Unlike a HMO or PPO where the insured must select health care providers from a specific network or else pay an additional out-of-network fee, a fee-for-service plan gives the insured a great deal of freedom of choice in selection of doctors. The plans consist of two components: basic coverage, which pays for items such as doctor visits and surgeries, and major medical insurance which covers costs associated with catastrophic medical events such as prolonged serious illnesses where medical expenses could easily reach hundreds of thousands of dollars.
Your health insurance options may include increasingly popular managed care plans, such as a Health Maintenance Organization or Preferred Provider Organization, which are designed to keep costs low but may offer fewer choices. Another possibility is a fee-for-service plan where you have more freedom of choice. Depending on the type of fee-for-service plan, benefits may be paid by the insurer based on predetermined schedules.
A fee-for-service plan may pay benefits based on what is considered usual, customary and reasonable for similar types of treatments in a geographic area. Another method provides benefits according to a predetermined schedule, which pays up to a specific dollar limit based on the type of medical procedure or service. Commonly scheduled items can include doctor visits where the patient is covered up to a specified amount per visit, a per-day amount for hospital room stays and surgical procedures covered up to a predetermined limit based on the type of procedure.
While scheduled fee-for-service plans offer more freedom and flexibility, they can also include certain limitations. Because the insured only pay up to the limits determined by the schedule, there is always the possibility she might not be covered in full. If her policy only pays $75 per doctor visit, a $150 visit means she is only covered for half of the total. Insurers that fail to update their schedules on a regular basis may not be able to keep up with the rapidly rising costs of medical care.
In general, fee-for-service plans tend to be more expensive than managed care plans. The greater freedom of choice can also lead to higher premiums, as insurers tend to charge more in exchange for relinquishing some control over which health care providers patients choose. To keep premiums low, policyholders may choose to carry higher deductibles and coinsurance. While this lowers their premium outlay, it also results in greater out-of-pocket expenses when using the coverage.