Global Privacy Signal Detected
Health Insurance

Indemnity Plans: Are They Right For You?

What Is an Indemnity Plan in Health Insurance? 

An indemnity plan, also known as a fee-for-service plan, is a lesser-known type of health insurance that reimburses consumers a set amount for each covered service. Some people use indemnity insurance as their primary health coverage, though more commonly, it’s used to supplement another health plan.

As no-network plans, indemnities work differently than managed care plans, such as HMOs and PPOs. Plan members can choose their own doctors and hospitals without geographic restrictions. Further, selecting a primary care doctor or getting referrals for specialist care is unnecessary. Consumers with these plans often pay for their medical care up front, then submit their bills for reimbursement.

Indemnity health insurance plans have advantages such as flexibility in choosing healthcare providers and treatments, high coverage limits, and the freedom to see any doctor. However, they can be expensive, require upfront payments and claims for reimbursement, and not all healthcare providers accept them, limiting options for care.

Additionally, Indemnity plans are not ACA compliant or sold through the marketplace. Therefore, the regulations that apply to ACA plans, such as the requirement that providers must cover pre-existing conditions, do not apply to this form of health insurance.

An Alternative or Addition to Traditional Health Insurance 

Traditional health insurance is meant to help plan members pay for the care they need, but sometimes, this system falls short. Rising out-of-pocket costs and limited access to providers leave consumers looking for supplemental or alternative insurance.

Many Americans get health insurance through work, but the average deductible for these employer-sponsored health plans increased by 61% over the last ten years. Beyond the deductible, workers are responsible for a share of the cost of covered services. These costs keep some consumers from seeking care.

Traditional health insurance can limit consumers’ choices even when cost isn’t an issue. Many plans require members to find a primary care doctor or see in-network providers. These rules worsen an already difficult situation for the 15 million Americans living in medically underserved areas

Indemnity plans are an attractive option for people in plans with significant cost-sharing requirements or those who cannot access the care they need locally.

How Does an Indemnity Plan Work? 

Unlike managed care plans, indemnity plans offer greater flexibility in choosing healthcare providers and services, with no network restrictions. Some consumers use indemnity plans as their primary health insurance, while others use indemnities to supplement their other coverage.

As primary health insurance, indemnity plans are relatively straightforward. They pay a portion of the cost of each covered service. Members are free to use any licensed provider or facility, and after paying for care up front, they file a claim for reimbursement.  

For example, consider a person who cuts their hand while cooking dinner. Their indemnity health plan has no network, so they simply visit the nearest walk-in clinic. A doctor decides stitches aren’t needed but cleans and bandages the wound to help it heal. The patient uses their credit card to pay the full cost of the visit. Later, they file a claim, and their plan pays the agreed-upon amount as a reimbursement.

Whether they’re used as primary or supplemental coverage, indemnity plans are exempt from the Affordable Care Act (ACA) regulations. This means insurers can deny coverage based on pre-existing conditions and don’t need to cover essential health benefits, such as preventive care or maternity services.

Using an Indemnity Plan as Supplemental Health Coverage

Indemnity plans are often used to supplement a person’s primary health insurance coverage. The indemnity health plan helps pay for fees not covered by the primary plan, such as out-of-pocket costs or out-of-network services.

For example, consider a person who has an HMO through work. They want to see a specialist not part of their plan’s network, but the plan only covers in-network doctors. With a supplemental indemnity plan, they can see their preferred specialist and get reimbursed for the expense.

Indemnity Plan Eligibility

People with pre-existing health conditions may be unable to join an indemnity plan. Since these plans are exempt from the care requirements laid out by the ACA, they’re allowed to deny coverage to applicants with health issues. Consumers who can buy a plan may find that coverage for their pre-existing conditions is excluded, which affects the plan’s usefulness as a supplement.

Some indemnity plans limit enrollment to certain groups of people. For example, employer-sponsored group indemnity plans are offered to the company’s employees. Other indemnity plans are offered as add-ons to those enrolled in specific managed care policies.

