What Is Fee-for-Service Insurance?
Explore fee-for-service insurance, a foundational healthcare payment model where providers are paid for each distinct service.
Fee-for-service (FFS) insurance is a traditional healthcare payment structure where providers receive distinct payments for each service rendered. Under this plan, compensation for medical professionals is directly linked to the volume and types of care they provide.
Core Principles of Fee-for-Service
Fee-for-service insurance involves a detailed billing process where each medical procedure, diagnostic test, or office visit carries a separate charge. Healthcare providers itemize every service provided and submit these individual charges for payment.
Insurance companies reimburse providers based on a predetermined “allowed amount” for each service. This allowed amount is the maximum sum the insurer will pay for a covered healthcare service. This payment mechanism emphasizes the discrete transaction for each service.
Patient Cost-Sharing and Financial Responsibilities
Patients under a fee-for-service insurance plan share the cost of their healthcare through several mechanisms. A deductible is the initial amount a patient must pay out-of-pocket for covered services before the insurance company begins to contribute.
Once the deductible is satisfied, co-insurance comes into effect, representing a percentage of the costs the patient is responsible for. A common arrangement is an 80/20 plan, where the insurer pays 80% of the allowed amount and the patient pays the remaining 20%. This co-insurance applies to covered services until the patient reaches their annual out-of-pocket maximum.
The out-of-pocket maximum (OOPM) serves as a financial safeguard, capping the total amount a patient must pay for covered medical services within a policy year. Once this limit is reached, the insurance plan covers 100% of all further covered expenses for the remainder of the year. For 2025, federal guidelines set these maximums at $9,200 for individuals and $18,400 for family plans.
Copayments, or copays, are fixed dollar amounts paid by the patient for specific services, usually at the time of care. These flat fees can vary depending on the service, such as a doctor’s visit, specialist consultation, or prescription medication.
Provider Choice and Access
A significant characteristic of fee-for-service plans is the flexibility they generally offer in choosing healthcare providers. Patients have broad freedom to select their doctors, specialists, and hospitals. This stands in contrast to some other insurance models that may restrict choices to a more limited network of providers.
Patients enrolled in FFS plans usually do not need a referral from a primary care physician to see a specialist. This direct access allows individuals to seek specialized care without an intermediary approval step. While some FFS plans might have preferred provider networks, patients often retain the option to seek care outside these networks, though this results in a higher cost share for the patient.
Claims and Reimbursement Process
The process of submitting claims and receiving reimbursement under a fee-for-service model begins after medical services are provided. The healthcare provider directly bills the insurance company for the services rendered. Alternatively, in some situations, the patient may pay for services upfront and then submit a claim to their insurer for reimbursement.
For a claim to be processed, it must include specific information, such as service codes, diagnosis codes, and details about both the provider and the patient. The insurance company then reviews the claim, determines the “allowed amount” for each service, and calculates its share of the payment. This amount is then paid to the provider or, if the patient paid upfront, reimbursed to the patient.
After processing a claim, the insurer sends an Explanation of Benefits (EOB) statement to the patient. This document details the services received, the total charges, the amount the insurance plan covered, and any remaining amount the patient is responsible for. An EOB is not a bill; it serves as a record of how the claim was processed and the allocation of costs. The timeline for reimbursement can vary, with electronic claims often processing within one to two weeks, while paper claims may take up to 30 days. The overall process from filing to receiving payment can sometimes extend to 8 to 10 weeks.