My Personal Finance Blog

Fee-for-Service or indemnity plans are the oldest type of health coverage out there, providing you with the greatest extent of flexibility. You are absolutely free to choose the doctor, specialist, surgeon or even the place you will receive your medical service from and it doesn’t require any approvals or referrals from other institutions. So what’s the catch?

The drawback of Fee-for-service plans is that they are quite costly and usually have higher deductibles than managed care plans. Besides, you will also have to pay a large part of your actual medical bill out of pocket. That’s the price you have to pay in order to obtain the flexibility provided by these plans. But this doesn’t mean that there are completely no restrictions with fee-for-service plans.

For instance, fee-for-service health insurance plans will not provide coverage for preventive healthcare services, meaning that any vaccinations, regular check-ups and physical exams will be paid for entirely out of the customer’s pocket. This makes fee-for-service plans quite inconvenient for families who need regular medical services and doctor consulting.

Fee-for-service plans require an annual deductible to be paid in order to receive the coverage benefits from the insurance provider. Once you do so, your medical expenses are distributed between you and the insurance carrier. You will usually pay something between 20% and 30% of the entire service fee and your insurance company will cover the rest. So it’s really important to choose a plan that has a smaller co-insurance (the part you have to pay out of pocket) before actually purchasing it.

With most fee-for-service plans you also have the so-called “caps” that are basically the upper limits of your yearly deductibles. These can be anything from $1,000 to $5,000 not taking your monthly premiums into account. So it’s better to see what your plan carries before signing it if you really want cheap health insurance with fee-for-service.

On the other hand, fee-for-service plans offer comprehensive and timely coverage when you need it, especially when there’s a medical emergency. You are completely free of the bureaucratic restrictions and setbacks of typical managed care plans that can turn down any desire to receive medical assistance in the first place. However, bear in mind that fee-for-service plans won’t be suitable and attractive for everyone. If you want to get comprehensive coverage for preventive care or have a large family with diverse healthcare needs you better investigate managed care plan options instead of indemnity plans.

And don’t forget about comparison shopping when purchasing fee-for-service coverage. Try to get as many health insurance quotes from different providers as possible and compare them in detail. You will be surprised to find out that different companies have different premiums, “caps” and co-payments that will all contribute to the final cost of your insurance coverage. So it’s always better to take some time comparing you options rather than complaining that you have a costly insurance plan after purchasing it.

2009 turns into 2010, the winter ice and snow has been particularly hard this year. It even affected Florida which shows how climate change is related to local weather patterns. Needless to say, the number of traffic accidents has been at an all-time high. No-one is ever ready for ice on the roads. Yet, all round the country, ice is coming through the mail boxes. The insurance companies are sending out notices chilling our desire to drive – premium rates are being hiked. And this time, it’s not just a few percent. In most states, it’s averaging at around 10%. So we are not talking peanuts. This is serious money while the US is in recession and millions of people are out of work. What’s the result? If it comes down to a choice between food on the table and an insurance policy, food wins every time. Everyone has to eat and everyone needs a vehicle – even in the bigger cities, public transport is a joke. So, when push comes to shove, more people will drive uninsured. That’s bad news for the rest of us. Our premiums will rise with fewer policy holders sharing the rising costs of claims. If only the insurers would hold the premiums steady, more people could pay, and rates would stay lower for longer. If only…

So why are insurance companies hiking the rates? There are two common issues. The first is the broken healthcare service. Whenever there’s a more serious traffic accident, most people go to hospital. The obvious injuries are treated. Bodies are examined to ensure there are no other injuries. Except, the moment anyone steps through the door of a hospital or clinic, the medical expenses meter starts to run. Despite the recession, the drugs industry and healthcare service suppliers have been increasing their prices. There have been some high-profile disputes between insurers and hospital groups in CA and CO. The current fight is between the Continuum Health Partners of New York and United Healthcare. The hospitals have agreed pay increases with the labor unions, new technology is expensive to instal and operate. They want more money. The insurer is looking for a reduction in charges of between 7 and 10%. It’s sad to admit but, in this fight, the insurers are actually protecting us policy holders.

