Fee-for-Service

Under a typical Fee-for-Service plan, the doctor or hospital will be paid a fee for each service rendered to the patient. In other words: You go to the doctor or hospital of your choice and you (or your doctor or hospital) submit a claim to your insurance company for reimbursement. You will only receive reimbursement for the "covered" medical expenses listed in your policy.

More about that reimbursement

When a service is covered under your policy guidelines, you will be reimbursed for some — but rarely all — of the cost. How much you get depends on the specific policy provisions, on coinsurance and on deductibles. How does it work?

The portion of the covered medical expenses you pay is called "coinsurance." There are some deviations, but usually Fee-for-Service plans reimburse doctor bills at 80% of "reasonable and customary charges" — in other words, the prevailing cost of a medical service in any given geographic area. Who pays the other 20%? You do. That amount is your coinsurance

What if charges are higher than "reasonable and customary"?

This is where things can get sticky ... and not just from a bandage that needs changing. If you are covered by a Fee-for-Service plan and your medical provider charges more than the reasonable and customary fee, YOU will have to pay the difference.

What about hospitalization?

Some Fee-for-Service plans pay hospital expenses in full. Most, however, reimburse at the 80% level as described above. (Lesson? Read your policy carefully!)

So what, exactly, are "deductibles"?

A deductible refers to the amount of covered expenses you must pay each year before the insurer starts to reimburse you. It goes something like this:

Let's say you have a $300 deductible

The first time you visit a doctor, you are required to pay the cost of the examination: $110. Several months later, your doctor recommends that you have your cholesterol and triglycerides checked. You go to the lab, have the blood drawn and pay the lab fees: $80. You return for the results of your tests and your doctor tells you you're healthy as an ox. Then he sends you away with a pat on the back and a bill for another $110. At this point, you have met your deductible of $300. After that, your insurer will reimburse you for each doctor visit or hospital stay - usually 80%, as mentioned above.

Deductibles vary. A typical deductible is $250 per person, but it can be lower or much higher. Some folks opt for a deductible as high as $10,000 (that's right, $10,000) to reduce premiums or to be used in conjunction with a medical savings account. The maximum family deductible is usually three times the individual deductible. As a rule, the higher the deductible, the lower the premiums.

Wait a minute ... what are "premiums"?

Premiums are the monthly or quarterly payments paid for health insurance. They don't count toward deductibles.

Keep a few things in mind about Fee-for-Service plans

Fee-for-Service policies typically have an out-of-pocket maximum. This means that once your covered expenses reach a certain amount in a given calendar year, the reasonable and customary fee for covered benefits will be paid in full by the insurer. If your provider bills you more than the reasonable and customary charge, however, you may still have to pay a portion of the bill.

You may have lifetime limits on the benefits paid under your Fee-for-Service policy. Look for a policy whose lifetime limit is at least $1 million. One major illness or extended hospital stay could easily use up a smaller lifetime limit, and nothing is worse for your healthy recovery than worrying about medical bills.