Knowing the various types of insurance will prepare you to evaluate your options when the annual open enrollment period rolls around. The more familiar you are with the different insurance plan types and their alternatives, the better equipped you'll be to pick one to fit your organization's budget and needs.
This article will review the most common types of medical care plans available and a few alternatives to help you decide which is right for you, your family, or your organization.
Want to offer IRS-approved personalized health benefits to your employees? Learn more about health reimbursem*nt arrangements (HRAs) in our complete guide
What types of health insurance plans are available?
Your first step in deciding what level of coverage to offer at your organization is knowing the different types that are out there.
The types of health plans you should know are:
- Preferred provider organization (PPO) plan
- Health maintenance organization (HMO) plan
- Point of service (POS) plan
- Exclusive provider organization (EPO)
- Health savings account (HSA)-qualified plan
- Indemnity plans
Alternative health benefits, such as health reimbursem*nt arrangements (HRAs) and employee stipends, are also available for organizations of all sizes.
The type of health insurance plan that’s best for you depends on what you and/or your employees want, how much you're willing to spend, and what medical expenses you want to be covered. In the following sections, we'll briefly cover each type of plan.
Preferred provider organization (PPO) plans
The preferred provider organization (PPO) plan is the most common health insurance coverage that employers offer. According to the KFF1, 49% of surveyed individuals with an employer-sponsored plan have a PPO.
With a PPO plan, employees are encouraged to use a network of preferred doctors and hospitals to care for their medical needs at a negotiated or discounted rate. Employees generally aren't required to select a primary care provider (PCP) and have the freedom of choice to see any network doctor.
Employees have a yearly deductible they must meet before the health insurance company begins covering their medical bills. They may also have a copayment for particular health services or a co-insurance where they're responsible for a percentage of the total charges. Services outside of the network typically result in higher out-of-pocket medical costs.
A PPO plan is best for your organization if your employees:
- Want the freedom to choose any primary care doctor and healthcare facility within your insurance company's network of doctors
- Want the option to have some out-of-network costs covered
- Want to be able to see a specialist without a referral from a PCP
Some disadvantages of a PPO plan are:
- You and your employees will pay higher monthly premium payments
- According to KFF2, the average annual premium in 2023 for organizations with fewer than 200 employees is $9,119 for a single PPO plan and $24,842 for a family health insurance plan.
- The average annual premium for larger organizations is $8,493 for single coverage and $24,825 for family coverage.
- Your employees will have a deductible cost, which represents the money they’ll have to pay out of pocket before their insurance will cover anything beyond preventative care.
- The Society for Human Resource Management3 (SHRM) found that the average deductible for single coverage with a PPO plan is $1,204, while the average deductible for a family plan is $2,716.
Health maintenance organization (HMO) plans
Next up is the health maintenance organization (HMO) plan. These medical plans offer a wide range of healthcare services through a network of providers that contract exclusively with the HMO, which then agrees to provide services to members.
An HMO usually requires employees to choose a primary care doctor as part of their plan, and employees need to obtain a referral from their PCP to see a specialist.
One advantage of HMOs is that they generally have lower out-of-pocket costs for covered services. Employees may not even have a deductible before their coverage starts and usually have a low copayment.
Remember that most HMO plans won't cover employees who go outside their network of doctors without proper authorization from their PCP unless they need certain emergency care.
An HMO plan is best for your organization if your employees:
- Want a plan without a deductible (or a low one) and a lower premium payment
- According to the KFF2, for small businesses, the average annual premium for a single coverage HMO plan is $8,285, and $22,968 for a family plan in 2023.
- That amount changes to $8,181 for single coverage and $23,964 for family coverage for large organizations.
- Want to lower out-of-pocket costs for prescription drug coverage
- Want a primary care physician to advocate for their medical needs and set up referrals for them
Some disadvantages of an HMO plan are:
- Employees have less flexibility in the doctor and care facilities they see for care
- Employees won't be able to go out-of-network for non-emergency care
- For specialist visits, your employees will need a referral from their primary care physician
Point of service (POS) plans
A POS group health plan combines the features of an HMO and a PPO plan. Like an HMO, POS plans may require employees to choose a primary care doctor from the plan's network providers. Generally, services rendered by the PCP, like routine care or preventive services, aren't subject to the policy's deductible.
If an employee uses services rendered or referred by their PCP, they may receive a higher level of medical coverage. If they utilize services by a non-network provider, they may be subject to a deductible and a lower level of medical coverage and have to pay up-front and submit a claim for reimbursem*nt.
A POS may be a good option for your small business if your employees:
- Need flexibility when choosing physicians and other network providers
- Desire primary care physicians to coordinate care
- Prefer the balance of greater provider choice versus lower health insurance premiums
Exclusive provider organization (EPO) plans
EPO plans are similar to HMOs because they have network doctors their members must use except in emergencies. Members have a PCP who provides referrals to in-network specialists, and members are also responsible for small copayments and potentially a deductible.
