7 types of health insurance plans

January 2, 2020
health insurance, insurance plans, health benefits

Having the right health insurance benefit for your small business is extremely important.

In order to help you find the benefit that fits your needs, we'll go over seven types of health insurance plans. Five of these are traditional group health insurance policies, but we'll also introduce you to alternatives if group health is outside your budget.

Knowing these policy types will prepare you for evaluating options each year as part of your internal small business audit.

1. Preferred Provider Organization (PPO)

A PPO plan is a Preferred Provider Organization group health insurance policy.

With a PPO plan, employees are encouraged to use a network of preferred doctors and hospitals. These providers are contracted to provide service to plan members at a negotiated or discounted rate. Employees generally aren't required to designate a primary care physician, but will have the choice to see any doctors or specialists within the plans network.

Employees have an annual deductible they'll be required to meet before the insurance company begins covering their medical bills. They may also have a copayment for certain services or a co-insurance where they're responsible for a percentage of the total charges of their medical expenses.

With a PPO, services rendered outside of the network may result in a higher out-of-pocket cost.

A PPO may be a good option for your small business if your employees:

  • Need flexibility when choosing physicians and other providers
  • Want the burden of obtaining a referral to see a specialist
  • Like the balance of greater provider choice versus lower premiums

2. Health Maintenance Organization (HMO) Health Insurance Plans

An HMO is a Health Maintenance Organization group health insurance policy.

With an HMO plan, employees generally have a lower out-of-pocket expense but also have less flexibility in the choice of physicians or hospitals than other plans. An HMO may require employees to choose a primary care physician (PCP). To see a specialist, employees will need to obtain a referral from their PCP.

HMOs generally provide coverage for a broader range of preventative services than other policies. Employees may or may not be required to pay a deductible before their coverage starts, and will usually have a copayment.

Most of the time, there are no claim forms to file on an HMO. The main thing you will want to keep in mind is that with most HMO plans, employees have no coverage if they go outside of their network without proper authorizations from their PCP or in cases of certain emergency situations.

An HMO may be a good option for your small business if you:

  • Prefer lower premiums
  • Like the trade-off of in-network services
  • Desire good preventive services such as coverage for checkups and immunizations

3. Point of Service (POS) Health Insurance Plans

A POS is a Point of Service group health insurance policy.

POS plans combine features of an HMO and a PPO plan. Just like an HMO, POS plans may require employees to choose a Primary Care Physician (PCP) from the plan's network providers. Generally, services rendered by the PCP aren't subject to the policy's deductible. 

If employees utilize covered services that are rendered or referred by their PCP, they may receive the higher level of coverage. If they utilize services by a non-network provider, they may be subject to a deductible and lower level of coverage. They may also have to pay up-front and submit a claim for reimbursement.

A POS may be a good option for your small business if your employees:

  • Need flexibility when choosing physicians and other providers
  • Desire primary care physicians to coordinate care
  • Like the balance of greater provider choice versus lower premiums

4. Exclusive Provider Organization (EPOs) Health Insurance Plans

An EPO is an Exclusive Provider Organization group health insurance policy.

EPO plans are similar to HMO plans because they have a network of physicians their members are required to use except in the case of emergency. Employee members will have a Primary Care Physician (PCP) who will provide referrals to in-network specialists. EPO members are responsible for small co-payments and may require a deductible.

An EPO may be a good option for your small business if you:

  • Like the balance of less provider choice in exchange for lower rates
  • Have employees who can find value with a smaller panel of providers
  • Have employees who are comfortable shouldering higher costs for unplanned events

5. Indemnity Health Insurance Plans

Indemnity health plans are known as fee-for-service plans because of pre-determined amounts or percentages of costs paid to the member for covered services. The member may be responsible for deductibles and co-insurance amounts.

In most cases, the member will pay first out of pocket and then file a claim to be reimbursed for the covered amount.

An indemnity plan may be a good option for your business if you:

  • Can accept the burden of potentially increased administration for referral and claims paperwork
  • Are find with the balance of higher rates in exchange for more service control
  • Have employees who need high levels of flexibility for doctors and hospitals

6. Health Savings Account (HSA) Health Insurance Plans

One alternative to traditional group health insurance is an HSA. An HSA is a Health Savings Account.

An HSA is a tax-favored savings account that is used in conjunction with an HSA-compatible high deductible health plan to pay for qualifying medical expenses. Though HSAs can be attached to group health insurance, they're owned by employees and small businesses can contribute to them whether they offer a group policy or not.

The contributions to an HSA may be made pre-tax, up to certain limits set by the IRS. Unused funds in an HSA account roll over each year and accrue interest, tax-free. Funds may be used for other life events as well but may incur penalties and interest to be paid.

An HSA may be a good option for your small business if you:

  • Can't afford a group health insurance policy
  • Want to have greater control over how much you contribute to health benefits
  • Have a large number of employees who have an HSA

7. Health Reimbursement Arrangements (HRAs)

A health reimbursement arrangement is a type of health benefit that allows employers to provide health benefits without having to offer a group health insurance plan. Using an HRA, employers reimburse employees for premiums, and even out-of-pocket medical expenses.

With each HRA, employers are able to set a monthly allowance cap for employees to use. From there, employees shop for the individual health insurance policy that fits their needs best, and submit a proof of purchase for reimbursement.

There are six types of HRAs, each with their own uses and requirements. They are:

  1. Qualified Small Employer HRA (QSEHRA)
  2. Individual coverage HRA (ICHRA)
  3. Group coverage HRA
  4. Excepted benefit HRA
  5. Dental/Vision HRA
  6. Retiree HRA

See the 2020 HRA comparison chart for a closer look at the differences between each HRA

Below, we have outlined the three most popular types of HRAs: the QSEHRA, the ICHRA, and the group coverage HRA.

Qualified Small Employer HRAs (QSEHRAs)

Another alternative to traditional group health insurance is the qualified small employer health reimbursement arrangement (QSEHRA).

The QSEHRA is a small business health insurance benefit specifically designed for businesses with fewer than 50 employees. With a QSEHRA, small businesses offer employees a monthly allowance of tax-free money. Employees then choose and pay for the health care services they want, including an individual health insurance policy. They submit proof of purchase, and the business reimburses them up to their allowance amount.

QSEHRAs are a good solution for small businesses because there are no minimum contribution requirements and all full-time employees receive value.

A QSEHRA may be a good option for your small business if you:

  • Can't afford a group health insurance policy
  • Want to have greater control over how much you contribute to health benefits
  • Want to offer a benefit to employees regardless of their personal health insurance situation

Individual Coverage HRA (ICHRA)

The ICHRA is very similar to the QSEHRA, however, there are three primary differences.

  1. It is available to businesses of all sizes.
  2. There are no allowance caps.
  3. Employers are restricted to reimbursing for insurance premiums only. Therefore, employees cannot be reimbursed for out-of-pocket expenses like with the QSEHRA.

Click HERE to learn more about the differences between the QSEHRA and the ICHRA

Group Coverage HRA

The group coverage HRA is a reimbursement plan that is linked with a company's existing group health insurance plan (usually a high-deductible health plan). In addition to being able to submit reimbursements for health insurance premiums, employees can also use it for out-of-pocket medical expenses.

Conclusion

There are a number of options for small businesses looking to offer health benefits, both inside and outside of the traditional group health insurance sphere.

Editor's Note: This blog was originally published on March 7, 2013. It has been updated to reflect the most recent small business health insurance options.

Looking for more details on HRAs?
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