Health Insurance Articles
Health Insurance Differences Between Indemnity And Network Plans
2010-07-27
For most people, health insurance is simply something you pay for on a monthly basis and then use when you go to the doctor or need treatment at a hospital. However, there are significant differences between the various types of health insurance, including the actual insurance coverage, payment methods and the freedom to choose your service providers.
The two basic models for health insurance are indemnity plans and network plans. Indemnity plans, sometimes called traditional health insurance, reimburse an insured person after a covered service or treatment has been provided. Typically, under an indemnity plan, the reimbursement rate is a percentage of the total medical expense, such as 50 or 80 percent. This means that the health insurance plan will pay the designated percentage of the medical expense, and the insured person will be responsible for the remainder. Many indemnity plans are also known as 80-20 plans because the insurance company reimburses 80 percent of covered expenses.
In order to keep the premiums for indemnity plans in an affordable range, most insurance companies also require a deductible. This is an annual amount for covered services that the insured person must pay out-of-pocket before insurance coverage will begin. In general, the higher the deductible is, the lower the premium will be. A few expensive plans may have no deductibles. Most are in the range of several hundred dollars a year for each insured person. For families, an aggregate family deductible may be used in place of individual deductibles.
Indemnity plans allow insured persons to choose their own doctors, specialists and hospitals. This is a major difference when it comes to the other type of health insurance: network plans. These plans usually limit an insured person to doctors, specialists and hospitals within a network of providers. Some plans, such as many HMOs, restrict insured persons to providers within the network, with few, if any, exceptions. Other plans, such as many PPOs, will allow insured persons to go outside the network, but at a higher out-of-pocket cost.
The method of payment is also different under network plans. As opposed to reimbursement for services provided, network providers are paid monthly by the insurance company. This payment is intended to cover all of the services that will be provided to insured persons for the month. In theory, this payment method is intended to discourage unnecessary and expensive medical treatments, keeping costs down. Rather than deductibles, network plans usually charge copayments, or a minimal out-of-pocket amount for each service provided. The copayment amounts help keep the monthly premiums affordable for the insured persons.
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nderstanding the differences between the different types of health insurance is crucial to making informed decisions about your insurance coverage.
