Common types of health insurance plans

What types of health insurance plans are available?

Before choosing a health insurance policy for yourself, your family, or your employees, you must know what types are available.

Some popular health insurance policy options are:

• Preferred provider organization (PPO) plans
• Health maintenance organization (HMO) plans
• Point of service (POS) plans
• Exclusive provider organization (EPO) plans
• High deductible health plans (HDHPs)
• Health savings account (HSA)-qualified plans
• Indemnity plans
• Catastrophic health plans

Alternative health benefits, like health reimbursement arrangements (HRAs), are also available. Employers of all sizes can offer HRAs instead of expensive group plans.

The best health insurance policy for you depends on your needs, budget, preferred provider network, and plan benefits. We'll cover each plan type in the following sections.

Preferred provider organization (PPO) plans

The preferred provider organization (PPO) plan is the most common type of health plan. According to a KFF survey, 47% of individuals with an employer-sponsored plan have a PPO¹.

PPO plans encourage participants to use a preferred provider network for their medical needs in exchange for discounted rates. These plans generally don’t require employees to select a primary care provider (PCP). Instead, they can visit any doctor within their larger network.

Employees must meet an annual deductible before their health insurer will cover their medical bills. They may also have a copayment or a coinsurance for certain items and services. While PPOs allow some out-of-network care, it can result in higher out-of-pocket medical costs.

A PPO plan may be right for you or your employees if:

• You want to be able to choose any primary care doctor and healthcare facility within your insurance company's network.
• You want to have some coverage for out-of-network costs.
• You want the convenience of seeing a specialist without a referral from a PCP.

Some disadvantages of a PPO plan are:

• You’ll pay higher monthly premiums.
  • The average annual premium for an employer-sponsored health insurance policy in 2023 was $8,435 for self-only coverage and $23,968 for family coverage. But, the average annual premium for workers with a PPO plan was $8,906 for a self-only plan and $25,228 for a family plan².
• Your employees will have to meet an annual deductible.
  • The average deductible for workers with a PPO plan was $1,281 in 2023³.
• If you receive out-of-network care, you must file the claim with your health insurance company yourself.
  • Filling out claim forms can be tricky if you’re not used to it. It can also be time-consuming if you need frequent care from various medical providers.

Health maintenance organization (HMO) plans

Next up is the health maintenance organization (HMO) plan. These medical plans offer participants a wide range of medical services through a network of providers. Provider networks contract only with the HMO, which then agrees to provide healthcare to members.

HMOs usually require employees to choose a primary care doctor before receiving medical care. But, they tend to have lower out-of-pocket costs for covered services. Employees may only have a deductible after their coverage starts and usually have a low copay.

With an HMO, employees must have a referral from their PCP to see a specialist. Additionally, most HMO plans only cover employees who go outside their network for emergency care.

An HMO plan may be right for you or your employees if:

• You want a plan with a lower premium and deductible.
  • In 2023, the average annual premium for a self-only HMO plan was $8,203. For a family plan, the premium was $23,758.
• You want a lower copay for doctor visits and prescription drugs.
• You want a primary care provider to coordinate your care, manage your treatment, and make referrals for specialist visits.

Some disadvantages of an HMO plan are:

• A limited network of physicians can make receiving necessary care challenging for some individuals.
• If you visit a specialist without a referral from your PCP, you must pay the entire cost of your medical bill yourself.
• While your HMO will cover some medical emergencies, it generally won’t cover them all. Your policy will outline acceptable medical emergencies. If your emergency doesn’t fit the criteria, you must pay the bill alone.

Point of service (POS) plans

A POS health policy combines the features of an HMO and a PPO plan. It’s so named because participants can choose whether to go in- or out-of-network for care at each point of service. But, they may have to select a PCP from the plan's network providers.

POS plans typically have copays for office visits and prescription medications. They also have deductibles and coinsurance for other health services. Generally, PCP services, like routine or preventive care, aren't subject to the deductible.

Employees who receive services from their primary care doctor will have greater coverage. If they go to an out-of-network doctor, they may experience lower coverage and higher out-of-pocket costs. They also may have to submit a claim for reimbursement.

A POS plan may be right for you or your employees if:

• You want greater flexibility when choosing physicians and other network providers.
• You want a primary care physician to help you coordinate your medical care.
• You want a plan with a lower monthly premium than a PPO.
• You want the ability to see out-of-network doctors, even if it comes at a higher cost.
• You want a better selection of in-network providers than HMO plans.

