Generally Limited
Health-care costs paid out of your own pocket, like deductibles and co-payments are typically limited. The average yearly limit for individuals is around $1,300. For families, the average yearly limit is approximately $2,600.
What Are The Disadvantages of an Indemnity Plan?
Generally Not the Most Cost-Effective Type of Health Insurance
Indemnity plans that do not contain a managed care element can allow you to choose the best health care available, even if "the best" is also the most expensive. Frequently, neither you (as the insured) nor the health-care provider has much incentive to keep costs down, since you are generally reimbursed regardless of the cost of covered treatment. As a result, deductible and co-payments may be relatively high. Premiums may also increase due to lack of cost-effectiveness.
Deductibles and Co-Payments May Be Relatively High
When your indemnity coverage reimburses you on a percentage basis, you are responsible for paying a portion of every medical expense you incur. Your share of the bill is often around 20 percent. In contrast, a typical HMO co-payment is around $5-$10. In most cases, indemnity coverage does not begin until you have met your annual deductible. In other words, the deductible comes out of your own pocket. Once your expenses exceed the amount of the deductible, insurance coverage begins. On average, individual deductibles are around $200 per year, and the average annual family deductible is about $500. This deductible amount is in addition to the co-payment.
Lifetime Payout of Benefits Is Often Limited
Most indemnity plans limit your lifetime benefits. One million dollars is a typical benefit ceiling. While this may seem like a lot of money, one catastrophic illness can easily put you over this limit. Once you hit your lifetime payout maximum, your insurance policy doesn't pay for any more care. However, the Patient Protection and Affordable Care Act restricts individual and group health plans from placing lifetime limits on the dollar value of coverage. This restriction does not apply to grandfathered individual plans.
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