Providing employee health insurance is one of the most significant financial investments employers will make during the life of their companies. Depending on the size of their budgets and general worker profiles, the majority of small business owners find Small Group Major Medical plans most suited to their needs.
As a category, this type of policy includes several products with a broad range of costs and features:
- Traditional or Indemnity health plans — also referred to as "fee-for-service" programs — were around long before other forms of group insurance hit the market. With indemnity coverage, the employee pays a pre-determined percentage of the cost of healthcare services, while the insurance company pays the rest. The provider defines the fees for services, which will vary from physician to physician.
Known for their flexibility, traditional plans allow individuals to choose their own healthcare providers, with the freedom to access any doctor, hospital or covered treatment. The insured can visit a specialist without a primary physician's referral, even when the insurance company does not deem this a necessity.
Despite the advantages, though, high costs make traditional plans less favorable for employers. In addition, this type of coverage tends to carry higher deductibles and co-pays, meaning greater out-of-pocket expenses for employees.
- Health Maintenance Organization (HMO) is the oldest and most cost-effective form of managed healthcare and the first alternative to indemnity insurance — but it also is the least flexible. Employers or employees pay fixed monthly fees for services rather than separate charges per visit or service.
Since these products utilize a network of doctors, laboratories and hospitals, "contained" HMOs can most efficiently control and reduce healthcare costs, compared to other plans. For coverage to apply though, plan members must generally use in-network doctors and hospitals, or otherwise pay for out-of-network doctor appointments. Also, visits to specialists require primary-care physician referrals.
- Preferred Provider Organization (PPO) has become the health insurance plan of choice for many employers. A managed-care network of health providers, a PPO contracts with the insurer to provide services to enrolled policy holders. With this arrangement, participating individuals receive significant discounts from hospitals, physicians and other professionals within the PPO.
Less rigid than HMOs, PPOs allow policy-holders to visit non-network providers while retaining some degree of coverage. Nonetheless, out-of-network deductibles are higher, so staying within PPO boundaries means lower out-of-pocket expenses for the insured.
- Exclusive Provider Organization (EPO) is a more stringent type of PPO under which employees must use providers only within specified network of physicians and hospitals to receive coverage. Out-of-network care is covered only in emergency cases.
- Point of Service (POS) programs function as HMO and PPO hybrids. In this system, a primary-care physician gives referrals to other network providers, but plan members are free to go outside the network. In the latter case, a physician referral isn't necessary and some plan coverage still applies. Again, out-of-network costs will be greater regarding co-pays and deductibles. Even so, if the primary physician refers the patient out of network, (versus patient self-referral), the plan covers more of the bill.
- Consumer Driven Healthcare (CDCH) allows people to take a more active role in their healthcare decisions. The idea is that greater involvement leads to more astute decisions in using services. As costs continue to escalate, CDHC is gaining more awareness, especially among employers.
An umbrella term for a range of plans, the most notable CDHC plan combines Health Savings Accounts (HSAs) with high-deductible health plans (HDHPs). In a nutshell, the savings-account component pays for routine medical care, such as physicals, mammograms and well-child care; the high-deductible insurance component covers more costly emergencies and medical procedures.
The standard CDHC model gives enrollees an annual allotment of Health Reimbursement Account (HRA) funds from their employer to pay for covered services. Unused funds then can be carried over into future years and added to the next annual HRA deposit. HRA funds also can apply to plan deductibles or co-payments, for non-plan IRS-qualified medical fees and even to obtain additional health insurance, such as long-term care coverage. As for which services are eligible for coverage, most CDHC models permit employees to choose from a list of options during the enrollment period.
On the other hand, if an employee drains his HRA, he must meet a deductible gap before being permitted to receive insured coverage under the plan.
Under the healthcare reform law, HRAs and HSAs are still permitted as long as they’re combined with a HDHP and the combined benefits cover at least 60 percent of the individual’s healthcare expenses.