| Alternatives to Managed Care
Indemnity Insurance Plans
 Because of the restrictions and frustrations of working with HMOs, POSs or PPOs, many consumers are seeking a method of paying for health care that will be affordable, but also allow them freedom of choice and access to the best services the world of medicine has to offer. Some feel that the best solution is to return to the indemnity insurance system that most of us were familiar with prior to the appearance of for-profit managed care.
Traditional indemnity insurance plans offer consumers greater freedom than HMO, PPO or POS plans, because they make no medical decisions about things that should be between patient and doctor, or about which doctors a patient may see. Instead, indemnity insurance pays for the cost of health care after the bills have exceeded some minimum amount (the deductible). From that point onward, the insurance company pays some predetermined percentage (usually 70% or 80%) of all further expenses until the patient's portion of the bills for that year reaches some limit --- the out-of-pocket expense ceiling. Once a patient has reach his or her out-of-pocket ceiling the insurance policy then pays 100% of all expenses with no co-payment. The amount of the deductible, the ceiling at which the policy starts to pay 100%, and the level of reasonable and customary fees are all variables that help determine the purchase price of the indemnity policy.
However, while indemnity insurance technically offers a "non-managed" means of paying for health care services, it has at least one hidden managed component--the "usual, customary and reasonable" (UCR) fee schedule (also employed by HMOs when providing coverage to patients who go out-of-network).
The "usual, customary and reasonable" concept is based on the idea that, in a given neighborhood, most doctors in any one specialty of similar training with similar experience will charge roughly similar fees. Statistically, the majority will be within the UCR range, but a few may be beyond it. It is a reasonable concept designed to prevent fee gouging by doctors who know that a patient has full coverage regardless of what they might charge.
However, a "usual, customary and reasonable" system may be problematic in either of two ways. Most obviously, an insurance company may use a list of fees which may be artificially constructed to be too low to represent the true market, so that their promise to pay the consumer 80% of medical costs above the deductible may be misleading.
More commonly, and more insidiously, an insurance company may, in its policy define "usual, customary and reasonable" in a way that lowers patient reimbursement. While the best insurers consider "usual, customary and reasonable" to include all but the top 10% of charges for a given service in a given area (90th percentile UCR), many use all but the top 20% or even 30% (80th or 70th percentile UCRs), and some, remarkably, use the 50th percentile (meaning that they claim that 50% of all the doctors are charging more than is "usual, customary and reasonable").
The significance of this, of course, is that they only pay 80% of what they determine to be a "usual, customary and reasonable" fee, which may be far below what many doctors in the neighborhood actually charge, leaving the patient to absorb the rest. It is therefore critical, when evaluating an indemnity (or an out-of-network option HMO) plan, to determine at which "percentile UCR" the policy pays. And, unfortunately, as one might suspect, this information (not in the patient brochure) is not always happily volunteered. However, it can usually be obtained from the agent selling the policy.
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