Health Care Insurance Plan Options for Employee Benefits
There are several health care insurance options to choose from if an employer decides to offer health care benefits to employees. Health maintenance organizations (HMOs) and preferred provider organizations (PPOs) are the most common types of health care plans offered.
Health care benefit choices are numerous, and employers will want to carefully examine the different aspects of insurance options available. Health insurance plan types include health maintenance organizations (HMOs, traditional fee-for-service indemnity insurance, preferred provider organizations (PPOs), and major medical policies. The popularity of health savings accounts (HSAs), is steadily growing as a health care benefit option. Dental and vision care insurance can also be provided as a separate health care benefit by employers.
Health care reform. The enactment of the Patient Protection and Affordable Care Act and related legislation in 2010 heavily regulates the insurance industry, instituting benefit and coverage mandates. Except for grandfathered plans, it mandates that by 2014, all qualified health benefit plans offer at least an "essential health benefits package" as defined by the Secretary of Health and Human Services.
Health Maintenance Organizations (HMOs)
Health maintenance organizations, better known as HMOs, have arguably become the most prevalent type of health care offered by employers today. They are popular because they are relatively lower in cost than traditional fee-for-service plans and offer broad health coverage. They have, however, been criticized on the grounds that the cost-cutting comes at the expense of patient care.
The insurance company or managed care company contracts with physicians, both general practitioners and specialists, and hospitals to provide care to its insureds. Sometimes the doctors have their offices together, in sites selected by the HMO; sometimes the doctors maintain whatever offices they like, in small groups or individually, and see patients from within and without the HMO.
The people who are insured under the HMO are required to choose a general practitioner from the list of doctors that the HMO has contracted with. Patients who use the services of doctors outside the HMO network will not be covered by the insurance for those services. Whenever a person insured under the HMO has a medical problem, he or she must go to the chosen general practitioner, known as the person's Primary Care Physician (PCP). The PCP will either treat the patient or refer the patient to a specialist who is also under contract with the insurance company.
If the patient tries to get medical care from a doctor other than the PCP or does not receive a referral from the PCP to see a certain specialist, the insurance company will not pay for any of the costs except in cases of life-threatening emergency. If the patient follows the rules and sees his or her PCP and gets referrals to approved specialist and hospitals, he or she will generally only have to make a small copayment to the doctor for each visit. The average copayment is normally around $10 per visit.
So, if you're only paying $10 per visit, how are the doctor and the HMO making any money? There are two ways: volume and capitation.
Patient volume. Many HMO doctors have more patients than they know what to do with. Many physicians have so many patients from HMOs that they can no longer accept new patients, and it is often difficult for current patients to get a timely appointment. So, sheer patient volume is one way that doctors make money on HMOs.
Capitation. Capitation refers to the financial arrangement between the doctor and the insurance company. For each person that chooses a certain doctor as his or her PCP, the insurance company will pay the doctor a certain fee each month, whether that patient sees the doctor during that month or not.
If Dr. Makewell has 150 patients from the HMO and his capitation fee is $20 per patient per month, he'll receive $3,000 per month from the HMO. If patient Y and patient Z both have Dr.Makewell as a primary care physician, and patient Y sees Dr. Makewell five times during the month, and patient Z doesn't see the doctor at ll, Dr.Makewell is still going to get $20 for each patient.
This arrangement has been criticized because some charge that in order to maximize profits, the doctors are motivated not to see patients and care for them as often and as well as they should. Furthermore, some arrangements have also been set up to penalize doctors financially for referring patients to specialists because the referrals add to the costs for the insurance companies.
Regardless of how you feel about HMOs, they are a pretty good deal, on the whole, if they are available in your area. Their major drawbacks are rigid rules and lack of free choice in physicians and medical facilities. However, they offer a vast array of coverage and even offer different copayment levels to help strike the right balance in cost-sharing between you and your employees. They often cover preventative care, and the cost out of the employee's pocket is generally affordable.
Which employees will like HMOs? Generally, people who hate claims forms and recordkeeping will be happier with HMOs. Rarely are employees even billed for services — it's all taken care of by the doctors and the insurance company. HMOs are also a good value for employees with a large family to cover. Employees who have special, on-going medical needs are less likely to like an HMO because they may not be able to see a doctor with whom they have established a relationship.