An EPO may be a good option for your organization if you:
- Like the balance of fewer provider choices in exchange for lower rates
- Have employees who can find value in a smaller panel of medical providers
- Have employees who are comfortable shouldering higher healthcare bills for medical emergencies and unplanned event
Health savings account (HSA)-qualified plans
A health savings account (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. PPOs, HMOs, POSs, and EPOs can be considered HDHPs as long as they have a deductible that meets the threshold set by the federal government.
Though HSAs can be attached to group health insurance coverage, employers can contribute to an account whether they offer a group policy or not, as long as their employee has an HDHP. Once an employee leaves a company, the account goes with the employee.
HSA contributions may be made pre-tax, up to certain limits set annually by the IRS. Any unused funds in an HSA account roll over each year and accrue interest tax-free. Your workers may also withdraw funds for other non-medical expenses, but this will incur penalties and interest if they’re under 65 years old.
An HSA-qualified plan is best for your organization if:
- You offer an HDHP and want to help employees cover out-of-pocket expenses
- According to the KFF4, the average annual premiums for workers in HSA-qualified HDHPs are $7,170 for single coverage and $21,079 for family coverage.
- You want to give employees more 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:
- Your employees will have a deductible cost, which represents the money they’ll have to pay out of pocket before their insurance will cover anything
- The KFF5 finds that the average annual deductible for single coverage is $2,458 for HSA-qualified HDHPs, while the average for family coverage is $4,533.
- If our employees are under 65 years old and withdraw HSA funds to pay for items other than medical expenses, they’ll pay a penalty.
Indemnity plans
Indemnity 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 are no limitations around provider network care, so patients can choose their own doctors and hospitals. The fees for medical 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 is best for your employees if:
- They don't want to have to commit to one specific primary care physician or facility
- They want the greatest amount of flexibility possible when it comes to choosing which doctors and healthcare centers to visit
- They 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 medical costs ranging widely depending on where your employees live, their age, and what benefits you want to include
Indemnity plans are considered supplemental health coverage, like dental or vision care, and don't qualify as minimum essential coverage (MEC) under the Affordable Care Act (ACA).
Alternative health insurance options
As an employer, you aren't limited to offering your employees a traditional type of health insurance, like a group health plan. There are alternative health plans that provide great flexibility and medical care support, such as HRAs and health stipends.
HRAs
HRAs are IRS-approved, employer-funded health benefits that allow you to reimburse your employees for their qualifying medical expenses—including individual health insurance premiums and out-of-pocket costs—tax-free.
With an HRA, you have complete budget control by setting allowance amounts for your employees while your employees enjoy the freedom of choosing the health plans and services that work best for them.
Your employees can purchase their own medical insurance coverage from the federal marketplace or their state-based exchange and choose the type of health plan that works for them instead of being forced into a one-size-fits-all group plan.
Three of the most popular types of HRAs are:
- Qualified small employer HRA (QSEHRA)
- A type of HRA specifically designed for organizations with fewer than 50 full-time equivalent employees (FTEs)
- Individual coverage HRA (ICHRA)
- An HRA that works for organizations of all sizes. With an ICHRA, there are no annual contribution limits. This allows you to fully customize the amounts you can reimburse your employees for each month. You can also establish employee classes to vary eligibility and allowance amounts.
- An ICHRA allows you to satisfy the ACA's employer mandate as long as your employees have an individual health plan that meets MEC.
- Group coverage HRA (GCHRA), also known as an integrated HRA
- With an integrated HRA, you can supplement your existing group health insurance plan
Health stipend
Health stipends are a flexible choice for organizations that don't offer a healthcare benefit. With a stipend, you can offer your employees a taxable monthly allowance or reimbursem*nt for their medical expenses, including those costs not normally covered under an HRA or insurance.
You can also offer a stipend to more employees than you can with health insurance for HRAs, such as 1099 contractors and international employees. They're also an excellent option for employees who receive advance premium tax credits (APTC), as they allow your employees to take advantage of the stipend while still receiving APTC.
However, unlike HRAs, stipends are taxable for both the employer and employee, meaning you'll need to report this amount as taxable income on your employees' W-2s.
A health stipend may be an appealing choice for your organization if you:
- Can't afford the additional costs and coverage requirements that come with a group health plan
- Want greater control over which expenses are eligible for reimbursem*nt
- Have fewer than 50 FTEs
Conclusion
No matter where your employees work, what type of organization you run, or what your employees’ health needs are, there's an option for everyone to get comprehensive coverage. Reviewing the various health insurance plans available will help you make the most informed decision for your organization.
If you're an employer looking to provide personalized employee perks, like affordable health insurance benefits, PeopleKeep can help. Our personalized benefit administration software makes it easy to set up and manage HRAs and employee stipends in just minutes each month.
Schedule a call with a personalized benefits adviser to learn how HRAs or health stipends can work with your organization
This blog article was originally published on July 29, 2013. It was last updated on December 19, 2023.