Some disadvantages of a POS plan are:

• Monthly premiums cost as much or more than EPOs and HMOs.
• Seeing an out-of-network provider can result in paying your medical bills upfront at a higher cost.
• You have to submit medical claims to your insurance company for reimbursement.
• They require referrals to see a network specialist.

Exclusive provider organization (EPO) plans

An exclusive provider organization (EPO) policy combines some aspects of an HMO and a PPO. Like HMOs, members must receive medical services and items from in-network healthcare providers.

An EPO plan offers a good mix of affordability and flexibility. For example, these plans don’t require members to choose a PCP. Participants can see a specialist without a referral. EPOs typically have a deductible and coinsurance. But, the copay amounts are generally small.

An EPO plan may be right for you or your employees if:

• You like the balance of having fewer provider choices in exchange for lower premiums.
• You believe that a smaller network can provide more streamlined and coordinated healthcare.
• You want to avoid choosing a primary care doctor or getting a referral to see a specialist.
• You can pay higher costs for unplanned medical events.

A few downsides of EPOs are:

• Depending on your plan and location, you may have limited in-network provider options.
• Some EPO plans can have high out-of-pocket costs due to the deductible and coinsurance.
• EPOs only cover out-of-network care for emergencies. You must pay the entire bill if you receive ineligible out-of-network care.
• EPO plans generally only serve specific regions or locations. So they may not be appropriate for every employee’s needs.

High deductible health plans (HDHPs)

You may also have a choice between a low or high deductible health plan. An HDHP has higher deductibles than other plans.

PPOs, HMOs, POSs, and EPOs can be HDHPs if their deductible and out-of-pocket maximum meet the annual IRS thresholds.

The 2024 thresholds for HDHPs are⁴:

Because of their higher deductibles, these plans have lower monthly premiums. This is a great option for those looking to save money while having coverage for emergencies.

Health savings account-qualified plans

A health savings account (HSA) is a tax-advantaged savings account that people can use to save for and pay for qualifying medical expenses. An employer can offer an HSA to their employees, or an individual can open one on their own. However, these accounts only work if you have an HSA-qualified high deductible health plan (HDHP).

Both employees and employers can contribute to an HSA up to the maximum annual limit. Unused HSA funds roll over each year and earn interest tax-free. All contributions stay in the HSA until the account owner withdraws them.

Lastly, HSAs are employee-owned. This means that once an employee leaves your company, the account and all its money go with them.

An HSA-qualified plan may be right for you or your employees if:

• You want to offer an HDHP to save on premium costs.
  • In 2023, the average annual premiums for HSA-qualified HDHPs was $7,662 for self-only coverage and $22,378 for family coverage.⁵
• You want to provide employees with financial assistance to pay their medical expenses now and in the future.
• You like the appeal of a portable account that employees can keep even if they leave your company.
• You want to make tax-free contributions to an account that will roll over from year to year.

Some disadvantages of an HSA-qualified plan are:

• You or your employees will have a high deductible and out-of-pocket maximum.
  • The average annual deductible for a self-only HSA-qualified HDHP was $2,518. The deductible for family coverage was $4,674⁶.
• If you’re younger than 65 and withdraw HSA funds to pay for non-healthcare items, you must pay a 20% penalty.
• HSAs have an annual maximum contribution limit that employees and employers must follow.
• Employers must pre-fund HSAs upfront, regardless of whether the employee will spend the money.

Indemnity plans

The health insurance industry calls indemnity plans “fee-for-service plans.” With these policies, an insurance company pays a predetermined percentage of the typical charge (or the average fee within a specific location) for a medical service. Then, the plan participant pays the rest.

Indemnity plans have no provider network limitations. This means patients can choose their preferred doctors and hospitals. However, providers determine their fees for health services. Depending on how much the provider charges, members may experience large and unexpected medical bills.

Lastly, indemnity plans are supplemental health coverage. This means the Affordable Care Act (ACA) doesn’t consider them minimum essential coverage (MEC).

An indemnity plan may be right for you or your employees if:

• You don't want to commit to one specific primary care physician or facility.
• You want flexibility when choosing which doctors and healthcare centers to visit.
• You want to be able to see a specialist without a referral from a primary care provider.

