Medical Insurance

Traditional Group (Indemnity) Plans

Traditional health insurance covers the costs of basic medical costs—(hospitalization and medical and surgical care) and major medical costs—(physician fees and services). You could buy these coverages separately, but they are generally packaged together as a comprehensive plan. Traditional group plans are typically known as indemnity plans because they reimburse you for covered medical expenses. While you are responsible for paying physician services, hospitals typically bill the insurance company for inpatient admissions directly and then bill you the unpaid balance. You are responsible for an annual deductible.

Once you satisfy your annual deductible, your coinsurance typically pays 50% to 90% of covered expenses, depending upon the schedule of coinsurance in your plan. The greater the coinsurance (the more you ask the insurance company to pay), the higher your insurance premiums. After you have incurred a certain amount of out-of-pocket costs for covered expenses, the plan pays for 100% of your subsequent covered medical expenses.

The plan typically reimburses you based on "reasonable and customary charges." If your doctor's fee exceeds the usual charge, you will have to pay the additional costs.

The primary advantage of a traditional group indemnity plan is that it allows you the freedom to use any physician and hospital. But you are responsible for paying your doctor's bills; the insurance company is simply reimbursing you.

If you see your doctor several times during the year, these plans can be more costly than others. Your net out-of-pocket expenses (after reimbursement) are typically more than expenses in managed care programs, such as PPOs and HMOs. Managed care programs tend to pay benefits for many preventive care procedures that indemnity plans usually do not consider a covered expense. They also tend to cover a greater percentage of the actual expense, since managed care programs pay benefits based on predetermined fees.

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