If you want more choice in terms of physicians, be prepared to pay more than you will for an HMO. Fee-for-service plans provide freedom of choice but at a high cost. However, some plans try to blend the cost cutting measures of HMOs and still allow you to make choices in your health care. Those plans are known as preferred provider organizations (PPOs).
Fee-for-Service Health Insurance
Fee-for-service plans, also known as indemnity plans, are traditional insurance plans that give employees absolute freedom in choosing physicians and medical facilities. In return, insurance companies require patients to fulfill a yearly deductible and, after that deductible has been fulfilled, the insurance company will pay at a certain coinsurance rate. Generally the coinsurance is 70 percent/30 percent or 80 percent/20 percent, where the insurance company pays the higher percentage and the employee pays the lower.
Fee-for-service plans are the dinosaurs of the health insurance world. Some employers still offer them because they want to give their employees the freedom to choose their medical services, unfettered by networks and copayments. However, these plans still require the use of patient claim forms and reimbursement checks. The insurance company pays the claims using usual, customary, and reasonable charges (UCR) for covered services, a fixed schedule of fees (for example, a fixed dollar amount per day for hospital care or a schedule of payment by procedure), or both.
The death-spiral. Another interesting trend has emerged over the years for some fee-for-service plans. They are the most expensive health insurance plans because they have few managed care or cost control measures in them. As the price of indemnity plans started to rise, many of the relatively young and healthy people left to join PPOs or HMOs, leaving the people generating the most cost in these indemnity plans. This causes what is known in the industry as "adverse selection" or a "death spiral."
When an indemnity plan goes into a death spiral, only the most ill individuals with the most expensive medical needs are left in it. They stay because they have serious medical needs and do not want to have to change doctors in the middle of treatment. As the costs for the care continue to exceed what the insurance company is collecting in premiums, the price of the indemnity plan rises and rises. At a certain point, these plans become cost prohibitive; so much so that neither the employee nor the employer can afford to pay their share of the premium.
Who will like fee-for-service plans? As an employer paying premiums, you will most assuredly like fee-for-service plans. Individuals with serious medical conditions that need frequent treatment (who want to go to their doctors) and employees who are well-paid and can afford the higher deductibles and premium payments will like fee-for-service plans because they have complete freedom of choice to see whomever they wish, whenever they wish.
Another way to maintain freedom of choice as to physicians and treatment, while keeping your costs down, is to choose a major medical plan, or compromise with a preferred provider plan (PPO).
Preferred Provider Organizations (PPOs)
Preferred provider organizations, known as PPOs, are a cross between regular fee-for-service plans and HMOs. They are a compromise for people who don't want to pay for traditionally expensive fee-for-service coverage, but want more choice than an HMO offers.
How does a PPO work? The insurance company, as they do in HMOs, contracts with certain physicians and provides a "preferred provider" network of doctors and specialists that people insured under the PPO plan can choose to go to. However, unlike HMOs, patients do not have to go to the doctors in the preferred provider network, and they don't have to get referrals from their primary care physician to see a specialist.
However, patients are encouraged to use the preferred provider network because cost control and managed care measures can be used to keep costs down for the patient and the insurance company. If they do, patients pay for services with copayments, as they would in an HMO, or they receive a higher coinsurance amount than they would if they used a doctor not in the preferred provider organization.
Patients who used a doctor in the PPO network might get 90 percent coinsurance, so they would only have to pay 10 percent of the cost of the medical service, and they would have a low deductible (the part that the patient must pay first before the insurance company starts paying anything).
Generally deductibles are lower for patients who use the PPO network. A patient who didn't use the PPO network might only have 60 percent coinsurance and a higher deductible. That would mean that the patient would have to pay the higher deductible and would have to pay 40 percent of costs incurred after that.
Which employees will like PPOs? PPOs are a good choice for employees who want to have some flexibility in their choice of physician. They are also good for people who have built a relationship with a certain physician and want to continue that relationship. They may use preferred providers for other services and keep seeing that one certain specialist who is not in the network for an on-going problem they have. PPOs are also good for people who know they will exceed the deductible amount. People who will not exceed the deductible will see less value in their insurance because the deductible amount must come out of the employee's pocket first before the insurance payments start kicking in.
