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- Indemnity health Insurance began in the early 1900s as health care in the US improved
- Indemnity insurance permits users to choose the providers they wish to use
- Indemnity uses a fixed price approach to medical services
- Indemnity Insurance can cost more than other managed care but provides superior freedom of choice
There may not be a precise date time when indemnity health insurance was first used; some research points to 1929 for the beginning of group health. In the early 1930s, the American Medical Society took a position in opposition to HMO and other prepaid medical services and favored indemnity insurance agreements with individual practitioners. They also opposed group medical practice.
This was also the beginning of the Great Depression, and hospitals sought to guarantee a sufficient patient load to stay in business.
Group insurance was their preference, and the Blue Cross organization came as a hospital agreement to cooperate and let clients choose which one they wanted to use.
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“Indemnity Health Insurance” Definition
Indemnity insurance today is the type of insurance that sets an amount of insurance payments and permits the customer to pick the provider. If the provider charges more, then the customer must pay the difference.
Customers have free choice of doctors, specialists, hospitals or other service providers. When selecting health insurance, comparison shopping is a powerful tool for focusing on the features with the greatest impact.
No Managed Care Restrictions
Indemnity health insurance is not like the HMO; it does not require a primary care physician. There are no permissions required to use other network resources. The primary care doctor maintains care and oversight in the HMO model.
In indemnity insurance, the client acts as a self- monitor. This is the difference between Original Medicare and Medicare Advantage.
No Network Needed
Indemnity insurance does not require a plan provider with a network of hospitals and doctors. There is no price difference between doctors inside and outside of a network for cost sharing.
Indemnity plans do not require referrals, or in the practice, the member makes a self-referral to specialists.
In the Beginning, There Was No Indemnity
The origins of indemnity health insurance go back to the beginnings of health insurance in the United States. There were historical and scientific events that led to the development of indemnity insurance and the present types of health insurance that we now call the Marketplace and Medicare.
Beginning with the Civil War, the state of medical practice and hospital care left much to be desired. A chief concern was acquired illness and injury as hospitals became centers for transmitting gangrene, pneumonia, and other infectious diseases.
Doctors and health workers were major sources of infection due to the lack of understanding of the nature of infection and diseases. Unwashed hands and poorly sterilized instruments caused countless injuries, diseases, and deaths.
Safety Came First
Medical services were so risky in the late 1880’s that many people avoided them for fear of further illness and infection. Some important discoveries about the nature of bacteria action and infection came into the profession along with increased sterilization.
It is hard to imagine by contrast with today’s standards of medical care. In the difficult state of medicine of the late 1800s, change and improvements gradually came to be. Medicine improved in science and in simple ways. For example, Doctors and nurses began washing their hands between patients and hospital safety improved.
Popular Medical Care
In the early 1900’s, better educated and trained doctors and health workers created beneficial protocols to keep hospitals cleaner and much more disease free. It was during this era that health insurance began because people wanted more medical care.
When ill, or seeking to stay healthy, people sought medical care from a local doctor or hospital. Healthcare became a product that the public both needed and wanted at reasonable prices.
The Blue Cross Association Landmark
Hospitals were among the first to organize groups of patrons. Baylor University Hospital was one of the first recorded organizing events, and it led to a group of teachers that prepaid for hospital care. This was an early hospital insurance.
Other hospitals followed, and the hospital association stepped in to create a network of hospitals rather than let them compete. This was the beginning of Blue Cross Network. Some years later the doctor’s association created a doctors group called Blue Shield.
Blue Shield was the doctor’s response to the hospital’s move into Blue Cross while maintaining opposition to group practice.
The public timeline is documented more clearly. It is a path to Medicare and national health insurance.
The Health Insurance Business Before WWII
The first modern type of health insurance came in the 1930’s when non-providers began to organize health care as a managed service. They used actuarial data as the basis and the deep pockets of booming businesses as the targets. They developed the strong connection between health insurance and employment.
Employees were logical targets for the actuarial approach because they were healthy enough to work. They also had stability and prospects for a long-term relationship. Insuring a group of young, healthy workers with regular medical care was a good business bet.
WWII and the Connection of Health and Labor
In World War II, the US government had powers to control wages and hours to contribute to the war effort. The concept of wages in that control included benefits for employees other than money or salary.
Management and Labor organizations were quick to realize that health insurance was a powerful tool for getting and keeping highly qualified and productive labor. In an era of wage controls, adding health benefits would tip the scale decidedly in favor of an employer that offered them.
After WWII Health and Labor Connection
Health insurance grew into a business attracting investors and professional management. The HMO laws of the 1970’s were a major advance. The managed care movement used actuarial data to target opportunities for growth. They did not simply try to enlist a community; they created a community of interests.
By looking at businesses, particularly large businesses, they created a connection between employment and health insurance. It was an upper level of employment that did not depend solely on wages.
Health insurance benefits helped keep employees healthy, and it saved money for the fortunate employees. Their paychecks went further when not having to send to get top-rated family health insurance.
Advantages of Indemnity Insurance
Indemnity plans do not have HMO and PPO features. Some of the expected features that one finds in HMO and PPO type plans restrict choices. Those types of managed care networks focus on vetting providers for costs and service.
The indemnity plan permits beneficiaries to decide what is most important when selecting a provider.
– Free Choice
indemnity plans set the prices that insurance pays for services; it leaves the selection process to the beneficiary. Without a network to track, a plan is an open contract for services until the beneficiary decides which provider to use.
Indemnity plans do not have to limit the beneficiary to an area. Beneficiaries can choose doctors and specialist from any place they wish. This may be an advantage for those in a business area that does not offer a specialty they wish to use.
Indemnity plans let beneficiaries self-refer to experts and specialists; they cut-out the steps and paperwork needed for referrals and permissions.
Indemnity is the Best Choice for Some Users
Indemnity health insurance thrives and succeeds alongside the managed care models like HMO, PPO, and POS.
In Medicare, Original Medicare is an indemnity-style system. Medicare sets the amounts they will pay for coded procedures. The fixed-fee-for-services style of managed care is the essence of an indemnity system of health insurance.
Customers choose the provider, and the fixed price covers all but the customer’s share of the payment. Doctors must accept the assignment or find ways to collect from the user.
Comparison shopping is a great way to select private insurance plans. For example, one can get plans with the maximum freedom of choice of providers by focusing on that feature.
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