The second problem is equally easy to explain. When we claim, the insurer should have the money to pay. This money comes from cash reserves and all the different state Insurance Departments monitor the amounts held to ensure there’s always sufficient set aside. It’s standard for insurers to hold this money on investment so, when the recession came, they were slow to move out of stocks and bonds, and all the larger insurers lost a slice of their capital. Commissioners are offering their local insurers a choice. Either reduce the number of people holding policies or add more to your cash reserves. This forces companies to raise premiums and so, sadly, it’s getting more difficult to find affordable auto insurance. Even with the use of this site’s excellent search engine, it’s difficult to find policies with lower rates. When you get the multiple auto insurance quotes, check through to find those with lower premiums. For good terms, look at the discounts available from these companies. Think about accepting a higher deductible. Using the auto insurance quotes as a starting point, negotiate directly with the insurers. Affordable policies are out there. You just have to work harder to find them.

Let’s start off with a simple explanation of why fraud costs us all money. Insurance companies employ people called actuaries. They spend their time calculating how many traffic accidents there are likely to be and predicting how much all the claims will be worth in a year. That total is divided among all the policy holders as the premium. It’s all guesswork but they are good guessers. Except that, when thousands of people make false claims, the insurers suddenly find themselves short of money to pay out. What is the result we see? Premium rates go up for all.

How bad is the problem? In New York, the number of suspected cases of fraud has risen by one-third from 2007 through 2009. Across the state, the insurers identified 13,433 probable cases of fraud in 2009 alone. To pay for this, the premium rates rose by an average of 6.3% in 2009. The most common frauds are staging an accident to claim medical expenses. This has caused the average value of each claim to rise to more than double the national average. That’s millions of dollars paid out and millions of dollars that have to replaced in the capital reserves. This problem is not, of course, unique to New York. It has become a well-recognized way of raising cash as the recession has deepened. So, if people find their household budgets under pressure, they can report their vehicle stolen or become the victim in a phantom hit-and-run.

Ah, but you are saying all this needs support from attorneys and physicians prepared to push claims knowing or suspecting their clients are faking or exaggerating. Well, let’s keep this real. The FBI and local law enforcement agencies regularly run undercover sting operations to catch the fraudulent. In Philadelphia, for example, a recent operation resulted in long jail terms for an attorney and thirty-four individuals falsely claiming millions based on fake medical evidence. In Santa Clara County, California, the police recently prosecuted more than twenty body shops for supplying false estimates to insurance companies. An undercover officer driving an undamaged Honda Civic explained he had reported the vehicle vandalized to pay for a new paint job. The body shops supplied an estimate under $3,000 – insurance companies do not inspect damage for “small” claims.

The truth is there’s an epidemic of fraud and it’s not only established criminals or those on the fringe of legality like street racers. But, sadly, it’s also becoming a mom-and-pop crime. Why? Because the cost of investigating every claim as possible fraud is too expensive for the insurers. It’s cheaper to pay out all the smaller claims and absorb the losses. This is one of the main reasons why it’s getting harder to find cheap auto insurance. The volume of fraud is driving up the premium rates for everyone. But there’s a secondary problem. Outside California, insurance companies still use zip codes in setting rates. Where the levels of fraud are high in some areas, the rates reflect this. So, those who live in the Bronx and Brooklyn pay more than other parts of New York because there are more fake claims. This does not mean it’s impossible to find cheap car insurance. You just have to work harder, using a site like this, to identify those insurance companies offering good discounts. As another self-help step, you could report all those you know are making false claims. If the police and FBI cannot stem the flood of fraud, it’s up to every law-abiding citizen to step up to the plate. The result will be lower premiums for all.