Major Medical Plans
Major medical plans are a special type of fee-for-service plan. They are designed to provide protection against long-term chronic or catastrophic illness or injury. These plans cover a broad area of health care services and are designed to protect against large medical expenses only.
Despite the high deductible, the coinsurance requirement, and the ceiling on the amount of benefits, major medical plans have several advantages over basic benefit plans:
- Instead of covering only certain enumerated expenses, major medical plans cover all personal medical expenses (with a few exceptions) whether incurred on or out of a hospital. Major medical plans reimburse virtually all patients according to the same formula, regardless of the specialties of the attending physician, the location of the treatment, the drug treatment used, or the diagnostic techniques employed.
- Unlike many basic plans, major medical plans do not encourage unnecessary or prolonged hospitalization by covering medical service only if it is rendered in a hospital.
- The maximum amount of benefits payable is much higher under a major medical plan than under a basic medical plan, particularly in the areas of physician and surgeon fees.
- Partially reimbursing medical expenses has the combined effect of having a deductible and coinsurance in major medical plans and has three advantages over basic plans that provide full reimbursement:
- It discourages over-utilization of services and unnecessarily expensive treatment and facilities; both of which raise costs for you and your employees.
- It gives plan participants an incentive to police their own medical fees and keep costs down.
- It eliminates the payment of many small claims, thereby reducing administrative costs and saving money that would otherwise be spent on higher premiums to offset the additional administrative costs.
Types of major medical. There are two types of major medical plans: comprehensive plans that coinsure all covered medical expenses exceeding the deductible and supplementary plans that coinsure expenses in excess of the deductible and expenses in excess of those covered by another plan. Both supplementary plans and comprehensive plans place ceilings on the amount of benefits payable for each insured person.
- Comprehensive plans. Comprehensive major medical plans provide coverage for the same types of services covered many other plans. Comprehensive plans also include deductibles and copayment requirements but may provide first-dollar coverage (full coverage with no deductible) for emergency accident benefits or waive out-of-pocket expenses for certain benefits.
- Supplemental plans. These plans act as a supplement to another health insurance plan. Supplemental major medical plans cover most medically necessary services excluded under basic insurance plans, as well as charges that exceed the primary plan's limits. Covered services typically include inpatient and outpatient hospital care, special nursing care, outpatient prescription drugs, medical appliances, durable medical equipment, and outpatient psychiatric care. Supplemental major medical plans set deductibles, require copayments, and often limit total benefits.
Who will like major medical plans? Major medical plans may be popular with low-wage earners if they are healthy because the cost is lower than some other, more comprehensive plans. In fact, the premiums are usually lower than they would be with an HMO. Low-wage earners with health problems will not like them because of the deductibles involved.
Dental and Vision Care Plans
Standard health care insurance policies typically cover dental and vision care if the expenses are related to an accident, injury or illness. Coverage for expenses such as dental preventative care and annual eye exams are not part of many health care plans.
Dental Care Plans
Dental care can sometimes be purchased in addition to basic medical care, or it can be purchased as a separate policy from a separate provider. Generally, there are two dental plans available: an HMO plan and an indemnity plan. These plans usually cover only basic dentistry services, not orthodontics (like braces) or surgical procedures.
HMO-type plans. These dental plans operate in the same way as an HMO health plan. Employees choose from a list of doctors under contract with the insurance company and then pay a copayment when they visit. Sometimes these plans include free exams and teeth cleaning once or twice a year for insureds, as well.
Indemnity plans. Like a fee-for-service health plan, these plans allow you to go to the dentist of your choice. The employee must fulfill the deductible before the insurance company will start paying. They also have a usual, reasonable, and customary (UCR) fee schedule that they pay from. Any covered costs that exceed the UCR limit must be paid by the employee.
Vision Care Plans
Vision care plans are most often offered as an additional feature on HMO or PPO plans. However, they can be purchased separately as well.
What do vision plans cover? Most vision care plans cover the cost of a yearly eye exam (or require only a small copayment) by an approved optometrist under contract to the plan. Some also allow a certain discount for a pair of glasses or contact lenses.
What don't vision plans cover? Generally, these plans do not cover things like surgery or other treatment for vision problems like glaucoma or cataracts. These types of problems are most likely covered by your medical plan itself.
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