What Is Medical Indemnity Insurance?

Medical indemnity insurance includes many types of health insurance plans. However, the term has come to refer to the type of limited coverage plan that offers freedom from provider networks and basic fee-for-service reimbursement. As managed care, medical indemnity insurance plans might offer the insured more freedom in some areas, but consumer organizations have noted problems with the limits and reimbursements for covered services. While some consumers might appreciate the alternatives offered by medical indemnity insurance plans, regulations in the 2010 Affordable Care Act affect the form and availability of those plans.

Medical indemnity insurance plans reimburse the policy holder or the medical provider a predetermined amount, regardless of the actual costs, for covered services and procedures. A policy holder pays a low premium amount and may choose any provider because most of the plans don’t use provider networks. Employers and insurance companies operate the plans, which also are called fixed indemnity plans. Hospital indemnity plans pay fixed daily fees for hospital stays. Medical Indemnity insurance plans usually have annual and lifetime limits on how much the plan pays, restrictions on covered conditions, deductibles and variations of co-insurance and co-pays.

Insurance companies market medical indemnity insurance plans as low-cost alternatives to standard full-coverage health insurance plans. Companies market the medical indemnity plans to the unemployed, service-industry workers, seasonal workers, independent contractors and others who don’t have access to employer-provided health coverage. Medical indemnity insurers also market the plans as supplemental insurance that pays first-dollar, or pre-deductible, costs major insurance does not pay. Employers who offer the plans to employees can opt out of paying any portion of the plan.

The Affordable Care Act brought medical indemnity insurance and fixed indemnity plans under increased scrutiny. After much legal wrangling, the decision as of April 2014 is that plans, even when advertised as fixed indemnity and pay a fixed daily fee are considered income replacement plans and not health care coverage. Fixed indemnity plans that base reimbursement on the type of service or procedure, as in a per-service basis, are considered health coverage. Income replacement plans are “excepted benefits” that are not included in the Affordable Care Act’s provisions for market reform, such as prohibitions on lifetime and annual payment limits.

Check with a health insurance specialist or the HealthCare.gov website to find out whether your health insurance choice meets the requirements for health coverage under the Affordable Care Act. Your choice may be called a medical indemnity insurance plan or a fixed indemnity plan, but if it uses a per-service reimbursement method that includes varied fee amounts, such as for surgery, prescriptions and doctor visits, it might be considered health coverage under the act. Additionally, the plan should adhere to the act’s reform provisions, such as 100 percent payment of preventive services regardless of deductible and no consideration of pre-existing conditions in coverage decisions.