Advantages & Disadvantages of Indemnity Insurance

Indemnity health insurance plans were once the most popular type among individuals and companies. They are a type of health care plan that allows you to choose your own physicians and hospitals. Eventually, the managed health care model became more of the standard where coverage depends on the service provider. The indemnity insurance model still exists though, and there are both positives and negatives to the coverage.

What Is Indemnity Insurance?

• Indemnity health insurance reimburses the insured person for a part of his actual health care expenditures. Depending on the policy, this could include doctor's visits, hospital stays or chronic care management. Indemnity plans almost always have a deductible and a co-pay. A deductible is the amount of total expenses the insured must pay out before the insurance kicks in. The co-pay is the percentage of each medical expense over the deductible limit that the insured must pay out-of-pocket.

Flexibility of Plan

• The largest attraction to an indemnity plan is the flexibility. The plan does not dictate which doctor or which medical facility you must use. You are free to choose your own doctor and hospital and not be concerned with selecting one in the insurance company's list. This allows for strong continuity of care as you can remain with a good doctor that you have been seeing for years and who has all of your medical records.

Cost of Premiums

• Premiums for indemnity health insurance plans are often higher than that of other types of health insurance plans. This is due to the fact that the insurance company cannot control the reimbursable costs. The physicians and clinics do not need to be in a certain health care group and, therefore, costs can be variable. Some patients prefer to pay the increased premiums for the convenience of choosing their own health care providers.

Co-Pays and Deductibles

• Indemnity insurance plans require that the insured pay a certain amount of medical expenses out of their own pocket every year before the insurance coverage kicks in, known as the deductible. The smaller this amount is, the higher the premiums will be. Most plans also require a co-pay, which is the amount of the insured expense that the insured has to pay. Common co-pays are 20 percent, meaning that the insured pays 20 percent of the cost and the insurance company pays the other 80 percent. Some indemnity contracts require no co-pay, but the premiums for those plans are extremely high.