Indemnity Insurance Plan Definition

Most health insurance plans don't accommodate those who are very particular when it comes their health providers. Fortunately, an indemnity insurance plan provides freedom and flexibility. With an indemnity insurance plan, you have the opportunity to choose your own doctor or hospital when you get sick or injured. That's why indemnity plans are convenient for those who travel and require health care when away from home.

Definition

• The Bureau of Labor Statistics defines an indemnity plan as "a type of medical plan that reimburses the patient and/or provider as expenses are incurred." Other names include a fee-for-service plan or a reimbursement plan, according to the Nemours Foundation, a non-profit dedicated to improving the health of children.

Function

• A patient can see any doctor that she wants at any time with an indemnity plan. This is how an indemnity plan works: the patient pays the doctor directly, then sends the claim to the insurance company. The company pays the patient back for part of the total cost.

Example

• If a patient pays a doctor $100, the patient may receive 80 percent back, or $80. CNNMoney.com reveals that a co-payment is typically 20 percent of each bill when the patient is under an indemnity plan.

Advantages

• Indemnity plans give greater freedom and flexibility than other basic types of managed care plans. With an indemnity plan, the patient has the opportunity to choose any doctor, laboratory or hospital. The insurance company will cover the bill as long as the insurance contract includes the service to be performed. However, the insurance company will not foot the entire bill, since there is usually a co-payment.

Disadvantages

• Indemnity plans generally do not pay for preventative care. Examples of preventative care that are typically not covered by indemnity plans: annual physical examinations, birth control and flu shots. Indemnity insurance covers accidents and illnesses. Because indemnity plans offer the most choice and flexibility, the monthly premium is typically higher compared to other types of health plans. The patient also has to pay off the annual deductible before insurance kicks in. The annual deductible is usually a few hundred dollars.