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Traditional Health Insurance Plans

Traditional health insurance, also called "indemnity" insurance or "fee-for-service" insurance, is the oldest form of modern health insurance. These plans do not attempt to restrict which care providers you can see, and provide great flexibility when it comes to choosing your health care providers and making your own health care decisions. There are always tradeoffs, however: traditional health insurance plans frequently charge higher monthly premiums than managed care plans that provide similar coverages.

  1. Traditional Insurance Vs. HMOs

    • HMOs, or health maintenance organizations, seek to limit costs for the group by contracting with a limited pool of health care providers within a given market or community. The health care providers, including doctors, clinics, urgent care centers, outpatient facilities and hospitals, agree to provide discounted pricing in exchange for a steady stream of business. They also establish a primary care physician, or PCP, to act as a "gatekeeper." Traditional plans, in contrast, have no specific network of approved providers and no gatekeeper. Instead, policyholders can choose any qualified provider.

    Fee Structure

    • Typically, a traditional health insurance policyholder will pay a monthly premium to the insurance company for coverage. If there is a health issue requiring treatment, the insured must pay a certain amount, called a deductible, out of his own pocket, before benefits become payable. After the deductible is met, the insurance company pays for a certain percentage of the treatment--often 80 percent. The remaining 20 percent that the insured is responsible for is called the "coinsurance amount." In addition, the insured may need to pay a flat fee for each office visit, called a "copay."

    Advantages

    • In addition to the freedom to choose your health care provider, fee-for-service plans have a number of other important advantages over managed care plans like HMOs and preferred-provider organizations. You don't need a referral from anyone to see a specialist. And you have some ability to negotiate fees with a physician, possibly keeping the difference between what the insurance company is willing to pay and what the doctor is willing to accept.

    Disadvantages

    • Traditional health insurance requires higher monthly premiums, co-pays and often higher deductibles than managed care plans. The patient must frequently do more paperwork than with HMOs and other managed care plans. Some doctors may require the full payment upfront. You will then need to handle all the correspondence with the insurance company to get reimbursed.

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