TYPES OF INSURANCE PLANS
Finding the Plan that Works for You
It's important to consider the features and options that work best for your business and workforce. Considering the total number of full-time employees, average salaries and the financial requirements of your organization will help you make an informed decision that works for everyone. Keep in mind, when choosing the type of plan, both employer and employee can use pretax dollars to pay for their portion of health coverage with a POP plan in place. There is no payroll tax for employer's contribution and no income tax for the employee's contribution.
Health care insurance plans: HMO, PPO, POS, HSA, and Self-Funded plans.
HMO Health Plans
The HMO (Health Maintenance Organization) is a type of health plan which offers health care services with a network of providers, facilities and hospitals who agree to to participate in the program. They provide a wide range of services, from office visits to surgery and hospitalization. The HMO focuses on preventative care and wellness.
When you join an HMO, you will generally choose a primary care physician (PCP) or one will be chosen for you, who will take care of most of your health care needs. Your PCP will be your primary contact and you will most often need to obtain a referral from your PCP in order to see a specialist.
Advantages - HMO plans are usually well organized and easy to use. They generally cost less and premiums rise more slowly with their focus on preventative care and wellness. They promote seeking care before health issues become severe with nominal co-payments and low out of pocket costs. They often offer health education classes and health club membership discounts.
Disadvantages - HMO plans have tight controls for specialized care as you must remain in network. Members are required to seek treatment from in network physicians, facilities and hospitals except for emergencies occurring outside the HMO's treatment area. There may be strict guidelines of what constitutes a true emergency.
PPO Health Plans
The PPO (Preferred Provider Organization) is a managed healthcare system which works with a preferred network of doctors, facilities, and/or hospitals but does allow you to see doctors outside of that network, however you will likely pay more with out of network providers.
With PPO plans you are not required to get a referral for a specialist and are allowed to make appointments with a specialist directly. PPO plans may also give you access to out-of-state providers that are still considered in-network.
Advantages - PPO plan members have the freedom seek care from both in network and out of network physicians. However, there is usually strong financial incentive to do so. For example, you may receive 90% reimbursement for care obtained from an in network physician but only 60% for out of network treatment.
Disadvantages - PPO premiums are generally higher than an HMO and you may have to fill out more paperwork in order to be reimbursed for medical treatment. They also tend to have larger co-payments and you may be required to meet a deductible.
POS Health Plans
POS (Point of Service) is a type of managed healthcare system that combines properties of both the HMO and the PPO. Like an HMO, you pay no deductible and usually only a minimal co-payment when you use a healthcare provider in your network. You also must choose a primary care physician who is responsible for all referrals within the POS network. If you choose to go outside the network for healthcare, POS coverage functions more like a PPO. You will likely be subject to a deductible and your co-payment will be a substantial percentage of the physician's charges.
Advantages - POS coverage allows you the freedom of choice like a PPO, you can mix the types of care you receive. Like an HMO, when you choose to use network providers, there is generally no deductible as long as you stay within the POS network of physicians. If you choose to go outside the POS network for treatment, as with a PPO, you are free to see any doctor or specialist you choose without consulting your primary care physician however you will pay substantially more out-of-pocket costs.
Disadvantages - As with a PPO, you may continue to see a long time family doctor, but it will cost you more. generally, you must reach a specified deductible before coverage begins on out-of-network care, the deductible amount is in addition to the co-payment for out-of-network care.
As with an HMO, you must choose a primary care physician to provide medical care and must receive a referral to seek care from a specialist within the network.
Typically, employers purchase insurance from a carrier, where the insurer would be responsible for health claims. In a self-funded health plan, the employer assumes the risk and is responsible for their employee claims. However employers may purchase stop-loss insurance to mitigate this risk.
While self-funding is common among larger companies, those with at least a couple hundred employees, smaller firms do choose to self-fund their employee health care. Self-funding is extremely risky, and while a bigger company is able to spread those risks across a larger payroll, they can overwhelm a smaller business. Insurance carriers have added components to make it more palatable to smaller businesses. One worker with a serious accident or illness can expose the self-funding company to hundreds of thousands of dollars in medical claims. However, small businesses can buy back-up, or stop loss insurance that reimburses the business when claims exceed a certain level.
Since the timing of claim loss with a Self-funded is unforeseeable, carriers have created a instrument called level funding, where the employer pays a steady fee each month. The insurer administers the arrangement and can offer lower rates for medical services through its network of providers. If claims are lower than expected and the business overpays, the carrier will reimburse a percentage of claims surplus at the end of the year.
Self-Funded Plans and Minimum Value Coverage
If a company has a self-funded plan, they cannot rely on a carrier to tell them whether a plan provides minimum value and they will need to make that determination themselves. The Department of Health and Human Services (HHS) provides an online Minimum Value Calculator, along with instructions, that companies can use to determine whether a self-funded plan meets the MVC standard.
HSA (Health Savings Account)
Can be established by an employer, but must be in conjunction with an HSA-qualified high deductible health plan (HDHP).
May be funded (pre-tax) by employee payroll deductions or employer contributions.
In 2018, the maximum HSA contribution is $3,450 for an individual and $6,850 for a family. An IRS bulletin in March 2018 reduced the family contribution limit from $6,900 to $6,850. If a family has already contributed $6,900 in 2018 must withdraw $50 in order to avoid an excise tax on excess contributions.
If an an employer establishes an HSA and the employee quits or is terminated, the HSA stays with the employee, regardless if contributions were made by the employee or the employer.
Contributions may only be made while the account holder remains covered by the HDHP. The money may be used for qualified medical expenses in the future without being taxed even if the person is no longer covered by an HDHP.
HSA funds can be used for the same qualified medical expenses as FSA funds. A prescription is required in order to use HSA money even for Over The Counter medications.
If money is withdrawn for qualified medical expenses, it will not be taxed.
If money is withdrawn for non qualified medical expenses prior to age 65, it will be taxed as well as an additional 20 percent penalty applied.
At age 65, there is no penalty for money withdrawn, however, if it is not used for qualified medical expenses, income taxes will be owed.