Health Insurance

health_insuranceTypes of Health Insurance Plans

To help business owners better cope with the increasing costs of health insurance, carriers have designed different types of plans in recent years. These include managed care plans such as HMOs, EPOs, POSs, and PPOs. In addition, cost-saving plan structures such as HSAs and HRAs have helped further alleviate the cost that comes with having group insurance.

In-Network Plans

HMO – Health Maintenance Organization

HMOs appeal to those who prefer to stay in-network and have a primary care physician (PCP) coordinate their care. All costs associated with non-network doctor visits are entirely the patient’s responsibility. With an HMO, there may be no deductible and co-payments are usually quite low. Another feature of HMOs is that a referral from the PCP is usually necessary to see a specialist. A major focus of HMO plans is on preventative care as a way to reduce the expense that comes with seeing specialists.

EPO – Exclusive Provider Organization

EPOs, as with HMOs, offer a strong incentive to stay within the network.  However, no referral is required to see a specialist. Depending on the group’s preference, EPOs may or may not contain a deductible element (see below for an explanation on how deductibles work). Overall, EPOs provide more flexibility than HMOs but comes with higher out of pocket costs for the insured.

In-Network and Non-Network Plans

POS – Point of Service

POS health insurance plans offer the next level of flexibility. It provides a greater choice of medical providers than HMOs or EPOs. Members also have the ability to obtain out of network benefits, although at a higher out of pocket cost. Depending on the design of the plan, choosing a PCP to oversee the patient’s care may be required. On average, premiums for POS plans lie between those of EPOs and PPOs.

PPO – Preferred Provider Organization

With PPOs, health insurance companies contract a group of doctors and hospitals that form to comprise the plan’s network.  Since these network practitioners agree to charge a contracted fee for their services, members have a strong incentive to stay within the network.  However, participants of PPO plans have the option to go out of network at the expense of much higher charges. Another feature of PPO plans is that members do not have to select a primary care physician. Of all the plans described here, PPOs offer the greatest amount of flexibility but also incur the highest premiums.

Cost-Saving Plan Structures

HRA – Health Reimbursement Accounts

A Health Reimbursement Account (HRA) is a fund set up by an employer for its employees, which is used to reimburse employees for eligible health care expenses not covered by their health plan. HRAs may be designed to cover copayments, coinsurance, deductibles, and more. Depending on plan design, funds may be rolled over from one year to the next. HRAs help raise consumer awareness of the real costs of health care while empowering your employees with greater decision-making control over their health care spending. HRAs are most commonly linked with a high deductible health plan (HDHP).

HSA – Health Savings Accounts

A Health Savings Account (HSA) is like a 401(k) for healthcare. It is a tax-advantaged personal savings or investment account that employees can use to save and pay for qualified health expenses. Paired with a high deductible health plan (HDHP), an HSA empowers employees to be more actively involved in their healthcare decisions. Contributions to an HSA can be made by the employer, employee or both.

HSAs have three major tax saving advantages:

  • The money contributed into the account is tax deductible
  • The money grows tax free
  • Withdrawals for qualified medical expenses are tax free

HSAs are portable so employees can keep their HSAs if they change jobs. There is no “use-it or lose-it” provision like with a Flexible Spending Account (FSA).

Maximum contributions for 2010 are $3,050 for a single and $6,150 for a family.

Deductibles

Many plans adopt a deductible schema in order to offer risk protection for participants. Choosing a deductible driven plan can also help lower premiums significantly.

Suppose Plan X has the following annual deductible schema: $500 deductible, 80% co-insurance, and a $1,500 max out of pocket. Suppose, also, that the entire medical costs accrued by the participant totaled $2,000.  Under this plan, the first $500 of the total cost is paid by the participant. The responsibility of the remaining $1,500 is distributed according the co-insurance percentage: 80% of the $1,500 ($1,200)  is paid by the carrier, and 20% ($300) by the participant.  The total out of pocket amount paid by the participant is therefore $800 (the $500 deductible plus the $300 for the co-insurance element).

The max out of pocket amount represents a cap on the total cost the member  can potentially be responsible for.  In the example above, the most the member can pay out of pocket is $1,500. Once that amount is reached, the carrier will take on the remaining balance. In some cases, a plan not having a deductible component may prove to be more risky than one that does. This is because co-pays can add up quickly.