Long before health maintenance organizations (HMOs), preferred provider organizations (PPOs), and in- or out-of-network providers became common considerations, most people were covered by indemnity health insurance plans. The plans still work in roughly the same way.

An indemnity policy plan outlines a specific percentage of total charges that the insurance company will pay you. This comes out of the amount that health care providers generally charge for a particular service or type of care but may not cover the full amount. You’ll be responsible for paying the rest.


What You Should Know About Medical Indemnity Plans

  • Flat payments: You’ll get a flat payment for covered services no matter which provider you use.
  • No Affordable Care Act (ACA) compliance: Medical indemnity plans aren’t like regular insurance and don’t have to conform to ACA requirements.
  • Coverage varies: How much you’ll pay for premiums and how much you can expect for coverage will vary depending on your location.

What Is An Indemnity Health Insurance Plan?

Indemnity health insurance plans are straightforward. Also known as fee-for-service plans, indemnity plans allow you to seek care from any provider or health facility you prefer. The plan identifies a predetermined percentage of the “usual, reasonable and customary” charges for the service or care received. That’s usually 80%, though coverage can differ. You then pay the remaining 20% percent of the fee as coinsurance. You are also responsible for paying any amount that exceeds the usual, reasonable, and customary fee identified by the plan.

In addition to the monthly premium owed for the insurance coverage, there is usually an annual deductible. The deductible needs to be met before the insurance company pays for coverage. Unlike a HMO, you can select your doctor or specialist and go to the laboratory or hospital that’s most convenient or preferred without a referral from a primary care physician (PCP). You also don’t need to get a referral before an appointment with a specialist or preapprovals for any procedure. However, the policy may not cover all procedures.

What Are the Types of Indemnity Plans?

There are two different types of indemnity plans: traditional indemnity health insurance plans and fixed-benefit insurance plans. The two are very different and offer very different types of coverage:

  • Traditional indemnity health insurance plans are available for hospital and surgery coverage, major medical coverage, and a combination of the two, including doctor’s visits, hospital stays, outpatient procedures, prescription medicine, and preventative care. You can choose where you receive care without seeking approval or having to choose from a limited list. Coverage provided is an established percentage of the amount usually charged for the same service within your geographic area, and you’ll pay the balance.
  • Fixed indemnity health insurance plans supplement major medical insurance plans. Although fixed indemnity plans are not considered full insurance plans and do not provide the coverage mandated under the ACA, these plans help cover out-of-pocket costs not covered by primary insurance. You can choose general fixed indemnity coverage to provide an additional level of coverage or select specific types of benefits. Services you can select include:
    • Accident fixed indemnity
    • Critical illness coverage
    • Hospital sickness coverage

Fixed indemnity health insurance benefits are paid to you after each specified covered expense has been submitted to your primary insurer and paid. There is no deductible and no requirement that you select caregivers or facilities from a specified network. There is also no enrollment period unless purchased through an employer’s cafeteria plan.

How Are Indemnity Plans Different From Other Health Insurance Plans?

There are several elements of indemnity plans that are very different from HMO and PPO plans. These include:

  • Indemnity plans do not limit you to doctors, specialists, or medical facilities where you receive care. No “in-network” or “out-of-network” distinction restricts where or from whom you can seek care. You’ll get control and freedom, but also no contracted discount for services from in-network providers.
  • With indemnity plans, there is no need to get a referral to see a specialist.
  • Indemnity plan coverage generally costs more than HMO or PPO, both in terms of premiums and the amount you pay for medical services or care.
  • There are no geographic limitations for services provided or coverage area. If you are traveling away from your home, you can seek medical help without concern about whether your insurer will cover your care.
  • Indemnity plan coverage may not provide coverage for preventative services, such as mammograms, annual physicals, or immunizations.
  • There will typically be health questions and underwriting guidelines, so not everyone can qualify.
  • Indemnity plans are subject to preexisting condition clauses. It is always important to read the fine print on these plans because many conditions can be excluded.

What Are the Advantages and Disadvantages of Indemnity Insurance?

Choosing health insurance is a highly personal decision, and you should consider how you want to receive care, your medical status, and your budget. Indemnity health insurance is generally one of the costliest options. Still, it provides a degree of control and choice not offered by HMO or PPO plans.

Advantages Disadvantages
  • An indemnity health insurance plan provides the ability to choose any physician or health service provider, with no network limits and no challenges when seeking care outside of your geographic area.
  • With an indemnity health insurance plan, there is no requirement to obtain a referral to see a specialist.
  • There is no requirement to select a PCP or preferred provider network.
  • Traditional indemnity health insurance coverage generally costs more than what you would pay for a PPO or HMO plan, though fixed indemnity can be more affordable.
  • Using an indemnity health insurance plan requires you to complete more paperwork than a typical health insurance plan as you may need to submit claims for reimbursement.
  • Indemnity insurance plans may not provide coverage for annual wellness checkups, preventive care, including mammograms, and other services that PPO and HMO plans provide.
  • Because there is no agreement between the indemnity health insurer and the health care provider, you lose the benefit of having the difference between the “reasonable and customary” charge and the fee waived. As a result, you will pay a percentage of the usual, customary, and reasonable rate. You may also be balance billed.
  • You’ll go through underwriting and may not be approved.
  • Preexisting conditions may be excluded.
Insurance and health care consultant

Tammy Burns is an experienced health insurance advisor. She earned her nursing degree in 1990 from Jacksonville State University, obtained her insurance billing and coding certification in 1995, and holds a health and life insurance license in Alabama, Georgia, Iowa, Mississippi, and Tennessee. Burns is Affordable Care Act (ACA)-certified for health insurance and other ancillary, life, and annuity products. She maintains an active nursing license and practices private-duty nursing.

Burns’ background as a nurse, insurance biller and coder, and insurance consultant includes infectious disease, oncology, gynecology, phlebotomy, post operative, family medicine, geriatrics, home health, hospice, human resources, management, billing, coding, claims, fixed annuities, group and individual health and life products, and Medicare. She’s always been driven by a desire to help people, spending more than 25 years as a practicing nurse in hospitals, private doctors’ offices, home health, and hospice. As a nurse, Burns supported patients filing insurance claims with Medicare, Medicaid, and private insurance companies as well as responding to billing questions from confused patients.

Seeing firsthand how unsuspecting patients are frequently confused by an overly complex system they don’t understand led Burns to become an insurance agent and health care consultant, now helping people understand the medical system. Since becoming an insurance agent in 2013, she has worked with some of the largest and most reputable insurance carriers and agencies in the nation, and she has built a large and loyal clientele by way of her commitment to transparency and personalized service.