Understanding the Advantages of Indemnity Health Insurance Plans

Choosing a Flexible Health Insurance Policy With Fewer Restrictions

pediatrician examining young boy
Indemnity Health Insurance Plans. Photo: AleksandarNakic/iStock

An indemnity health insurance plan is a healthcare plan that allows you to choose the doctor, healthcare professional, hospital, or service provider of your choice. It gives you the most flexibility and freedom in a health insurance plan. 

Key Takeaways

  • Indemnity health insurance plans are healthcare plans that allow you to choose a doctor, healthcare professional, or hospital.
  • An indemnity health insurance plan does not require you to choose a primary care doctor and allows you to self-refer to specialists, meaning you don't need a referral.
  • Indemnity plans may require that you pay upfront for medical services and submit a claim to the insurance company for reimbursement.
  • You may need to pay a deductible or the amount you are required to pay before policy benefits are provided.
  • Some policies come with coinsurance, meaning you pay a percentage of your medical costs after meeting your deductible.

What Is an Indemnity Health Insurance Plan?

Indemnity health plans are also known as:

  • Traditional indemnity plan
  • Fee-for-service plan

The plan helps provide protection against the costs of medical expenses.

Advantages of an Indemnity Health Insurance Plan

The indemnity health policy is different than policies offered by health maintenance organizations (HMOs) and preferred provider organizations (PPOs) because it allows you to obtain medical care where you choose to provide compensation for a set portion of the costs.

A key feature of the indemnity health insurance plan is that it does not force you to choose a primary care doctor. Indemnity health insurance plans are also unique because they allow you to self-refer to specialists, they do not require you to obtain a referral in order to get compensated.

The kind of freedom available by an indemnity health insurance plan can be valuable in directing your own health care. This is significantly different than HMOs, IPAs, and PPOs which use managed care and may force you to choose a primary care provider as part of the plan. Indemnity health insurance plans do not involve a provider network.

Is an Indemnity Health Insurance Plan Right for You?

Indemnity health insurance plans have the most advantages if the following apply to you:

  • You prefer not to commit to a primary care doctor since the plan does not require you to select a primary care doctor, meaning you have freedom of choice.
  • You do not mind paying a little more for your health insurance costs or deductible.
  • You are not worried about selecting providers that are not vetted for costs. In other words, because you are not part of a network in an indemnity health insurance plan, you may face unexpected costs for the doctors and specialists you choose. You will have to carefully research how your choices affect your costs.
  • You live in a geographic region where access to the doctors and medical services you want would not be included in an HMO or PPO plan.

Plan Costs and Deductibles

Indemnity insurance plans pay a portion of your medical costs at the service provider of your choice but may be subject to the deductible. The deductible in an indemnity plan may range from $100 to $300 for individuals and $500 or more for families and varies based on the insurance company.

Once you pay the deductible, the plan would pay for the remainder of your health insurance costs up to the maximum limits in your contract agreement.


Indemnity policies may also include copay or coinsurance clauses.

Usual, Customary, and Reasonable (UCR) Rate

UCR rates are the amounts that medical service providers in your area usually charge for services because indemnity plans are self-managed health insurance plans, there is no network specifying the rates that your chosen providers will charge.

As a result, you will want to familiarize yourself with the costs that your plan designates as UCR versus what your chosen provider will charge for services to avoid unexpected costs. In general, most providers meet the criteria. However, it is important to be informed when you use a self-managed plan like an indemnity health insurance plan.

Deductibles, Copays, and Coinsurance

The deductible is the amount you are required to pay before policy benefits are provided. Once you've met or paid your deductible, there can be other costs, depending on the plan.


You may be required to pay a copayment, which is a fee that's charged at each appointment. For example, you might have a $20 copayment for a primary doctor and a $50 copay for a specialist.


Coinsurance is a shared cost for your medical services and is represented as a percentage of the costs that you're required to pay after your deductible. Many indemnity plans offer coinsurance rates of around 70% or 80%.

For example, let's say your eligible charges are $800, and you have a $200 deductible. Once you pay the $200 deductible, you would have $600 in remaining charges. If your coinsurance is 80/20, meaning you owe 20% and your insurer pays 80%, you would need to pay 20% of the remaining $600 owed or $120. Before signing up for a plan, research the deductible and coinsurance requirements of an indemnity health insurance plan to be sure you are able to cover the costs.

Some indemnity health policies also provide a maximum amount that you will have to pay as coinsurance. These policies give you an advantage because once you hit the maximum payable, you no longer have to pay the coinsurance. Depending on your medical situation, this can help manage the maximum costs you would pay as part of the policy.

Plans Do Not Restrict Access Based on Geographic Location

As explained in our definition of the indemnity health plan above, you have the freedom to choose your doctor, specialist, or hospital with few, if any, limitations.

In some cases, HMOs and PPOs may limit your options for a doctor, specialist, or hospital by a geographic restriction in which the provider is located. This gives a significant advantage to the freedom offered by an indemnity plan for many people.

Preventative Health Care Services

Some indemnity health insurance plans may not cover preventative services, but others do. Preventative health care services include yearly check-up exams and other routine office visits that are designed to prevent illnesses. Before selecting a health plan, be sure and discuss how preventative services are insured and how much compensation you can expect. This will help you make the choice for the best possible plan. In some cases, the costs of these services may not count towards your deductible.

Indemnity Plans vs. HMOs and PPOs

Unlike HMO and PPO health insurance plans, most indemnity policies allow you to choose any doctor, specialist, and hospital that you wish when seeking health care services.

Indemnity plans are considered fee-for-service health insurance plans where you have the freedom to choose your health care services, and as long as your services are eligible, you may be charged a fee depending on how your policy rules are written. Sometimes, indemnity health insurance plans cost more than HMOs and PPOs, but the payoff is the flexibility of choices.

Access to Specialists

The ability to self-refer to a specialist can be a significant advantage in obtaining the best health care and is easily one of the greatest advantages with indemnity health care insurance plans.

What Is Covered by an Indemnity Health Insurance Plan?

Your indemnity policy booklet or your employee benefit booklet will spell out the terms and conditions of what is covered and what is not covered. Read your policy or benefits booklet before you need health care services, and ask your health insurance agent, insurance company, or employer to explain anything that is unclear.

Frequently Asked Questions (FAQs)

What are the disadvantages to Indemnity health insurance?

Compared to other plans, indemnity plans tend to have higher premiums and deductibles, making them more expensive to use than HMOs and PPOs. Sometimes, indemnity plans require you to get the services done first, and then you can submit a claim for reimbursement, causing high upfront costs.

Should I get hospital indemnity insurance even if I have health insurance through my job?

Some health insurance plans still have gaps where you must pay out of pocket for expenses, such as hospital visits, deductibles, copays, and out-of-network care. Indemnity insurance can help you cover these costs and enable you to go to doctors and specialists outside of the health insurance plan you get through your employer.

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  2. Agency for Healthcare Research and Quality. “Questions and Answers About Health Insurance,” Pages 1-2, 6-10.

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