Navigating the alphabet soup of types of health insurance can make anyone’s eyes glaze over, but it doesn’t have to be so intimidating — or boring. HMOs, PPOs, EPOs, POSs, and HDHPs share similarities, but they all provide health benefits in slightly different ways — and some of those can be deal-breakers for employees. Here’s a go-to guide for differentiating the types of health insurance plans available on the market today.
HMOs (Health Maintenance Organization)
Created by the Health Maintenance Organization Act of 1973, HMOs are designed to be a less expensive type of health insurance plan than some of the alternatives — in fact, they are usually among the least expensive options, but with that perk generally comes narrow networks and less freedom of choice when it comes to doctors and hospital systems.
With HMOs, you must see a primary care physician (PCP) prior to seeing any kind of specialist, otherwise the visit and any treatment provided may not be covered. In addition, the insurance policy does not cover any portion of a bill accumulated from an out-of-network provider. However, if an enrollee is transported to an out-of-network hospital in the case of an emergency (such as in an ambulance or life flight), services must be covered at the in-network price. The exception to this rule may be doctors within that hospital because they can bill separately (such as an anesthesiologist).
This type of health insurance generally boasts the least amount of paperwork, which is appealing for many people in an age where insurance paperwork seems to be as endless as it is pointless. Policyholders are subject to monthly premiums, in addition to their deductible, copays at the doctor’s office and pharmacy, and coinsurance.
PPOs (Preferred Provider Organization)
PPOs usually allow the most freedom in choosing healthcare providers, as the networks are designed to be expansive. This freedom though, comes at a higher cost. PPOs tend to be one of the more expensive types of health insurance on the market.
Unlike HMOs, enrollees do not need to get a referral from a PCP to see a specialist. Plans are structured so enrollees can see out-of-network providers, but doing so will cost them more than if they stayed in-network. While seeing out-of-network doctors is possible, it usually means more paperwork because the insurance company might opt to have the patient pay the provider up front and then apply for reimbursement.
Policyholders are subject to monthly premiums, in addition to their deductible, copays at the doctor’s office and pharmacy, coinsurance, and a larger portion of any out-of-network expenses incurred.
EPOs (Exclusive Provider Organization)
This type of health insurance is a bit of a combination of an HMO and a PPO. Like PPO plans, enrollees have some freedom in choosing healthcare providers (though the networks are more narrow) and they don’t need a referral from a PCP to see a specialist.
What makes an EPO a HMO-PPO hybrid is that there is no coverage for out-of-network providers. Enrollees will pay out-of-pocket for all services rendered under this category — although an exception is made in the case of an emergency.
Having a smaller pool of healthcare providers (because of the lack of out-of-network coverage) allows for lower premiums than a PPO, but usually a bit higher than an HMO. EPOs are oftentimes offered by the same companies that offer PPOs.
Policyholders are subject to monthly premiums, in addition to their deductible, copays at the doctor’s office and pharmacy, coinsurance, and any out-of-network expenses.
POSs (Point of Service)
POS plans are also a blend of HMOs and PPOs, but in a different way than EPOs. Many say that POS plans actually combine the best of these two worlds. Enrollees have a moderate amount of freedom in choosing healthcare providers, but they must also see a PCP for a referral before seeing a specialist, as one would with an HMO. Like PPO plans, policyholders can see out-of-network providers, but will pay more for services rendered.
If a policyholder chooses to see an out-of-network provider, they will have to pay up front and request reimbursement from the insurance company. Policyholders are subject to monthly premiums, in addition to their deductible, copays at the doctor’s office and pharmacy, coinsurance, and a larger portion of any out-of-network expenses incurred.
Catastrophic health plans generally come with lower premiums, but higher deductibles. These plans operate very differently from all types of health insurance already discussed. They are designed to only be used for a “catastrophic” medical event, such as injuries resulting from a major car accident, heart attack, or stroke.
This means that enrollees pay for all expenses out-of-pocket until they reach their deductible, including office visits, prescriptions, and any other emergent or urgent care. This does not mean that the enrollee will pay full market value — but rather, the negotiated price between the insurance company and the provider. After the deductible has been met, the insurance company covers 100 percent of the cost of medical care (except prescriptions, because those do not count toward the deductible).
The first three PCP visits are free and not subject to the deductible — though this could vary based on the insurance company. Preventative care is also free, but this may change with healthcare laws currently in the U.S. Senate, as inclusion of such medical care was mandated by the Affordable Care Act (ACA).
The networks in these types of health insurance policies vary, so it’s important to check with the insurance company prior to signing a contract. They should be able to provide a list of in-network physicians in the area. Beyond that, they may also have rules about specialists and if enrollees can see one without getting a referral.
