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Four common types of health insurance plans

Written by: Gabrielle Smith
March 22, 2021 at 8:44 AM

Whether you’re looking at individual health insurance for yourself or group health insurance for your employees, there are several different types of health plans available. In this article, we’ll review four of the most common types to help you decide which is right for you, your family, or your organization.

The four types of health insurance plans you should know are:

  1. Preferred provider organization (PPO) plan
  2. Health maintenance organization (HMO) plan
  3. Health savings account (HSA)-qualified plan
  4. Indemnity plans

The plan type that is best for you depends on what you and/or your employees want, as well as how much you’re willing to spend. Here’s a brief review of each type of health insurance plan.

1) Preferred provider organization (PPO) plans

The most common plan is the preferred provider organization (PPO) plan. Employees covered under a PPO plan need to get their medical care from doctors or hospitals on their insurance company’s list of preferred providers in order for claims to be paid at the highest level.

A PPO plan is best for you if…

  • You want the freedom to choose any doctor and healthcare facility within your insurance company’s network
  • You want the option to have some out-of-network costs covered
  • You want to be able to see a specialist without a referral from a primary care physician

Some disadvantages of a PPO plan are…

  • You’ll pay higher monthly premiums
    • According to the Kaiser Family Foundation (KFF), the total average annual premium cost for a single PPO plan is $7,880 and $22,248 for a family plan.
  • You’ll have a deductible cost, which represents the money you’ll have to pay out of pocket before your insurance will cover anything

Insure found that deductibles can range from $1,701 to $4,000.

2) Health maintenance organization (HMO) plans

Next up is the health maintenance organization (HMO) plan. These plans offer a wide range of healthcare services through a network of providers that contract exclusively with the HMO, or who agree to provide services to members. Employees participating in HMO plans will typically need to select a primary care physician to provide most of their healthcare and refer them on to an HMO specialist as needed.

An HMO plan is best for you if…

  • You want a plan without a deductible (or a low one) and a low premium
    • According to the KFF, the total average annual premium cost for a single HMO plan is $7,238 and $20,809 for a family plan.
  • You want to lower out-of-pocket costs for prescriptions
  • You want a primary care physician to advocate for your medical needs and set up referrals for you

Some disadvantages of an HMO plan are…

  • You have less flexibility in the doctor and care facilities you see for care
  • You won’t be able to get care outside of your network for non-emergency visits
  • In order to see a specialist, you’ll need a referral from your primary care physician

3)Health savings account (HSA)-qualified plans

Then there’s the HSA-qualified plan. These plans are typically PPO plans designed specifically for use with health savings accounts (HSAs). An HSA is a special bank account that allows participants to save money—pre-tax—to be used specifically for medical expenses in the future. HSAs can be used alongside health reimbursement arrangements (HRAs), depending on the HRA offered.

An HSA-qualified plan is best for you if…

  • You have a high deductible health plan (HDHP) and want help covering out-of-pocket expenses
    • According to the KFF, the total average annual premium cost for a single HDHP with a savings option is $6,890 and $20,359 for a family plan.
  • You want to control when and how to save or spend money on medical expenses
  • You want to make tax-free contributions to an account that will roll over year to year

Some disadvantages of an HSA-qualified plan are…

  • You’ll have a deductible cost, which represents the money you’ll have to pay out of pocket before your insurance will cover anything
    • The KFF finds that the average HDHP deductible is $2,303 for a single plan and $4,552 for a family plan.
  • The money you contribute to your HSA is exclusively meant for medical expenses, so if you take it out for another reason, you’ll pay a penalty

For more information, see “Can I have an HRA and an HSA at the same time?”

4) Indemnity plans

Finally, indemnity plans allow members to direct their own healthcare and generally visit any doctor or hospital. The insurance company then pays a set portion of the total charges. Employees may be required to pay for some services up front and then apply to the insurance company for reimbursement.

An indemnity plan is best for you if…

  • You don’t want to have to commit to one specific primary care physician or facility
  • You want the most amount of flexibility possible when it comes to choosing which doctors and healthcare centers to visit
  • You want to be able to see a specialist without a referral from a primary care physician

Some disadvantages of an indemnity plan are…

  • These types of plans are generally the most expensive, with costs ranging widely depending on where you live, your age, and what benefits you want included.

Indemnity plans are considered supplemental coverage, and don’t qualify as minimum essential coverage under the Affordable Care Act.

Conclusion

No matter where you work, what you make, or what your health needs are, there is an option for everyone to get the coverage they need. Taking the time to review the various health insurance plans out there will help you make the most informed decision for you, your family, and your organization.

This article was originally published on July 29, 2013. It was last updated March 22, 2021.

Topics: HSA, Health Benefits, Employer Funded Health Insurance

Additional Resources

See what makes HRAs different from HSAs and FSAs in our comparison chart.
Get our guide on how to offer health benefits with a small budget.

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