What is private indemnity insurance?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Written by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

UPDATED: Jul 15, 2021

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The least you should know…

  • Private medical indemnity insurance is similar to publicly funded programs like Medicare and Medicaid
  • Many employers use limited forms of private indemnity insurance for their employees, more commonly known as Preferred Provider Organization (PPO)
  • The summary plan description (SPD) details the limitations and rules of your private indemnity health insurance plan 

Private indemnity insurance is a type of medical coverage obtained through a private source, as opposed to a public, government-sponsored healthcare program like Medicare.

An individual can purchase private indemnity insurance on his or her own or through an employer. These types of insurance plans reimburse an individual for visiting any doctor or medical provider.

Private Indemnity Insurance Definition

Many employers utilize a type of private indemnity insurance program called a PPO because it tends to be cheaper than other insurance programs due to limitations on program and network options.

The extent of reimbursement coverage for any type of private indemnity program is usually set out in a summary plan description (SPD). The SPD is essentially the “playbook” for how any particular private indemnity insurance program works.

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About Summary Plan Descriptions

Before purchasing or using private indemnity insurance, you should review the fee services or expenses out-lined in the SPD. Because of the “fee for service” nature of these plans, private indemnity insurance programs typically have deductibles.

Deductibles require the insured to pay medical charges up to a certain amount before the health insurance company will cover any remaining charges. They also often have co-pays, which require the insured to pay some portion of the bill when they visit a doctor, fill a prescription, or go to the emergency room.

Even though the model of private indemnity insurance programs overlap with managed care insurance programs, indemnity programs are structured more as reimbursement programs, whereas managed care companies pay medical providers directly.

Other Information Outlined in a Summary Plan Description

The SPD may also outline limitations on your selection of health care providers. When a private indemnity insurance program offers a more limited choice of health care providers, is it is typically referred to as Preferred Provider Plan. Your choices may be restricted to health care providers who are members of the sponsoring insurer’s Preferred Provider Organization, or PPO.

If you use a doctor who is not on the list (or in the PPO), you are “going out of network.” Most PPO’s will reduce your level of services, coverage, or reimbursement claims when you use a provider who is out of the network.

Because the SPD is the playbook for the private indemnity insurance organization, you should frequently review any specialized rules regarding notice, referral, reimbursement, and claim submissions.

For example, if you want to see a specialist for your allergy condition, the private indemnity insurance company may require you to first visit with your regular doctor and obtain his referral and recommendation to see the specialist. If you don’t consult with your regular doctor first, you may be denied coverage, which means that you will not be reimbursed for the expenses associated with your allergy specialist visit.

Reading the fine print is critical to maximizing the benefits of a private indemnity insurance plan. The failure by a policyholder to submit a claim for reimbursement properly or in a timely manner can result in denial of the claim.

Public Indemnity Insurance Plans: Frequently Asked Questions

What does indemnity in insurance mean?

First of all, what does indemnity mean and what is a personal indemnity?

Indemnity means a contractual obligation to pay the total amount of a loss. 

In the context of medical insurance plans, there are two basic ways that insurance is provided: the reimbursement method and the indemnity method.

  • the reimbursement method pays all or an agreed-upon portion of the actual cost of a service, usually directly to the provider
  • the indemnity method pays a fixed amount for a service directly to the insured, who can then pay for the service directly

One example of an indemnity model is hospital indemnity insurance, also known as doctors indemnity insurance or fixed indemnity health insurance. Pros and cons of this type of insurance are that it can eliminate the need to stay in a specific network by paying on a per-service basis.

On the downside, fixed indemnity insurance is not a replacement for full insurance, and will be limited by the terms. Many fixed indemnity health insurance plans cover expenses related to specific conditions, for example.

What is the difference between an indemnity plan and a PPO?

A true indemnity plan allows the insured to see any provider, while a PPO requires the insured to use preferred providers in order to be reimbursed for coverage. A PPO is a limited type of private indemnity plan.

What is an example of private indemnity health insurance?

Most major providers of health insurance offer variations on private indemnity health insurance. While PPOs are technically private indemnity insurance plans, the unlimited version is also available from most providers. 

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Getting Help

Like other types of insurance programs, private indemnity insurance programs are regulated by state and federal laws. They have specified duties to an insured and the policyholder.

If you think your private indemnity insurance organization is wrongfully or willfully denying you coverage, consult with a consumer attorney to review the enforcement actions available in your state. To search for an experienced insurance or consumer advocacy attorney near you, enter your ZIP code in our search tool.

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