Under fee-for-service health care coverage, your doctor or health care provider charges for each treatment or procedure.

You either pay when service is received, then file for reimbursement from your insurance carrier, or file a claim to have the medical provider paid directly. Your insurance carrier will only pay for covered medical expenses, and you will probably be responsible for picking up part of the cost, even for covered procedures.

For example, assume you've got fee-for-service coverage with 20 percent co-insurance (co-insurance is your percentage share of the covered medical expenses). If the standard ("reasonable and customary") fee for a medical service is $100, the insurer will pay $80 and you will pay the $20 balance. But if your doctor charges $125, the insurer still pays only $80; you must pay the entire $45 balance -- your $20 co-insurance amount plus the $25 in excess charges that the insurer will not cover.

To simplify this example, we've ignored the deductible, the amount of the covered expenses you must pay each year before reimbursement starts. In real life the deductible amounts range from $200 to $300 for an individual to well over $500 for a family.

You may actually choose a high deductible, even though that means reimbursement won't kick in until later, in exchange for a lower premium. If you pay your own premiums either directly or through a cafeteria plan at work, you may save money in the long run with a high deductible.

The benefit of this type of coverage is that you get to go to the doctor or hospital of your choice.

Other features:

  • Out-of-pocket maximum -- Once your "out of pocket" expenses (deductible plus co-insurance payments) reach the ceiling, you no longer pay the co-insurance charge, though you will probably remain responsible for amounts over the "reasonable and customary" limits.
  • Many policies limit the total benefits payable during your lifetime. Should you contract a catastrophic illness, you could reach the limits; if your company-sponsored coverage has a lifetime cap under $1 million, consider buying supplemental catastrophic coverage.
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