As medical costs continue to rise each year and health insurance premiums climb, traditional indemnity health insurance plans are no longer the top choice when it comes to healthcare coverage. For many people indemnity healthcare plans, which are often referred to as "fee for service" plans, remain the favored choice, but many people are finding that they no longer have this choice as employers are switching away from indemnity cover to cut their overheads.

The beauty of indemnity plans lies in the freedom which they give to the policyholder to choose the care he requires, where and when he requires it. By contrast, the alternative managed care plans give policyholders far less choice and have led to many people describing them as plans which manage the policyholder, rather than manage the policyholder's care.

Although indemnity plans have been, and remain, popular with many people they do of course come at a price.

Having received the necessary medical care the provider's bill will need to be paid and, in many cases, this means that the policyholder will be required to meet the full cost of the bill in the first instant. Thereafter, the bill will be sent to the insurance company who, having checked to see that the treatment is covered by the policyholder's plan, will next check the bill against the its own list of "customary and reasonable" charges for the treatment in question. As long as the bill is considered to be reasonable the insurance company will then reimburse the policyholder, typically paying 80% of the bill, or whatever proportion is specified in the policyholder's plan.

Under an indemnity health insurance plan the policyholder is free to undergo treatment wherever he wishes and, should he choose to do so, he can opt for treatment with a leading specialist who will normally charge well above the average for the treatment being given. In this case the insurance company will simply pay that portion of the bill which it considers to be reasonable for the form of treatment in question and the policyholder will be required to meet the balance of the bill.

In addition to paying a proportion of each bill incurred, people who choose indemnity health insurance plans are also required to pay a monthly (or sometime quarterly or annual) premium and an annual deductible, which represents a sum of money to be paid by the policyholder each year towards the cost of medical treatment before the insurance company will start to meet medical bills. Although these costs can be high, this particular form of health insurance suits many people.

Today, managed care plans have improved considerably since the days of the original HMO plans and a PPO, or Preferred Provider Organization, is the plan which most closely matches an indemnity health insurance plan.

With a PPO, policyholders will normally be expected to seek treatment from within the PPO's network of doctors and healthcare facilities and costs will be lower as long as they do so. Policyholders still have the option of choosing to go outside the network, but when they do so, their out of pocket expenses will generally be higher. As with indemnity plans, policyholder will need to pay a monthly premium and, before the insurance company will contribute towards their costs, the policyholder will again have to first satisfy an annual deductible.

So which type of plan is better?

Well, assuming that you have a choice, the answer will depend very much on your particular preference. If you can afford the higher cost and place a high value on the ability to decide from whom you wish to receive your medical care then you will almost certainly be happier choosing an indemnity health insurance plan. If, however, you need to closely monitor your medical cost, but still wish to retain a reasonable degree of freedom of choice, then a PPO plan will probably meet your needs.