What Is Fee-for-Service Insurance and How Does It Work?

Fee-for-service (FFS) insurance represents a traditional method for healthcare payment, where providers receive compensation for each specific service they deliver. In an FFS system, every consultation, diagnostic test, procedure, or treatment generates a distinct charge.

Understanding the Fee-for-Service Model

Healthcare providers, such as doctors and hospitals, are reimbursed for each specific item of care or procedure performed. For instance, an X-ray, a lab test, or a surgical operation each carry their own separate fee. This differs from other models like bundled payments, which cover a set of related services for a single price, or capitation, where providers receive a fixed payment per patient regardless of the services rendered.

Under the FFS model, payment is typically made after the service has been provided. The provider bills the insurance company or the patient based on a predetermined fee schedule for each service. This mechanism incentivizes the volume and quantity of services delivered.

Operational Aspects of FFS Plans

From a policyholder’s perspective, FFS plans generally offer considerable flexibility in choosing healthcare providers. Patients typically have the freedom to select any doctor, specialist, or hospital without being restricted to a specific network.

The process for obtaining care often involves the patient paying for services directly at the time of service, or the provider billing the insurance company. After care is received, a claim must be submitted for reimbursement. This claims submission process may be handled by the provider’s office, or the patient might need to submit the claim form and itemized bill to their insurer.

For certain services, such as surgeries or expensive diagnostic tests, many FFS plans require pre-authorization. This means the insurance company must approve the medical necessity of the service before it is performed for coverage to be ensured.

Financial Structure and Patient Experience

FFS plans involve various cost-sharing elements that determine the patient’s financial responsibility. A deductible is the initial amount a patient must pay out-of-pocket for covered medical services before the insurance company begins to pay. For example, if a plan has a $1,000 deductible, the patient is responsible for the first $1,000 in covered medical expenses each policy year.

After the deductible is met, coinsurance typically comes into effect. Coinsurance is a percentage of the cost of care that the patient is responsible for, with the insurance plan paying the remaining percentage. A common coinsurance arrangement might be 80/20, where the insurer pays 80% and the patient pays 20% of covered costs.

Most FFS plans also include an out-of-pocket maximum, which is a cap on the total amount a patient has to pay for covered services in a policy year. Once this maximum is reached through deductibles, coinsurance, and sometimes copayments, the insurance plan will cover 100% of additional covered healthcare costs for the remainder of the policy year.

Patients in FFS plans may encounter a higher administrative burden compared to other insurance models. They might need to manage claims submissions, track their expenses towards deductibles and out-of-pocket maximums, and sometimes wait for reimbursement for services already paid for. While FFS offers broad provider choice, it can often entail higher direct patient involvement in billing and potentially greater out-of-pocket costs before insurance coverage fully activates.