What you should know:
- Fee-for-service plans pay for each service rendered.
- Fee-for-service plans have been scrutinized for encouraging medical providers to increase the quantity of services given rather than focusing on quality.
- Medicare private fee-for-service (PFFS) plans are a form of Medicare Advantage Plan offered by private insurers that use a fee-for-service model.
- Original Medicare Part B is also a fee-for-service plan.
Fee-for-service plans differ from alternative payment models, such as bundled payment plans, in that they encourage providers to provide a higher number of services rather than focusing on the quality of services rendered. For this reason, there’s been a shift away from fee-for-service models and towards more value-based payment methods that reward providers for the quality, rather than quantity, of their care.
What is a Medicare fee-for-service plan?
Medicare private fee-for-service (PFFS) plans are a form of Medicare Advantage Plan offered by private insurers who contract with the Centers for Medicare and Medicaid Services (CMS). As with other Medicare Advantage Plans, PFFS plans provide full Medicare benefits plus additional benefits at the discretion of the insurer.
Who is eligible for a Medicare PFFS Plan?
You’re eligible for a Medicare PFFS plan if you’re enrolled in Original Medicare Parts A and B and a plan is available in your area. However, if you’re eligible for Medicare based on End-Stage Renal Disease diagnosis, you are not able to sign up for a Medicare PFFS plan.
With a Medicare fee-for-service plan, beneficiaries pay for each service received from a healthcare provider, says Matt Dworetsky, president of Dworetsky Financial in Manalapan, New Jersey.
“Medicare covers some of the expense and the consumer pays the rest, but these charges are billed individually, not bundled,” he says. “Medicare will either pay this fee directly to the healthcare provider or reimburse the consumer after they file a claim.”
Each plan sets the rates it will pay and how much the beneficiary is responsible for. Generally, in a fee-for-service model, the more extensive or costly the service is, the higher the fee, says Hiroko Haig, founder of Hiroko Haig Insurance Service.
What you’ll pay
You can expect to pay the plan’s monthly premium in addition to your monthly Medicare Part B premium. Additionally, you’re responsible for a service’s copayment or coinsurance amount. That copayment can be as much as 15 percent above the plan’s approved cost of service.
The monthly premium for Medicare Advantage PFFS plans are generally lower than Medicare Supplement plans, also called Medigap, Haig says, which can make these plans a good alternative for individuals who like Medigap but cannot afford the monthly premium. Note: You can purchase a Medigap plan if you have Original Medicare, but not if you are enrolled in a Medicare Advantage plan.
Choosing a healthcare provider
The other good thing about PFFS plans is that beneficiaries have the freedom to choose their healthcare provider, just like with Original Medicare. Some PFFS plans will have contracts with a network of providers who have agreed to always treat PFFS patients, even new patients to their office.
You don’t need a primary care doctor or a referral to see a specialist with PFFS plans, either. Some plans may include prescription drug coverage, as well.
Medicare fee for service drawbacks
However, there are also drawbacks to PFFS plans. “Except for emergencies, PFFS plan members must show healthcare providers that they are PFFS plan members before receiving services,” Haig says. “If the provider agrees to accept the plan’s terms and conditions, the member can receive Medicare covered services from them.”
But the healthcare provider can change their policy at any time and decide to no longer accept the patient’s PFFS plan, she says. This is why Medicare advises PFFS beneficiaries to show their Medicare ID card at every visit and confirm a service provider will accept their plan’s payment terms before receiving treatment.
Some PFFS plans also have network restrictions. “With this type of PFFS plan, a plan member could owe higher payment if the member sees out-of-network providers,” Haig says. That said, “PFFS plans must have out-of-pocket maximums for both in-network and out-of-network providers.”
While PFFS plans combine the freedom to choose your healthcare provider like under Original Medicare with the lower premium and out-of-pocket costs of Medicare Advantage Plans, the trend in healthcare has been towards coordinated care through HMO and PPO plans, not fee-for-service plans, Haig says. “So, it is very important to check if (a PFFS) plan works the best for you before signing up.”
Who should get a Medicare PFFS Plan?
Medicare PFFS plans represent a good choice for Medicare beneficiaries who are willing to pay more for a plan that may include coverage for vision, dental, and hearing benefits as well as prescription drugs while also providing the freedom to choose their own providers.
Is Medicare Part B fee-for-service?
Medicare Part B is a fee-for-service model, as is Part A, because beneficiaries pay for each service they receive, Dworetsky says. Medicare pays your health care providers directly for the services rendered.
That said, the Medicare Access and CHIP Reauthorization Act (MACRA) became effective in January 2020. Since then Medicare providers are paid based on the quality of their care, not the number of services they provide, Haig says. “So, I would say that the Medicare Part B fee-for-service system is a little different from the traditional fee-for-service system,” which incentivized providers to prioritize quantity over quality.
What is an example of fee-for-service?
An example of a fee-for-service plan would be one where you are charged a copay or coinsurance for each doctor’s visit. “Your plan will either pay your doctor directly or reimburse you after you pay and file a claim,” Dworetsky says.
With a fee-for-service plan, “you can go to any doctor or any hospital, but you will pay more for doctors that are out-of-network versus doctors that are in-network,” says Cynthia Pruemm, Investment Advisor, founder and CEO of SIS Financial Group in Hoffman Estates, Illinois. “You will have to pay either a copay or coinsurance for most procedures that you have done in a doctor’s office or hospital.”
Fee-for-service plans are also not standardized so benefits can vary, not only from company to company but also from year to year, Pruemm says.
What does covered by fee-for-service mean?
Covered by fee-for-service means you will pay your medical bills directly and file a claim with your insurance provider for reimbursement. With Original Medicare, the healthcare provider files the claim on your behalf.
“To be covered by fee for service means that Medicare will help pay for whatever service you require,” Dworetsky says. Most plans pay 70% to 80% of the approved amount for a doctor’s visit or treatment and the beneficiary pays the remainder.
If you are covered by a fee-for-service plan, “there are in-network and out-of-network providers, but you can go to any Medicare approved doctor,” Pruemm says.
Some medical practitioners require fee-for-service plans, forcing patients to pay for the service when given and then file for reimbursement later. This reduces the provider’s risk that the insurance company will deny coverage and refuse payment.
Providers who only accept fee-for-service plans are likely striving to get paid a higher price for services than those offered by other plans, like managed care plans, Haig says. “I do not know if that is a good business, while the trend is towards HMO and PPO type plans, and the majority of people in this country have HMO or PPO plans.”
These experts were consulted for insight into Medicare fee-for-service.
- Matt Dworetsky, president of Dworetsky Financial in Manalapan, New Jersey
- Hiroko Haig, founder of Hiroko Haig Insurance Service
- Cynthia Pruemm, Investment Advisor, founder and CEO of SIS Financial Group in Hoffman Estates, Illinois
- Healthcare.gov: Fee for Service | Last accessed June 2021
- OPM.gov: Plan Types | Last accessed June 2021
- Healthinsurance.org: What is fee-for-service? | Last accessed June 2021
- Medicare: Private Fee-for-Service (PFFS) Plans | Last accessed June 2021
- CMS: Private Fee-for-Service Plans | Last accessed June 2021
- Medicare Interactive: The parts of Medicare (A, B, C, D) | Last accessed June 2021
- DECO Recovery Management: Understanding Fee-for-Service and Value-Based Care | Last accessed June 2021
- Financial Dictionary: Fee-for-service | Last accessed June 2021