What Is Medical Indemnity Insurance?

Indemnity insurance usually lets you choose any doctor.
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A medical indemnity insurance plan is sometimes also referred to as a fee-for-service plan. Under these plans, you get to choose your doctor and hospital with no limits, and your insurer reimburses you or your provider for the costs incurred. These plans are very flexible, but they tend to be more expensive than other types of insurance.

Plan Types

Medical indemnity plans typically come in two general types. Hospital-surgical coverage is designed to pay the cost of having surgery or being hospitalized. Major medical coverage, on the other hand, pays for medical expenses that come from long hospital stays or from conditions that require many different types of treatment or doctors. The former would pay for treatment of a heart attack, while the latter would cover the cost of treating cancer. A medical indemnity plan that covers both is referred to as comprehensive coverage.

Deductibles and Coinsurance

Many indemnity plans require you to pay some expenses out of pocket in addition to your premiums. Your deductible is a dollar amount that you must pay before your insurance will start paying any portion of your expenses. Co-pays are flat amounts that you must pay per office visit, while co-insurance is a percentage of the care of your cost that you must pay until you reach your policy's maximum out-of-pocket expense. For example, if you have a policy with a $500 deductible and 20 percent co-insurance with a $2,500 out-of-pocket limit, and you have a heart attack that costs $150,000 to treat, you'd pay a $500 deductible and $2,000 in co-insurance on the first $10,500 in cost. The insurer would pay the remaining $147,500.

Benefits and Drawbacks

The key benefit of an indemnity plan is choice: You're allowed to choose any provider that you want and your insurer will reimburse the provider for what the insurer considers reasonable cost of treatment. In exchange for this choice, though, you take on more expense and potentially more inconvenience. These plans cost more than other plans and frequently require additional paperwork on your part. You might even need to pay the doctor for your care and then get reimbursed from your insurer.

Hospital Indemnity Plans

A hospital indemnity plan is a separate type of insurance that helps to defray the uncovered costs of a hospital stay. If you have co-pays and co-insurance, they can add up to hundreds or thousands of dollars. If while hospitalized, however, you must pay for parking or your loved ones must pay for a hotel stay or miss work to be with you, a hospital indemnity plan provides money -- usually on a fixed-amount-per-day basis -- to help defray these costs.

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