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The different types of health insurance

Written by: Elizabeth Walker
January 7, 2022 at 9:17 AM

Selecting the right type of health insurance plan for your organization is extremely important. To make matters trickier, there are different types of health policies designed for different purposes.

Knowing the various policy types and health plan names will prepare you for evaluating your options when you’re ready to enroll in a new plan. The more familiar you are with the different insurance plan types, the better equipped you’ll be to pick one to fit your company’s budget and needs.

In this article, we’ll go over the seven most popular types of medical insurance plans to help you better understand your options and find the health benefit that works for you.

Looking for a specific plan? Skip to a section below!

1. Preferred provider organizations (PPOs)

With a PPO plan, employees are encouraged to use a network of preferred doctors and hospitals to receive their medical needs at a negotiated or discounted rate. Employees generally aren't required to select a primary care physician (PCP) and have the choice to see any doctors within their 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. Services outside of the network typically result in a higher out-of-pocket cost.

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

  • Need flexibility when choosing physicians and other providers
  • Don’t want the burden of obtaining a referral to see a specialist
  • Prefer the balance of greater provider choice versus lower premiums

2. Health maintenance organizations (HMOs)

Employees with an HMO generally have lower out-of-pocket expenses but less flexibility in their choice of physicians or hospitals than other plans. An HMO usually requires employees to choose a PCP as part of their plan and employees need to obtain a referral from their PCP to see a specialist.

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

Keep in mind, most HMO plans won’t cover employees that 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 organization if your employees:

  • Want lower premiums
  • Like the trade-off of in-network services
  • Need good preventive services

3. Point of service (POS) plans

A POS group health plan combines features of an HMO and a PPO plan. Just like an HMO, POS plans may require employees to choose a PCP from the plan's network providers. Generally, services rendered by the PCP aren't subject to the policy's deductible.

If an employee uses services that are rendered or referred by their PCP, they may receive a higher level of coverage. If they utilize services by a non-network provider, they may be subject to a deductible, lower level of 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:

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

4. Exclusive provider organization (EPO) plans

EPO plans are similar to HMOs because they have a network of physicians their members are required to use except in emergencies. Members have a PCP who provide referrals to in-network specialists and members are also responsible for small co-payments and potentially a deductible.

An EPO may be a good option for your organization 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 plans

Indemnity health 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’s no provider network, so patients can choose their own doctors and hospitals. The fees for 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 may be a good option for your organization if you:

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

6. Health savings accounts (HSAs)

An 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. Though HSAs can be attached to group health insurance, employers can contribute to the account whether they offer a group policy or not, and the account goes with the employee when they leave the company. However, you can only contribute to an HSA if you have a HDHP.

HSA contributions may be made pre-tax, up to certain limits set annually by the IRS. Any unused funds in an HSA account rollover each year and accrue interest, tax-free. Funds may be withdrawn for other expenses as well but will incur penalties and interest if you’re under 65 years old.

An HDPD used in conjunction with an HSA may be a good option for your organization if you:

  • Can't afford a low deductible health plan
  • Want to have greater control over how much you contribute to health benefits
  • Have a large number of employees who already have an HSA

See how an HSA compares to an FSA and HRA in our comparison chart!

7. Health reimbursement arrangements (HRAs)

An HRA is an IRS-approved, employer-funded health benefit that allows employers to reimburse employees for qualifying insurance premiums and other out-of-pocket medical expenses. HRAs have a fixed cost—unlike group health plans which often have annual rate increases. HRAs are also flexible and work for any employer, regardless of size, group insurance status, or budget.

With each HRA, employers are able to set a monthly allowance cap for employees to use. From there, employees shop for the healthcare items that suit their needs and submit a proof of purchase for reimbursement. Depending on which HRA you have, you’re able to either reimburse individual insurance premiums or supplement your employer-sponsored group health insurance plan.

Learn more about the three different types of HRAs that PeopleKeep offers below.

Take our HRA quiz to find out which one is best for your organization

Qualified small employer HRA (QSEHRA)

A QSEHRA is a health 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 healthcare services they want, including an individual health insurance policy. They submit proof of purchase, and, if the expense is verified, the employee is reimbursed up to their allowance amount.

QSEHRAs are a good alternative health benefit solution because employers contribute up to a set limit each year and employees can control their expenses. A QSEHRA also helps attract and retain employees which is valuable because health benefits are the top consideration applicants make before accepting a job offer.

Download our comprehensive QSEHRA guide for more information

Individual coverage HRA (ICHRA)

The ICHRA is very similar to the QSEHRA, however, it’s available to businesses of all sizes and there are no allowance caps. It’s also different from the QSEHRA in how employers are able to set different guidelines for employee classes. The use of employee classes allows employers to categorize employees into groups to make it easier to customize health benefits.

It’s important to remember that you can offer an ICHRA as a stand-alone benefit or alongside a group health insurance policy, however, you can’t offer the choice between group health insurance and an ICHRA to the same group of employees.

To participate in an ICHRA, employees must be covered by an individual health insurance policy and attest that they still have coverage before they can collect reimbursements.

Learn more about the differences between the QSEHRA and the ICHRA in our comparison chart

Group coverage HRA (GCHRA)

The GCHRA, also known as an integrated HRA, is a health benefit for employers offering a group health insurance plan, usually a high deductible health plan (HDHP). With the GCHRA, employers set their employees’ allowance which they can use each month on deductibles, copays, and out-of-pocket expenses as a supplement to the group plan.

Unlike a traditional integrated HRA, employers aren’t restricted to compatible plans through any insurance company and can keep their HRA even if they change providers. Because it’s a group coverage HRA, only employees participating in the company’s group health insurance plan are eligible to use the benefit.

Watch our GCHRA product demo for more information

Conclusion

There are many different health plans out there, but understanding the main types of health insurance can make everything less overwhelming. As we know, health insurance is not one-size-fits-all, and the number of options reflects that. For small businesses looking to offer health benefits, it’s smart to consider non-traditional health benefits, such as HSAs and HRAs, as well as traditional group health insurance.

If you’re considering an HRA as the right option for your organization, PeopleKeep can help! Schedule a call with one of our personalized benefit advisors and we’ll get you on your way.

This article was originally published on January 2, 2020. It was last updated January 7, 2022.

Topics: HSA, Health Insurance Options, Health Reimbursement Arrangement, Health Insurance, Qualified Small Employer HRA, Group Coverage HRA, Individual Coverage HRA

Additional Resources

Get our guide on how to offer health benefits with a small budget.
Learn how to help your employees get their health costs reimbursed.

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