An indemnity health plan will reimburse an enrollee for a portion of their healthcare costs, regardless of what medical provider the member uses or how much the provider bills.

This is called a fee-for-service approach. The indemnity health plan pays a pre-determined percentage of the reasonable and customary charges for a given service, and the policyholder pays the rest.

Indemnity plans do not have provider networks, so patients can choose their own doctors and hospitals. The amount the plan will pay varies by service but is defined by the plan and pre-determined (typically a certain percentage of the reasonable and customary charges for that procedure), regardless of how much the medical provider bills for the service. This leaves the insured on the hook for potentially large and possibly unexpected medical bills, depending on how much the provider charges for the service.

Providers can balance bill the patient for any billed amounts above what the insurance company pays, since the providers don't have contracts with the insurer requiring them to accept the insurer's "reasonable and customary" amounts as payment in full.