Indemnity Plan Coverage

The specific health services and supplies an indemnity health plan covers will vary depending on the plan and insurer. Similarly, the amount of coverage available for each covered service also varies from plan to plan.

Traditional indemnity plans generally offer hospital-surgical coverage, major medical coverage, or a combination. Some fixed indemnity plans offer a limited set of benefits, such as hospital care, while others offer broader coverage.

Traditional plans cover a percentage, usually 80%, of the cost of the “usual, customary, and reasonable” (UCR) fee for a specific service. Insurers determine UCR amounts based on what typical providers in an area charge for similar services. Fixed indemnity plans pay a pre-set amount, regardless of actual local costs.

Indemnity Plans vs. HMOs and PPOs 

Indemnity plans are an alternative to managed care plans, such as HMOs and PPOs. Unlike managed care plans, they allow consumers to get care from any doctor with no network restrictions. The availability of services and payments also varies between plan types. Read on for details about how indemnity plans differ from HMOs and PPOs.

Indemnity Plans vs. HMOs 

Geographic LimitationsYes, coverage limited to plan’s service areaNo restrictions
Choice of ProviderLimited, members are restricted to in-network providersYes
Upfront PaymentNoYes, unless the provider agrees to file claims
Referrals RequiredYesNo
Primary Care ProviderRequiredNot required
CoinsuranceYesYes, in the case of traditional indemnity plans
DeductibleYesVaries, fixed indemnities don’t have deductibles
PrescriptionsYesVaries, some plans cover prescriptions
Medical EquipmentYesVaries, some plans cover medical equipment
Emergency CareYes, including out-of-network emergency careVaries depending on plan type

HMOs, or Health Maintenance Organizations, are health insurance plans that work very differently than indemnity plans. They limit coverage to a network of providers in some geographic regions. HMOs generally don’t cover out-of-network services unless it’s an emergency.

Consumers who enroll in an HMO must choose a primary care doctor that contracts with the plan. This doctor oversees their care and provides referrals to in-network specialists as necessary. HMOs typically offer cheaper costs than similar plans. However, the insurer has complete control over what services are covered and what providers you can see.

Indemnity Plans vs. PPOs

Geographic LimitationsYes, but they have larger networks than HMOsNo restrictions
Choice of ProviderMembers can see both in-network and out-of-network providersMembers can see any licensed provider
Upfront PaymentNoYes, unless the provider submits claims as a courtesy
Referrals RequiredNoNo
Primary Care ProviderNot requiredNot required
CoinsuranceYes, coinsurance percentage varies based on the serviceVaries, traditional indemnities have coinsurance
DeductibleYes, amount varies depending on the planVaries, no deductible for fixed indemnity plans
PrescriptionsYesVaries, some plans cover prescriptions
Medical EquipmentYesVaries, some plans reimburse members for medical equipment
Emergency CareYesVaries depending on plan type

PPOs, or Preferred Provider Organizations, are managed care plans that offer more flexibility than HMOs. PPOs tend to have larger networks than HMOs, allowing consumers to get care from out-of-network providers. However, consumers pay less when they get care from an in-network or “preferred” provider.

Unlike HMOs, consumers who join PPOs aren’t required to choose a primary care doctor or get referrals to see specialists. Still, these plans offer less flexibility than indemnity plans due to the reduced out-of-network benefits.

Types of Indemnity Plans 

Traditional IndemnityFixed Indemnity
Supplemental CoverageDesigned as primary coverage, but can be used as a supplementYes, but some consumers use it as primary coverage
Deductible AmountVariesUsually $0
Coinsurance AmountGenerally 20% of the insurer’s usual, customary, and reasonable feeNo coinsurance
Direct ReimbursementVaries, some providers file claims for enrollees and collect reimbursementYes, plan members receive cash benefits
Intended UsePrimary coverageSupplemental coverage
Fixed PricingNo, reimbursements are percentage-basedYes, plans pay predetermined amounts per service or per day
Out-of-Pocket MaximumVariesNone

There are two types of indemnity health insurance plans: traditional and fixed. Both offer plan members the flexibility to get care from any doctor or facility, but coverages and costs vary.

