When is Indemnity Health Insurance an Acceptable Alternative to a Fully-Insured Plan?

Here’s a look at the advantages and disadvantages.

Many employers offer employees access to indemnity health insurance as a way to fill gaps in their health coverage. Now, as heath care plan costs increase, some employers who are priced out of the cost of traditional major medical coverage are turning to indemnity health insurance as a way to provide some type of health care coverage.

An indemnity health insurance plan often is referred to as a “fee for service” plan because it pays a set amount for services to health professionals and health facilities — but usually after a deductible is paid. The deductible is the amount an employee is required to pay for a service before policy benefits are provided.

Once the employee covers the deductible, the plan pays the remainder of health insurance costs up to the policy limit. Employees also might have to pay a co-insurance, which is a percentage of the remaining charges after the deductible is paid. Some indemnity health policies, though, set a maximum limit on how much an insured person must pay as co-insurance.

For example, if the provider’s bill is $800 and the employee has a $200 deductible, the remaining $600 would be paid by insurance less the co-insurance, which in addition to the deductible would be the employee’s responsibility If the co-insurance is 20 percent, the employee would be required to pay $120; a total of $320.

Advantages

For employers who want to offer — or who are required by the Affordable Care Act to offer — coverage and cannot afford that coverage, indemnity insurance offers a low-cost alternative to traditional insurance premiums.

In addition, many indemnity plans allow insured members to choose any doctor, specialist or hospital willing to accept that reimbursement. Members do not have to choose a primary care doctor and they can choose any specialists they think they need without having to get a referral.

The ability to choose any provider is particularly helpful to members who want access to particular specialists who are not covered by Health Maintenance Organization (HMO) or Preferred Provider Organization (PPOs) plans in their area.

Disadvantages

While employers and employees can save money on fixed indemnity health plan premiums, they may have significant out-of-pocket costs since the carrier will only pay a set amount for each covered service.

Some indemnity health insurance plans may not cover preventative services, such as annual exams and other routine office visits that are designed to prevent illnesses.

Also, many indemnity policies require that insured members pay the hospital or doctor’s office costs up front when the service is received. The employee would then have to submit a claim and wait to receive reimbursement from the insurance company.

Indemnity health insurance may also not meet the requirements of the ACA, still leaving employers subject to ACA penalties.

With fixed indemnity plans, the burden of researching costs rests on insured members. With health care networks, the providers have agreed on certain reimbursements. But doctors and specialists who are not in a network are free to set their own costs — which might be higher than in-network costs.

If you are seeking low-cost plans for health coverage for your employees, work with a qualified broker to discuss different coverage options, including fee for service amounts; whether preventative services are included; and which services count towards your deductible.