In order to simplify the process of selecting a health insurance plan, an employer must first understand the various types of plans available. With the many acronyms used in the insurance industry, this can be very confusing to employers and their employees. Let us define the programs available to you and your employees:

Health Maintenance Organizations (HMOs)
HMOs are networks of medical care providers which consist of Primary Care Providers (PCPs), Specialists, Hospitals and Ancillary Providers. Coverage is limited to these In-Network providers except in a true emergency. The key features of an HMO are:

  • They emphasize preventive care via annual physicals;
  • Payment is typically an Office Visit or Hospital Stay Co-payment;
  • The PCP coordinates the treatment needs and access to Specialists (Referrals), for Surgery & Hospitalization (Pre-certification) and any Medical Tests (Pre-authorization).

An HMO plan is generally the least expensive approach as the patient has the lowest level of freedom with provider care selection.

These are generally regional plans and offer minimal coverage outside your geographic location.

Point-of-Service (POS)
POS plans include an HMO for in-network coverage but also allow insured to go out-of-network and visit the provider of their choice. Benefits while using the HMO will be higher than using an out-of-network provider. Out-of-network services are typically reimbursed at a specific coinsurance level (usually 70% to 80%) after satisfying a deductible. The key features of a POS plan are:

  • Access to HMO services is subject to co-payments while the coordination of the insured’s care is directed by the Primary Care Provider;
  • Freedom to see providers outside of the HMO network with the reimbursement of medical expenses subject to deductibles and coinsurance;
  • Pre-certification and Pre-authorization of Out-of-Network care is the responsibility of the insured member. This greater freedom of care access is accompanied by greater levels of notification responsibilities.

Because a portion of the medical fees are generated by the utilization of Out-of-Network providers, the cost for POS plans is generally more expensive than HMO coverage.

Preferred Provider Organization (PPO)
PPO’s consist of a network of health care providers that an insured member has complete access to without referrals. PPO networks are typically larger than HMO networks and provide those insured with a much greater choice of providers. An insured member also has access to providers outside the PPO network. The key features of a PPO are:

  • In-Network services are subject to co-payments, deductibles and/or coinsurance cost sharing features;
  • Out-of-Network services are usually subject to higher deductibles and lower coinsurance reimbursement level;
  • PPO’s may be national in size and scope.

PPO plans provide your employees with the greatest freedom of provider choice and therefore are the most expensive Managed Care product.

High Deductible Health Plans (HDHP)
With a HDHP, preventive services are covered in full. For any other services or prescriptions, you pay a deductible up to a certain amount, depending on the plan chosen by the employer. After you reach the deductible, you pay a percentage of costs but are protected by an out-of-pocket maximum. All high deductible health plan options offer:

  • Preventive services that are covered in full
  • Access to doctors, specialists and hospitals
  • Ability to pay your out-of-pocket expenses any way you choose – HSA’s, HRA’s and FSA’s are all tax advantaged accounts that can be implemented to pay these expenses.
  • Many offer discounts on health and wellness programs

Exclusive Provider Organization (EPO)
An EPO is a type of managed care system. The EPO network is made up of care providers which network members must choose from, although exceptions may be made for emergency situations. Most EPOs require policyholders to choose a primary care physician who will handle most medical issues, and will issue referrals for specialists. EPOs are generally focused on preventative care, and encourage plan subscribers to take steps to stay healthy at all times. EPO carriers are able to negotiate lower rates with health care providers than other types of plans, because EPO members are restricted to in-network doctors only. EPOs are similar to HMOs, in that both types of plans require policyholders to see in-network doctors, and do not reimburse policyholders if they visit non-network providers. The differences are that EPO rates are negotiated based on services, while HMOs are determined on a capitated, or per-person basis. EPO providers are only paid for services provided (HMOs receive monthly payments from carriers), and the premiums for EPOs are generally cheaper than HMOs. EPOs are structurally similar to PPOs, but EPO members cannot file claims for non-network office visits, which PPO and POS plans allow.

Prescription Drug Coverage (Rx)
Twenty-five years ago, coverage for prescriptions was covered under an employee’s major medical coverage. Prescriptions were subject to coinsurance reimbursement after satisfying a deductible. Rx coverage is now generally covered under a Managed Care plan. The key elements of an Rx benefit are:

  • Prescriptions are purchased subject to co-payments. Some plans include a deductible corridor;
  • Drug Cards can offer different co-pays for generic, preferred brand name and non-preferred brand named drugs;
  • Prescription Mail Order Programs provide a 90 day supply of maintenance drugs at lower total cost to the insured.

Prescription drug claim usage and costs have escalated at a higher inflationary level than most other forms of medical care.

Administrative Services Only/Self-Insurance (ASO)
Most medical plans are written on a fully insured basis whereby employers are “pooled” together with other companies of similar size in the same regional area. Rate increases are geared towards the overall claim experience of that pool of employers. Employers with healthy employees and low claim usage will offset costs for other pool employers with severe medical costs. An alternative to this approach is self-insurance or an Administrative Services Only (ASO) contract.

ASO contracts allow companies to save money in years when they have lower than expected claims. Conversely, in bad years they are protected by stop loss insurance if claims exceed expected levels.

The key elements of an ASO plan are:

  • employer will only pay for the claims that are incurred by their own company.
  • Employer has complete flexibility to design their own benefits program and may eliminate expensive state mandated benefits that are not needed by your employees
  • ASO accounts are generally written with Individual Stop Loss insurance that would protect a company from a catastrophic claim in excess of a specific amount for an individual.
  • ASO accounts are also written with Aggregate Stop Loss coverage that would protect a company for total claims in excess of a specific amount.
  • A small fee for administrative services is paid to an insurer for claims processing and related functions