Traditional (Fee-for-Service) Plans

Traditional health insurance, also known as indemnity or fee-for-service (FFS) insurance, was the original form of health coverage before managed care became dominant. Understanding these plans provides important context for modern health insurance.

How Traditional Plans Work

In a traditional plan, the insured can visit any healthcare provider without restrictions:

Reimbursement Model

Traditional plans operate on a reimbursement basis:

1. Patient receives medical services
2. Provider bills patient (or insurer directly)
3. Patient pays provider
4. Patient submits claim to insurance
5. Insurance reimburses patient (minus cost-sharing)

Types of Traditional Medical Expense Coverage

Basic Medical Expense Insurance

Basic medical expense policies cover specific, limited services:

Limitations of Basic Plans:

• Low maximum benefits
• No catastrophic protection
• Coverage gaps between policies
• Separate policies may be needed for each coverage type

Major Medical Expense Insurance

Major medical insurance provides broad, comprehensive coverage with high maximum limits:

Key Major Medical Features:

• Comprehensive coverage - Hospital, surgical, physician, prescriptions, lab tests
• Catastrophic protection - High limits protect against major expenses
• Flexibility - Any licensed provider typically covered
• Cost-sharing - Deductibles and coinsurance apply

Comprehensive Medical Expense Insurance

Comprehensive medical combines basic and major medical into a single policy:

Comprehensive = Basic Medical + Major Medical

Exam Tip: Comprehensive medical plans offer "first dollar" coverage for routine expenses (small or no deductible) and major medical protection for larger expenses.

Hospital Indemnity Insurance

Hospital indemnity is a supplemental policy that pays a fixed daily benefit during hospitalization:

How Hospital Indemnity Works

Example:

• Policy benefit: $300/day
• Hospital stay: 5 days
• Total benefit: $1,500 (paid directly to insured)

The insured can use this money for:

• Deductibles and copays
• Lost wages
• Childcare costs
• Any other expenses

Hospital Indemnity vs. Major Medical

Key Point: Hospital indemnity is supplemental insurance, not a replacement for comprehensive health coverage.

Usual, Customary, and Reasonable (UCR)

Traditional plans often reimburse based on UCR (Usual, Customary, and Reasonable) charges:

How UCR Affects Reimbursement:

If a provider charges more than UCR:

• Insurance pays based on UCR amount
• Patient pays the difference (balance billing)
• This can result in unexpected out-of-pocket costs

Example:

• Surgeon charges: $5,000
• UCR for procedure: $4,000
• Insurance pays (80%): $3,200
• Patient pays coinsurance: $800
• Patient pays balance billing: $1,000
• Total patient cost: $1,800