Fee-for-Service Payment Definition

Fee-for-service is a term relating to the traditional health care insurance model. Sometimes referred to as indemnity insurance, fee-for-service health care plans allow consumers greater freedom of choice than do managed health care options such as health maintenance organizations and preferred provider organizations, allowing them to obtain health care services from the health care professionals and hospitals of their own choosing. Blue Cross Blue Shield is perhaps the best known provider of fee-for-service health care plans.

Features

• Premiums for fee-for-service health insurance coverage are paid to insurance providers directly by policy holders or their employers. When health care services are needed, the insured chooses the doctor, hospital, clinic or other provider he wishes to use and then pays the health care provider directly for services such as office visits, lab tests and other medical procedures at the time services are rendered. The insured then typically submits a claim form to the insurance company and receives reimbursement for some portion of the expenses incurred that are included in the schedule of benefits for the policy.

Advantages and Disadvantages

• Fee-for-service plans offer the health care consumer the greatest independence and flexibility when it comes to health care choices but are not without their disadvantages. Fee-for-service plans generally have higher deductibles and co-payments than do the managed health care plans. There is more paperwork involved since a claim for reimbursement must be submitted. In addition, the consumer must wait to recover reimbursement for the portion of the medical services covered while the insurance claim is processed.

Composition

• Typically, fee-for-service plans are comprehensive plans in the sense that they are composed of two parts, basic coverage and major medical coverage. Basic coverage provides for reimbursement of covered expenses such as office visits, hospitalization and surgical procedures. Major medical coverage provides reimbursement for medical expenses generally related to serious injuries or long-term illnesses.

Reimbursement Limitations

• Fee-for-service plans reimbursements to policy holders are generally subject to several limitations. Most policies require that the medical services be "medically necessary" to preclude reimbursement for things such as cosmetic surgery. Reimbursements are also calculated on rates that the insurance company decides are "usual, customary and reasonable" for the area where the medical services were obtained or by a published schedule of benefits that provide predetermined limits of reimbursement for covered procedures and services. Policies also have deductibles that must be satisfied before reimbursement of any claims will be paid and reimbursements are subject to established co-payment formulas. As an example of co-payments, for a covered procedure the insured might pay 20 percent (the co-pay portion) and the insurance provider pays the remaining 80 percent.

Exclusions

• Most fee-for-service plans have a number of exclusions and limitations included that range from annual to lifetime ceiling limitations on the amounts that are payable under the policy. For example, the policy might limit the reimbursement available for a single claim or have a lifetime limit on benefits at a specified amount.

Summary

• Although fee-for-service payments offer the consumer independence and the greatest flexibility with respect to health care options, these plans typically represent the most expensive form of health care insurance.