Whether you're looking at individual health insurance for yourself or group health insurance for your employees, a broad range of plan options are available.
Knowing the various types of insurance will prepare you to evaluate your options when the annual open enrollment period rolls around. The more familiar you are with the different insurance plan types and their alternatives, the better equipped you'll be to pick one to fit your organization's budget and needs.
This article will review the most common types of medical care plans available and a few alternatives to help you decide which is right for you, your family, or your organization.
Your first step in deciding what level of coverage to offer at your organization is knowing the different types that are out there.
The types of health plans you should know are:
Alternative health benefits, such as health reimbursement arrangements (HRAs) and employee stipends, are also available for organizations of all sizes.
The type of health insurance plan that’s best for you depends on what you and/or your employees want, how much you're willing to spend, and what medical expenses you want to be covered. In the following sections, we'll briefly cover each type of plan.
The preferred provider organization (PPO) plan is the most common health insurance coverage that employers offer. According to the KFF1, 49% of surveyed individuals with an employer-sponsored plan have a PPO.
With a PPO plan, employees are encouraged to use a network of preferred doctors and hospitals to care for their medical needs at a negotiated or discounted rate. Employees generally aren't required to select a primary care provider (PCP) and have the freedom of choice to see any network doctor.
Employees have a yearly deductible they must meet before the health insurance company begins covering their medical bills. They may also have a copayment for particular health services or a co-insurance where they're responsible for a percentage of the total charges. Services outside of the network typically result in higher out-of-pocket medical costs.
A PPO plan is best for your organization if your employees:
Some disadvantages of a PPO plan are:
Next up is the health maintenance organization (HMO) plan. These medical plans offer a wide range of healthcare services through a network of providers that contract exclusively with the HMO, which then agrees to provide services to members.
An HMO usually requires employees to choose a primary care doctor as part of their plan, and employees need to obtain a referral from their PCP to see a specialist.
One advantage of HMOs is that they generally have lower out-of-pocket costs for covered services. Employees may not even have a deductible before their coverage starts and usually have a low copayment.
Remember that most HMO plans won't cover employees who go outside their network of doctors without proper authorization from their PCP unless they need certain emergency care.
An HMO plan is best for your organization if your employees:
Some disadvantages of an HMO plan are:
A POS group health plan combines the features of an HMO and a PPO plan. Like an HMO, POS plans may require employees to choose a primary care doctor from the plan's network providers. Generally, services rendered by the PCP, like routine care or preventive services, aren't subject to the policy's deductible.
If an employee uses services rendered or referred by their PCP, they may receive a higher level of medical coverage. If they utilize services by a non-network provider, they may be subject to a deductible and a lower level of medical coverage and 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:
EPO plans are similar to HMOs because they have network doctors their members must use except in emergencies. Members have a PCP who provides referrals to in-network specialists, and members are also responsible for small copayments and potentially a deductible.
An EPO may be a good option for your organization if you:
A health savings account (HSA) is a tax-advantaged savings account used in conjunction with an HSA-compatible high deductible health plan (HDHP) to pay for qualifying medical expenses. PPOs, HMOs, POSs, and EPOs can be considered HDHPs as long as they have a deductible that meets the threshold set by the federal government.
Though HSAs can be attached to group health insurance coverage, employers can contribute to an account whether they offer a group policy or not, as long as their employee has an HDHP. Once an employee leaves a company, the account goes with the employee.
HSA contributions may be made pre-tax, up to certain limits set annually by the IRS. Any unused funds in an HSA account roll over each year and accrue interest tax-free. Your workers may also withdraw funds for other non-medical expenses, but this will incur penalties and interest if they’re under 65 years old.
An HSA-qualified plan is best for your organization if:
Some disadvantages of an HSA-qualified plan are:
Indemnity plans are known as fee-for-service plans. With indemnity plans, the insurance company pays a predetermined percentage of the reasonable and customary charges, or the average fee within a geographic area, for a given service, and the insured pays the rest.
With an indemnity plan, there are no limitations around provider network care, so patients can choose their own doctors and hospitals. The fees for medical services are defined by the providers and vary from physician to physician, leaving the insured on the hook for potentially large and possibly unexpected medical bills, depending on how much the provider charges for the service.
An indemnity plan is best for your employees if:
Some disadvantages of an indemnity plan are:
Indemnity plans are considered supplemental health coverage, like dental or vision care, and don't qualify as minimum essential coverage (MEC) under the Affordable Care Act (ACA).
As an employer, you aren't limited to offering your employees a traditional type of health insurance, like a group health plan. There are alternative health plans that provide great flexibility and medical care support, such as HRAs and health stipends.
HRAs are IRS-approved, employer-funded health benefits that 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 have complete budget control by setting allowance amounts for your employees while your employees enjoy the freedom of choosing the health plans and services that work best for them.
Your employees can purchase their own medical insurance coverage from the federal marketplace or their state-based exchange and choose the type of health plan that works for them instead of being forced into a one-size-fits-all group plan.
Three of the most popular types of HRAs are:
Health stipends are a flexible choice for organizations that don't offer a healthcare benefit. With a stipend, you can offer your employees a taxable monthly allowance or reimbursement for their medical expenses, including those costs not normally covered under an HRA or insurance.
You can also offer a stipend to more employees than you can with health insurance for HRAs, such as 1099 contractors and international employees. They're also an excellent option for employees who receive advance premium tax credits (APTC), as they allow your employees to take advantage of the stipend while still receiving APTC.
However, unlike HRAs, stipends are taxable for both the employer and employee, meaning you'll need to report this amount as taxable income on your employees' W-2s.
A health stipend may be an appealing choice for your organization if you:
No matter where your employees work, what type of organization you run, or what your employees’ health needs are, there's an option for everyone to get comprehensive coverage. Reviewing the various health insurance plans available will help you make the most informed decision for your organization.
If you're an employer looking to provide personalized employee perks, like affordable health insurance benefits, PeopleKeep can help. Our personalized benefit administration software makes it easy to set up and manage HRAs and employee stipends in just minutes each month.
This blog article was originally published on July 29, 2013. It was last updated on December 19, 2023.