Fixed indemnity plans are intended as supplements and typically offer a limited set of benefits, such as hospital stays or care for a specific illness. Traditional indemnity plans cover a broader range of inpatient and outpatient services.

Costs vary depending on the plan and insurer. Generally, fixed indemnity plans have lower premiums and no cost-sharing requirements. Traditional indemnity plans tend to have higher premiums and require members to pay a percentage of care costs.

Traditional Indemnity 

Traditional indemnity plans, sometimes called fee-for-service plans, are designed to be a person’s primary health insurance. However, some consumers use them to supplement a managed care plan. 

In some ways, traditional indemnity plans look like managed care plans. They offer coverage for a range of health services, such as doctor visits, prescription drugs, hospital stays, surgeries, and diagnostic tests. However, they cover these services differently than HMOs or PPOs. 

Consumers who have a traditional indemnity plan can see any doctor of their choice. They pay for their care out of pocket, then submit a claim for reimbursement. Some medical offices handle these claims and bill patients for the difference. Reimbursement rates vary but are often 80% of the UCR for a service. 

Like managed care plans, traditional indemnity plans have annual deductibles. This is the amount of money the consumer pays out of pocket before the plan reimburses health costs. 

With the rise of managed care options, traditional indemnity plans have largely disappeared, though some insurers and employers still offer them. In 2022, 2% of companies that provided health benefits offered traditional indemnity plans.

Fixed Indemnity 

Fixed indemnity plans are a type of limited-benefit health plan. Some people use them as primary health insurance, but since they only cover some healthcare costs, they’re more often used as a supplement. There are three main types of plans:

  • Accident fixed indemnity: This helps pay for expenses if you get injured from a covered accident. These plans tend to have very low premiums and provide a pre-set cash benefit that varies based on the injury.
  • Critical illness coverage: This provides lump-sum or per-day payments to offset the costs of treating certain illnesses. Some plans limit coverage to a single illness, such as cancer.
  • Hospital sickness coverage: These plans pay a specified amount for each day in the hospital. Consumers use this cash benefit to pay for any costs related to their stay.

In addition to these three plan types, fixed indemnity insurance is increasingly available through app-based companies. These plans cover a broad range of services and may be mistaken for traditional health insurance. Covered services vary from plan to plan, but some common benefits include the following:

  • Hospital services, such as inpatient/ICU care, emergency room care, and surgical procedures
  • Ambulance services
  • Diagnostic services, such as MRIs, X-rays, or lab tests
  • Some preventive care, such as mammograms or colonoscopies

Regardless of the type of plan, fixed indemnities pay a pre-set amount for covered services. For example, a plan may pay $2,000 daily for inpatient hospital stays. There’s no deductible, and consumers receive reimbursement directly after submitting a claim to their insurer. 

These fixed payments are meant to help pay costs not covered by other health insurance plans, such as copayments or coinsurance. People who use fixed indemnity insurance as their primary insurance may face high out-of-pocket costs. 

Costs Associated With Indemnity Coverage 

A consumer’s out-of-pocket costs vary depending on the type of indemnity plan they have. Fixed indemnity plans reimburse members based on a fee schedule, while traditional indemnities pay a set portion of typical costs in the area.


With indemnity health insurance, an individual’s premiums vary depending on several factors, including age, location, and household income.

Both managed care and indemnity plans have premiums. HMOs tend to have lower premiums than PPOs, while traditional indemnity plans cost more than HMOs and PPOs since they don’t use networks. Fixed indemnity plans offer lower premiums that reflect their limited coverages.

The chart below shows average premiums for a single, healthy 40-year-old woman who earns $75,000 a year in California and is shopping for individual coverage.

Type of PlanAverage Monthly Premium
Traditional IndemnityContact your agent for a quote
Fixed Indemnity$95


Deductible amounts vary depending on the type of health insurance a person chooses. Fixed indemnity plans don’t charge deductibles, and in traditional indemnities, deductibles tend to be low. Managed care options charge higher deductibles, as shown in the table below. 

