What Is an Indemnity Plan & How Does It Work?
Understand indemnity health plans: their unique structure, benefits, and how they offer flexibility in healthcare choices.
An indemnity plan is a type of health insurance that provides flexibility in choosing healthcare providers. It functions by reimbursing a policyholder or the healthcare provider for covered medical expenses after services have been rendered. This contrasts with plans that restrict choices to a specific network of doctors or facilities.
Understanding How Indemnity Plans Work
Indemnity health plans operate on a “fee-for-service” model, paying a set amount or predetermined percentage for specific medical services. Policyholders can choose any doctor or medical facility without requiring referrals or being confined to a provider network. The plan typically bases its coverage on a percentage of what is considered the average cost for a service in a particular area.
The deductible is the amount a policyholder must pay out-of-pocket for covered medical services before the insurance company begins to contribute. For instance, if a plan has a $1,000 deductible, the policyholder pays the first $1,000 of covered expenses in a given year. After the deductible is met, coinsurance comes into effect, where the policyholder pays a percentage of the cost of covered services, and the plan pays the remaining percentage. A common coinsurance split might be 80/20, meaning the plan covers 80% and the policyholder is responsible for 20% of the costs.
Payments made towards covered services, including the deductible and coinsurance, contribute to the out-of-pocket maximum. This is the maximum amount a policyholder will have to pay for covered medical expenses within a plan year. Once this maximum is reached, the insurance plan typically covers 100% of additional covered costs for the remainder of that year. The out-of-pocket maximum serves as a financial safeguard, limiting the total amount an individual must spend on healthcare.
Services Typically Covered
Indemnity health plans generally provide broad coverage for a wide range of medically necessary services. This includes routine doctor’s office visits, hospital stays for planned procedures or emergency situations, and surgical procedures, both inpatient and outpatient.
Coverage also extends to necessary diagnostic tests like X-rays and various laboratory work, and often includes prescription medications. Review specific policy documents for details on covered services and any limitations.
Navigating Claims and Reimbursement
Policyholders typically pay the healthcare provider directly at the time of service, or they receive a bill. Unlike network-based plans where providers handle billing directly with the insurer, indemnity plan members usually take a more active role in the claims process. This involves gathering documentation for reimbursement.
Submitting a claim to the insurance company is the next step. This requires detailed information, such as dates of service, healthcare provider details, and itemized charges. Policyholders can submit claims online or through mail, attaching supporting documents like medical bills and receipts.
After the claim is processed, the policyholder receives an Explanation of Benefits (EOB) from the insurer. The EOB is not a bill; it details how the claim was processed, total charges, the amount covered by the plan, and the policyholder’s responsibility. Reimbursement, via check or direct deposit, typically follows within 7 to 10 business days after claim approval.