Indemnity insurance is an option that attracts those looking for low-cost healthcare. Especially during a time when health care premiums seem to be increasing. While medical care is steadily decreasing. But, as always not everything is what it seems when it comes to insurance. And, as I’ve learned not understanding how insurance works when you have a chronic illness can lead to some hefty out-of-pocket expenses. So, I want to share some basic information regarding indemnity insurance. I share this info in the hopes that it can provide you some clarity and help you determine if indemnity insurance is the right choice for you.
What Is Indemnity Insurance?
Firstly, let’s talk about what indemnity insurance is. It’s described as a type of insurance that is based on a “fee for service” approach. Meaning the insurance company pays a predetermined amount towards your medical expenses. This amount is based on the average cost of health care services in your area. Additionally, these plans do not require you to choose a certain doctor or lock you into a network of providers. You can choose what doctor you would like to have as your primary care provider. Furthermore, you can choose what specialist you would like to go to since it’s not required for you to have a referral.
Additionally, there are different types of indemnity insurance that serve to address specific needs. Thus, allowing an a la carte type of experience with insurance if you so desire. Especially, if you find you do not prefer managed care and need flexibility with your medical care.
The three main types are:
- Hospital/Surgical which focuses on covering the cost of being hospitalized or receiving surgery.
- Major Medical which covers the treatment of medical conditions and extended hospital stay.
- Comprehensive which takes care of both hospital/surgical coverage and the treatment of medical conditions and extended hospital visits.
Additionally, there is another type of insurance known as fixed indemnity which is a different branch of indemnity insurance altogether. But, we’ll get into that in just a little bit.
How It All Works
Now, we’ve reached the confusing part of this exchange where it’s time to talk about deductibles, coinsurance, copay, and out-of-pocket expenses.
The average indemnity insurance plan will have an annual deductible you must meet before they begin to pay insurance claims. Depending on your plan it can be an individual deductible or a family deductible. Deductible rates vary per insurance plan so if you choose an indemnity insurance plan make sure you’re clear on what your annual deductible is.
Once you meet your annual deductible this is when your coinsurance comes into play. The coinsurance determines how you and the insurance split the cost of your medical expenses. Generally, the insurance will pay a higher percentage leaving you with a smaller percentage to pay out of pocket. Furthermore, the insurance will follow the guidelines of the usual customary and reasonable rate (UCR) to determine the set amount they will cover for claims. The UCR refers to the rate that health care providers in your area charge for services.
As it pertains to co-pays this represents the set amount you pay per office visit. This isn’t always included in insurance plans. So, make sure you understand what the plan covers and if it provides a co-pay.
Fixed Indemnity Insurance
Another type of insurance that falls under the indemnity insurance category is fixed indemnity insurance. Yet, its structure varies from that of traditional indemnity insurance. For starters, fixed indemnity insurance isn’t considered to be insurance at all. It’s mostly defined as a supplemental health plan that pays a set amount per period or per incident. This is regardless of the total charges that are accrued. Furthermore, fixed indemnity insurance is not regulated by the Affordable Care Act. Meaning they do not have to provide coverage for essential health benefits. And, they can exclude coverage to those with pre-existing conditions such as diabetes, endometriosis, PCOS, etc.
Lastly, fixed indemnity insurance plans have annual and lifetime benefit limits. This means once you’ve reached your limit for certain types of medical services or medical care the insurance company will no longer pay. Each fixed indemnity plan will have its own rules regarding how it works and what it provides.
Is Indemnity Insurance Right for You?
Generally speaking I would recommend indemnity insurance for someone that doesn’t require any major health care. And, has little to no health issues that need to be managed. This type of insurance is flexible and may allow you to determine your care based on your needs. Furthermore, it’s beneficial for anyone that’s experiencing a lapse in insurance. This could be due to moving, losing a job, or missing open enrollment. In short, indemnity insurance provides some coverage until you can transition to a better level of care. On the other hand, you may find indemnity insurance beneficial to supplement with your marketplace or workplace insurance.
Indemnity insurance can prove beneficial as long as you’re aware of the fact that you’ll have to pay more out of pocket upfront. Typically until you meet your annual deductible and then coinsurance will come into play. It’s also important to remember that preventative services are usually not covered under this type of insurance. So, you will be responsible for all of your preventative healthcare. Unless you’re using it to fill in any gaps your marketplace or workplace insurance has. Chances are you’d probably use your major medical insurance first. You’d only defer to your indemnity insurance plan on an as-needed basis. But, remember annual deductibles, coinsurance and copays would still apply.
Who It’s Not For
On the other hand, indemnity insurance is not ideal for those that are managing a chronic illness, mental illness, intend to become pregnant, or require a higher level of care. One concern would be the services, or prescriptions you need may not be covered. Another concern would be if they are covered the insurance may pay less leaving you with a large expense. Couple that with needing more frequent care and those out-of-pocket expenses add up quickly.
In the case of fixed indemnity insurance, this is definitely not a viable option for those that need a higher level of care. Since these types of plans are not covered by the Affordable Care Act they are not held by the same standards marketplace and workplace insurance plans are. And, they typically deny coverage to those with pre-existing conditions.
Do Your Research
When it comes to choosing health insurance I’ve learned the hard way that it’s important to do your research and ask questions. Become familiar with how different types of insurance plans work. Also, educate yourself with different insurance terms like coinsurance, co-pay, deductible, etc. Take the time to read and understand the summary of benefits so you’ll know exactly what’s covered and what’s not.
And, most importantly know what your needs are. If you have a chronic illness or mental illness insurance can be a beast. And, this makes it so easy to get screwed over and choose a plan that doesn’t suit your health needs. Yet, taking the time to do a little research before choosing your plan can make all the difference in the end.
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