Indemnity health insurance plans are also called fee-for-service. These are the types of plans that primarily existed before the rise of HMOs, PPOs, and other network-type plans. With indemnity plans, the insurance company pays a pre-determined percentage of the reasonable and customary charges for a given service, and the insured pays the rest.
With an indemnity plan, there’s no provider network, so patients can choose their own doctors and hospitals. But that means that the providers can balance bill the patient for any billed amounts above what the insurance company pays, since the providers don’t have contracts with the insurer requiring them to accept the insurer’s “reasonable and customary” amounts as payment in full.
The fees for services are defined by the providers and vary from physician to physician, but the amount that the indemnity plan will pay is pre-determined (x percent of the reasonable and customary charges for that procedure). This leaves the insured on the hook for potentially large and possibly unexpected medical bills, depending on how much the provider charges for the service.