Policyholders are subject to monthly premiums plus their deductible and the full cost of any medications they take. For 2017, the deductible for an individual is $7,150 and $14,300 for a family. It’s important for policyholders to keep track of all medical expenses (and receipts) prior to meeting the deductible in the event that the insurance company’s records differ from their own.
HDHPs (High Deductible Health Plans — with or without Health Savings Accounts)
HDHPs are also HMOs, PPOs, EPOs, and POSs — they just function differently in terms of pay structure than the regular incarnation of these types of health insurance plans. Which doctors enrollees are able to see depends on the primary plan type — HMOs being the most restrictive and PPOs being the most open.
HDHPs typically come with lower premiums, since the deductible is higher, but this can also mean that out-of-pocket expenses are higher if policyholders or their family members have chronic health issues or are on brand name medications. For this reason, both Catastrophic and HDHPs are ideal for people with little to no health problems — usually people in their 20’s without children — because they allow enrollees to save money on monthly premiums.
For 2017, the deductible for an individual is a minimum of $1,300, but no more than $6,550. For a family, the deductible is at least $2,600, but no more than $13,100. Policyholders are responsible for premiums and the deductible, plus the full cost of any medications they are on. Coinsurance may vary based on the type of plan the HDHP is classified under.
The best thing about HDHPs is the ability to pair them with a health savings account (HSA), which allows policyholders to make tax-free contributions to (and withdrawals from) a real savings account. These funds can be used to cover the cost of eligible medical expenses and unlike an FSA, unspent funds roll-over from year-to-year, and eventually can be converted into retirement savings (in fact many savvy HSA participants max out their HSA contributions for this very reason). For 2017, the tax-free contribution limit is $3,400 for individuals and $6,750 for families. Policyholders can contribute additional funds up to whatever amount they would like. However, they will not be tax-deductible.
What Employers Should Offer — and How Many Plans
Which type of health insurance plan(s) an employer should offer is contingent on the diversity of the workforce, as well as what they can afford, which can depend on many factors, including past claims history, the number of enrollees, and of course, the size of the budget.
Because of their reduced costs, HDHPs are growing quickly in popularity among employers. According to the Kaiser Family Foundation, 29 percent of workers participating in employer-sponsored health plans were enrolled in some kind of HDHP in 2016, up from just 4 percent in 2006. This type of health insurance can help employers save money on healthcare expenses, but doing so shifts a larger financial burden onto employees, which can come with consequences.
Many employers offering HDHPs also offer a more traditional plan for those who have a larger need for frequent medical care. For the most part, employee benefits brokers recommend this course of action because it offers the element of choice, which employees value highly. The most common combination is a HDHP with a PPO. If a third option is offered, it’s usually a second HDHP with either a different deductible or another type of health insurance structure (like a PPO HDHP and a POS HDHP).
It’s important to note that the American workforce is increasingly diverse, with nearly three generations of people employed, all of whom may have very different needs, which merits diverse healthcare options. Recent college grads might be happy to spend less monthly on an HDHP, while employees with children and those near retirement age might want to spend more money on premiums to get a more comprehensive plan with a lower deductible.
When companies offer HDHPs, they should keep in mind that employers are allowed to contribute to their employees’ HSAs, so this could be a way to increase the value of a health plan, while still maintaining a budget. If a company is investing in a wellness plan, they can also opt to tie a portion (or all) of its HSA contributions to wellness participation or outcome-based initiatives (some restrictions apply).
What Type of Health Insurance Plan is “Best”
Choosing a health insurance plan (for an individual or a group) is a tough decision for anyone to make. Which type of health insurance is “best” is really dependent upon each person’s individual needs. People with chronic illnesses will need more comprehensive care, whereas people with few (if any) health problems could probably afford to stick with a HDHP.
One of the most pressing issues among these different types of health insurance boils down to the networks. If it’s important for an employee to keep his doctors, he might need to choose a plan with a wider network (like a POS or PPO plan). If he is not wedded to his current PCP (or doesn't have one at all), perhaps an HMO is a more cost-effective option.
In the end, the type of health insurance a company offers must be a balance of employee needs and desires with the employer’s cultural fit and financial realities. Remember that employee benefits consultants can help decision makers understand all their options.
What questions do you have about the different types of health insurance plans? Leave us a comment below or contact us. We’re happy to provide answers!
The JP Griffin Group consults for discerning companies coast-to-coast, ranging in size from 10 to more than 30,000 employees. In addition to our Scottsdale, Arizona headquarters, we have bi coastal offices in Seattle, WA and Washington, DC.