Type of PlanAverage Annual Deductible
Traditional Indemnity$250
Fixed Indemnity$0

Copays and Coinsurance 

Cost-sharing requirements, such as copays and coinsurance, vary depending on the type of plan. Since fixed indemnities reimburse a flat amount for each service, they don’t use copays or coinsurance. Managed care plans and traditional indemnity plans require cost-sharing. 

Type of PlanAverage Coinsurance RatioCopays
Traditional IndemnityInsurer 80%, insured 20%None
Fixed IndemnityN/ANone
HMOInsurer 60-80%, Insured 20-40%Yes, copay amounts vary depending on the service
PPOInsurer 60-80%, Insured 20-40%Yes, copay amounts vary depending on the service

In-Patient Hospital Stays

Without health insurance, the cost of being hospitalized varies widely based on the location and the condition being treated. Still, hospital stays can cost around $10,000 per day or around $70,000 for a one-week stay.

In the chart below, we’ve calculated the average out-of-pocket costs for a one week stay. Note: These costs assume you’re using each type of plan as your primary insurance and haven’t made any progress toward your deductible (if applicable).

Type of PlanTotal Out-of-Pocket Cost
Traditional IndemnityPlan’s out-of-pocket limit
Fixed IndemnityAfter average reimbursement of $2,000 per day: $56,000
HMOPlan’s out-of-pocket limit (Average: $8,500)
PPOPlan’s out-of-pocket limit (Average: $8,500)

Advantages of Indemnity Coverage

Compared to managed care plans, traditional and fixed indemnity plans offer greater freedom of choice for consumers. Each type of indemnity plan offers its own advantages.

Traditional Indemnity Plans

Traditional indemnity health insurance offers many potential advantages compared to other types of plans. Enrollees benefit from the following:

  • Receiving care from any licensed doctor or healthcare facility with no geographic or network restrictions
  • Seeing specialists and other healthcare providers without a referral from a primary care physician
  • Not being required to select a primary doctor who manages their healthcare needs
  • Receiving reimbursement based on typical care costs in the area rather than a pre-set dollar amount that may not reflect local prices

Fixed Indemnity

Fixed indemnity plans offer many of the same advantages as traditional indemnity plans, including the ability to see any doctor or specialist without a referral. Consumers also enjoy the following:

  • Choosing between accident fixed indemnity, critical illness coverage, or hospital indemnity plans based on their current insurance gaps
  • Applying for fixed indemnity plans at any time of year without waiting for open enrollment
  • Paying relatively low premiums in exchange for coverage
  • Getting reimbursed for covered healthcare costs without meeting a deductible
  • Budgeting based on predictable, pre-set reimbursement amounts

Disadvantages of Indemnity Coverage 

Compared to managed care plans, both traditional and fixed indemnity plans have more paperwork and place more responsibility on consumers. Each type of indemnity plan also has its own disadvantages.

Traditional Indemnity

Despite their many advantages, traditional indemnity plans have several vital disadvantages that can make them less appealing. Some downsides for consumers include the following:

  • Difficulty finding traditional indemnity plans in their area unless their employer offers one
  • Paying for the total costs of medical care up front, then waiting to get reimbursed
  • Keeping receipts for medical care and submitting claims for reimbursement unless they choose providers who are willing to file claims
  • Getting reimbursed based on what the insurer considers a “usual, customary, and reasonable” fee rather than their actual care costs
  • Needing to shop around and compare the costs of care to control out-of-pocket costs

Fixed Indemnity 

Like traditional indemnity plans, fixed indemnity plans have some downsides to consider. Potential downsides for consumers include:

  • Needing to pay upfront for medical services and then wait for reimbursement
  • Receiving a pre-set reimbursement for covered health services, regardless of the actual cost of care
  • Facing significant medical costs in the event their bills far exceed their reimbursements
  • Being denied coverage based on their current medical conditions
  • Lacking coverage that’s required in ACA-compliant plans, such as preventive care or maternity services
  • Having annual or lifetime limits on reimbursements for health services

Is Indemnity Coverage Right for You? 

