Group Coverage Options
At this point you may well be wondering what type of coverage might work for your business. Healthcare plans are complicated and many plans can’t be neatly characterized—as an HMO, a PPO, and so on—but offer a mix of features, and what they cover may change frequently.
The following sections will help you understand the big picture for health coverage options. We’ll also shed some light on the specific characteristics of the common types of managed care plans, including HMOs, PPOs, POSs and HSAs (we’ll explain the acronyms below). Finally, we’ll point out the most crucial features to consider in any plan, and help you understand how to get the features that work best for your needs.
It’s All About Managed Care
Today, just about all health coverage plans are some type of “managed care” plan. Gone are the days of traditional indemnity (also called “fee for service”) insurance, where patients chose their own doctors, paid for their care and were reimbursed by their insurance company for some or all of their doctor’s bills. These days, managed care is the norm.
Under managed care plans such as HMOs and PPOs, a health plan pays doctors or hospitals directly for some or all of the cost of the medical services its members receive. Insurers look for ways to align providers’ financial incentives with appropriate care management. For example, physicians may be paid a fixed annual per-member “capitation” rate, regardless of how many times the covered individual visits the physician. Health plans may also impose rules aimed at managing the care that their members receive, such as requiring members to obtain prior authorization before elective hospitalizations or requiring referrals from primary care physicians before seeing certain specialists.
Understanding Plan Characteristics and Types
Here’s a breakdown of what various plan types typically feature. As you read about each type, remember that today’s health coverage market often offers “blends” of these traditional types. One reason insurance issues can be so confounding is that the healthcare market is constantly changing and the coverage plans offered by insurers are hard to categorize. The lines between HMOs, PPOs, POSs, and other types of coverage are often blurry. Still, understanding the makeup of various plan types will be helpful in evaluating your options.
In a very general sense, HMOs offer predictable cost-sharing and administrative simplicity for patients. These features come with fairly restrictive rules about which providers patients may see. Participants are entitled to doctor visits, preventive care and medical treatment from providers who are in the HMO’s network. In addition to the monthly premium (which may be shared by the employer and employee), participants usually need to pay a small fee at the time of service called a copay (often in the range of $10 to $30), while the HMO covers 100% of the services provided. Most HMOs use capitation arrangements to reimburse physicians.
HMOs typically require patients to select a “primary care physician” (PCP) who can refer patients to specialists, also within the HMO’s network. HMOs often won’t pay for medical care that wasn’t referred by the primary care physician (some exceptions include emergency services or preventive gynecological exams). They may also require prior authorization before elective hospitalizations or require referrals from primary care physicians before seeing certain specialists.
PPOs generally offer a wider choice of providers than HMOs. Premiums may be similar to or slightly higher than HMOs, and out-of-pocket costs are generally higher and more complicated than those for HMOs. PPOs allow participants to venture out of the provider network at their discretion and do not require a referral from a primary care physician. However, straying from the PPO network means that participants may pay a greater share of the costs.
For example, a PPO available to small businesses may reimburse 60% of out-of-network costs and 80% of in-network costs (with the employee responsible for the remaining 40% or 20%). These percentages may be applied to full charges (“sticker” prices), discounted fees that the health plan has negotiated with providers (“negotiated fees”), or regional average fees (“allowable” or “usual and customary” amounts). Keep in mind that this example is one of many possibilities—in-network and out-of-network coverage can differ from plan to plan.
A POS is a type of managed care plan that is a hybrid of HMO and PPO plans. Like an HMO, participants designate an in-network physician to be their primary care provider. But like a PPO, patients may go outside of the provider network for health care services. When patients venture out of the network, they’ll have to pay most of the cost, unless the primary care provider has made a referral to the out-of-network provider, in which case, the medical plan will pick up the tab.
Health Savings Accounts, or HSAs, are savings accounts that are combined with a high-deductible health plan. Because high-deductible plans generally cost less than low-deductible plans, HSAs are a good option for employers who cannot afford a comprehensive (low-deductible) health plan. These savings accounts are controlled by the covered employee and are intended to help pay small and routine health care expenses. Both employers and employees may contribute to HSAs.
The total annual contributions to the savings account may be up to 100% of the annual health plan deductible amount and may be used to pay for any qualified medical expenses. Once the deductible amount is reached, additional health expenses are covered in accordance with the provisions of the health insurance policy. For example, an employee might then be responsible for 10% of the costs for care received from a PPO network provider.
Deposits made to an HSA are tax-free to the employer and employee, and money not spent at the end of the year may be rolled over to pay for future medical expenses. Money from the HSA may be withdrawn for any reason, but if it’s not for qualified medical expenses as defined under §213(d) of the Internal Revenue Code, the withdrawal is subject to a 20% penalty and is included in gross income for income tax purposes. (The penalty is waived in a few cases: if the beneficiary dies, becomes disabled or reaches age 65.)
The contribution limits, out-of-pocket expenses and deductible amounts are indexed to inflation. In 2019, the limits for individuals for HSAs and high-deductible plans are as follows, according to the IRS:
- HSA contribution limit (employee + employer) = $3,500
- HSA catch-up contributions (for those 55 and older) = $1,000
- High-deductible health plan minimum deductibles = $1,350
- High-deductible health plan maximum out-of-pocket amounts (deductibles, co-payments and other amounts, but not premiums) = $6,750
The limits in 2019 for families are:
- HSA contribution limit (employee + employer)= $7,000
- High-deductible health plan minimum deductibles = $2,700
- High-deductible health plan maximum out-of-pocket amounts (deductibles, co-payments and other amounts, but not premiums) = $13,50
Plans Offered Under the Health Insurance Exchanges
The Affordable Care Act required that each state establish a health insurance exchange—an online marketplace where small business owners can purchase health insurance. All states have established a marketplace, although some are federally facilitated under Healthcare.gov, rather than state-run.
The marketplace offers employers a choice of four categories of insurance packages, each with essential minimum benefits. For state-based marketplaces that offer online enrollment, this allows small businesses to easily compare among plans. As an employer, you will decide what level of coverage to offer, and your employees may pick any plan offered within the exchange at your chosen coverage level.
The four coverage levels are based on the specified percentage of costs the plans will cover:
- Bronze = 60%
- Silver = 70%
- Gold = 80%
- Platinum = 90%
The Department of Health and Human Services has defined specific services that must be covered within these packages. This provision is designed to make sure everyone participating in the exchange has access to sufficient coverage. Individual and small group plans must include items and services within these 10 categories:
- Ambulatory patient services
- Emergency services
- Maternity and newborn care
- Mental health and substance use disorder services, and behavioral health treatment
- Prescription drugs
- Rehabilitative and habilitative services and devices
- Laboratory services
- Preventive and wellness services and chronic disease management
- Pediatric services, including oral and vision care
Also, if an insurer offers a qualified health plan, they must also offer a child-only plan at the same level of coverage.