Do you want out from under the restrictions of a managed care health insurance plan? Do you want the freedom to pick your own doctor, specialists, hospital and lab? Is freedom of choice more important to you than cost? If so, you should take time to understand fee-for-service health care insurance. Fee-for-service plans cost more than managed care plans, but let you choose your own service providers and require no referrals. Managed care plans have tended to replace fee-for-service because they are less expensive for the consumer and for employers. Nevertheless, fee-for-service plans still are available from many employers and insurance companies. If choice appeals to you, fee-for-service represents an option you should investigate.
Industrialist Henry Kaiser and Dr. Sidney Garfield created the first fee-for-service health care plan in the 1930s. Garfield, at Kaiser's request, structured the plan to protect Kaiser's workers building the Grand Coulee Dam. In the early 1940s, World War II-era employers competed for employees in a war-limited labor market. To recruit and keep workers, Kaiser and others like him began providing fee-for-service health care insurance as an employee benefit. Eventually, employer-provided health care became part of the Internal Revenue Code and made fee-for-service health care insurance a non-taxable benefit for millions of employees (and employers).
Fee-for-service can involve two separate policies: Basic Coverage and Major Medical. Basic Coverage includes all of the elements of normal daily health care, doctor visits, hospitalization and surgery. Basic Coverage plans, however, have financial caps. When you suddenly face a lingering (or chronic) illness or serious injury, Major Medical starts paying most of the bills. You can think of Basic Coverage as "everyday" health insurance used to cover some of your costs to maintain your health, and of Major Medical as a risk management tool that protects your family from the ruinous cost of catastrophic medical expenses.
How It Works
In a fee-for-service plan, you pick the service provider you want, and the insurance pays for up to 80 percent of the cost. As originally designed, you paid the provider out-of-pocket, filed a claim and your insurer sent you a check to cover his part of your cost. In the 1970s, many providers began submitting your claim for you, receiving payment directly from your insurer and billing you only for your share of the costs. Medicare is a modern fee-for-service plan.
A "comprehensive" fee-for-service policy combines Basic Coverage and Major Medical in a single policy, eliminating gaps in your coverage. Although the definition of a comprehensive health care policy has expanded over time to include any policy that provides basic care and catastrophic risk management, its original definition applies only to fee-for-service plans.
As with other forms of health care insurance, fee-for-service comes with premiums, deductibles and co-payments. A premium is the monthly fee you pay to own the policy. A deductible is an amount you must spend out-of-pocket before the insurance begins paying benefits, and a co-pay is a set amount you pay each time you receive a service.