Indemnity coverage is a good option for some people, but it’s not the right choice for every consumer.

Consider Traditional Indemnity If… 

  • You want the flexibility to get care from any licensed doctor or facility with no network restrictions.
  • You live in an area with few medical providers and don’t want to be limited to nearby doctors or specialists.
  • You want to see a specific doctor or specialist outside your current plan’s network.
  • You want to get a specific type of care without asking your primary care doctor for a referral.
  • You feel comfortable shopping around for health services and comparing costs.

Consider Fixed Indemnity If… 

  • You’re concerned about covering your day-to-day bills if you’re injured in an accident.
  • You have a high-deductible health plan and worry that your share of the cost of a hospital stay could strain your budget.
  • You’re concerned about the financial effects of being diagnosed with a serious illness, such as cancer.
  • You want the flexibility to see doctors or specialists outside your primary plan’s network.
  • You’re in good health and are comfortable with the risks of using a fixed indemnity plan as your primary health insurance.

How to Get Indemnity Coverage 

The specific process for enrolling in indemnity coverage varies depending on the type of plan and whether you’re enrolling on your own or through your employer. In any case, the general process involves evaluating your needs, searching for plans, submitting your application, and waiting for confirmation of enrollment.

1. Determine Whether Indemnity Coverage Is Right for You 

Before applying for an indemnity plan, carefully consider if this option suits your needs.

Traditional indemnity coverage may be a good choice if you:

  • Don’t mind paying more in exchange for more care options
  • Want the freedom to choose your own doctors
  • Prefer not to get referrals for specialist care

On the other hand, fixed indemnity plans may be the right choice if you:

  • Want to supplement an existing health insurance plan
  • Need the flexibility to see doctors outside of your current plan’s network
  • Feel comfortable submitting your own claims paperwork

2. Search for the Right Plan

Fixed indemnity plans, such as hospital indemnity plans, are widely available. Insurance companies sell these plans through their own websites and private health insurance markets, and some employers offer group indemnity plans as an optional benefit.

Traditional indemnity plans are less widely available. Consumers who hope to use this type of plan as their primary coverage may have the option to enroll through their employer. Another option is to work with an agent to find individual traditional indemnity plans.

For both plan types, compare the plans available in your area to find one that suits your needs. Carefully consider each plan’s costs and covered benefits, and pay attention to coverage exclusions. For help choosing a plan, talk to a trusted agent.

3. Undergo Medical Underwriting 

Medical underwriting is the process of assessing a person’s eligibility for insurance based on their health information. An insurance company uses medical underwriting to determine whether to sell a policy and how much to charge for that coverage.

The ACA largely eliminated medical underwriting in health insurance, but this process is still allowed for ACA exempt policies, such as fixed indemnity plans. Generally, consumers applying for these plans must complete a detailed medical questionnaire and exam. If the insurer determines that you are not in good enough health to qualify for their coverage, you may be denied coverage.

4. Receive Confirmation of Enrollment

After enrolling in a plan, you’ll receive a welcome package from your insurer. This package provides information about how to use the plan, including the date the coverage officially begins. Depending on the insurer, coverage may start immediately or two to four weeks after enrollment.

Wrapping Up 

For some consumers, indemnity health insurance is an appealing coverage option. You may be drawn to these plans if you want the freedom to see any doctor or specialist and don’t mind answering medical questions or filling out claims paperwork. 

For others, the drawbacks of indemnity medical insurance outweigh the advantages. You may prefer other options if you don’t want to pay upfront and wait for reimbursement or if you have health issues and benefit from the consumer protections guaranteed by ACA-compliant plans. 

Talk to a trusted agent for help deciding if indemnity coverage is right for you or finding and comparing plans available in your area. If you decide indemnity coverage doesn’t suit your needs, consider other health insurance plan types, such as an HMO or PPO.