Some disadvantages of an indemnity plan are:

• Indemnity plans tend to be among the most expensive. Medical costs vary widely depending on location, age, and the benefits you want to include.
• Predetermined payouts for healthcare services may be less than the actual costs. This could leave patients with unpredictable medical bills.
• Indemnity plans may limit the number of times you can access a particular service annually. They can also restrict the total amount of benefits you can receive in a year. So, these plans may not provide enough coverage if you have a severe health condition.
• Because indemnity plans aren’t ACA policies, your insurer can refuse you from enrolling in one if you have a pre-existing condition. If they let you enroll, they can choose not to cover treatment for your pre-existing illness.
• Indemnity plans aren’t a substitute for a health plan with MEC.

Catastrophic health plans

A catastrophic health plan provides individuals and families with coverage for serious and costly medical events. It's typically best for people who are generally healthy and don’t need frequent healthcare.

These plans have a high deductible and maximum out-of-pocket limit. So, participants must pay a large amount of money before the insurance coverage kicks in. However, once you meet the deductible, the plan usually covers the total cost of essential health benefits.

Catastrophic policies have eligibility requirements. They’re typically available to people younger than 30 because they're less likely to have chronic conditions. Those who qualify for a financial hardship or affordability exemption may also enroll in this plan. You can also qualify if only one or no insurers are available on the individual health insurance market in your area.

A catastrophic plan may be right for you or your employees if:

• You want lower monthly premium payments.
• You meet the age, income, or hardship eligibility requirements.
• You don’t use many healthcare services but want coverage if you need emergency services.
• You typically only access routine or preventive care.

Some downsides to catastrophic health plans are:

• They don’t work with HSAs because they aren’t HSA-qualified.
• They have high annual deductibles and out-of-pocket maximums, also known as a catastrophic limit.
  • In 2024, catastrophic plans have an annual deductible of $9,450. For family plans, the deductible is $18,900.
• This type of plan won’t provide enough coverage for people with chronic diseases.

What is an alternative health benefit option to traditional health insurance?

Employers aren’t limited to offering their employees a traditional group health plan. You have alternative health benefits options, such as an HRA.

HRAs are IRS-approved, employer-funded health benefits. They allow you to reimburse your employees for their qualifying medical expenses—including individual health insurance premiums and out-of-pocket costs—tax-free.

With an HRA, you set a monthly allowance that works for your company’s benefits budget. Instead of enrolling in a one-size-fits-all group plan, your employees buy the medical services and individual plan that’s best for them. Once employees make an approved purchase, you reimburse them tax-free up to their allowance amount. Unlike HSAs, unused funds stay with you if an employee leaves your company.

Due to their flexibility, offering an HRA instead of group health insurance is a surefire way for employers of all sizes, locations, and budgets to attract and retain talented workers.

The following are three of the most popular types of HRAs:

1. Qualified small employer HRA (QSEHRA): This type of HRA is specifically for organizations with fewer than 50 full-time equivalent employees (FTEs) that don’t offer group health insurance coverage. Employers must offer the benefit to all full-time workers, but they can choose to allow part-time employees as well. Workers can participate if they have a health plan that provides MEC.
2. Individual coverage HRA (ICHRA): This type of HRA is for organizations of all sizes. With an ICHRA, you can create employee classes to vary eligibility and allowance amounts. If you’re an applicable large employer (ALE), you can use an ICHRA to satisfy the ACA's employer mandate. To do this, your employees must have a qualifying form of individual health insurance, and your allowance must be affordable.
3. Group coverage HRA (GCHRA), or an integrated HRA: Employers of any size use a GCHRA to supplement a group health insurance policy. GCHRAs can reimburse any qualified healthcare expense in IRS Publication 502. However, premiums are ineligible. Only employees enrolled in your group plan can participate in the benefit.

Conclusion

No matter where you live, what type of business you run, or your employees’ medical needs, you have comprehensive coverage options. Reviewing your available health insurance plans will help you make the right choice for your family or organization during the open enrollment period.

If you're an employer looking to provide personalized employee benefits, PeopleKeep can help. Our benefits administration software makes it easy for business owners of all sizes to set up and manage a customized HRA. Schedule a call with an HRA specialist to learn how we can help you improve your benefits package.

This blog article was originally published on July 29, 2013. It was last updated on September 6, 2024.

1. KFF EHBS 2023

2. KFF EHBS 2023

3. KFF EHBS 2023

4. IRS Publication 969

5. KFF EHBS 2023

6. KFF EHBS 2023