What type of insurance covers the medical expenses of individuals and group?

Whether you're looking at individual health insurance for yourself or group health insurance for your employees, there's a wide range of health insurance options available.

Knowing the various policy types and health plan names will prepare you for evaluating your options when you're ready to enroll in a new plan. 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 health 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 reimbursement arrangements (HRAs) in our complete guide

What types of health insurance plans are available?

The types of health insurance 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 reimbursement arrangements (HRAs) and employee stipends, are also available for organizations of all sizes.

The plan type that is 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 insurance coverage plan offered by employers. According to KFF1, 47% 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 receive their medical needs at a negotiated or discounted rate. Employees generally aren't required to select a primary care physician (PCP) and have the choice to see any doctors within their network.

Employees have an annual deductible they must meet before the health insurance company begins covering their medical bills. They may also have a copayment for particular services or a co-insurance where they're responsible for a percentage of the total charges. Services outside of the network typically result in a higher out-of-pocket cost.

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 primary care physician

Some disadvantages of a PPO plan are:

• You'll pay higher monthly premiums
  • According to the Kaiser Family Foundation2 (KFF), the average annual premium cost in 2021 for organizations with fewer than 200 employees is $8,134 for a single PPO plan and $23,312 for a family plan. The average premium cost for larger organizations is $8,074 for single coverage and $23,333 for family coverage.

• You'll have a deductible cost, which represents the money you'll have to pay out of pocket before your insurance will cover anything.
  
  • Insure3 found that deductibles can range from $1,701 to $4,000.

Health maintenance organization (HMO) plans

Next up is the health maintenance organization (HMO) plan. These plans offer a wide range of healthcare services through a network of providers that contract exclusively with the HMO or who agree 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.

As an advantage, HMOs generally provide broader coverage for preventive care than other policies. Employees may or may not be required to pay a deductible before their coverage starts and usually have a copayment.

Keep in mind that most HMO plans won't cover employees that go outside their network of doctors without proper authorization from their PCP or in cases of particular emergencies.

An HMO plan is best for your organization if your employees:

• Want a plan without a deductible (or a low one) and a low premium
  • According to the KFF2, for small businesses, the average annual premium for a single coverage HMO plan is $7,560 and $21,8503 for a family plan. That amount increases to $8,082 for single coverage and $22,595 for family coverage for large organizations.

• Want to lower out-of-pocket costs for prescriptions
• Want a primary care physician to advocate for your medical needs and set up referrals for you

Some disadvantages of an HMO plan are:

• You have less flexibility in the doctor and care facilities you see for care
• You won't be able to get care outside of your network for non-emergency visits
• To see a specialist, you'll need a referral from your primary care physician

Point of service (POS) plans

A POS group health plan combines 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 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 coverage. If they utilize services by a non-network provider, they may be subject to a deductible, lower level of coverage, and have to pay up-front and submit a claim for reimbursement.

A POS may be a good option for your small business if your employees:

• Need flexibility when choosing physicians and other providers
• Desire primary care physicians to coordinate care
• Prefer the balance of greater provider choice versus lower 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 co-payments and potentially a deductible.

An EPO may be a good option for your organization if you:

• Like the balance of less provider choice in exchange for lower rates
• Have employees who can find value with a smaller panel of providers
• Have employees who are comfortable shouldering higher costs for unplanned events

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. Though HSAs can be attached to group health insurance coverage, employers can contribute to the account whether they offer a group policy or not, and the account goes with the employee when they leave the company. However, you can only contribute to an HSA if you have an HDHP.

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 you're under 65 years old.

An HSA-qualified plan is best for you if:

• You have an HDHP and want help covering out-of-pocket expenses
  • According to the KFF, the total average annual premium cost in 2021 for a single HDHP with a savings option was $7,016 and $220,802 for a family plan.
• You want to 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:

• You'll have a deductible cost, which represents the money you'll have to pay out of pocket before your insurance will cover anything
  • The KFF4 finds that the average HDHP deductible is $2,303 for a single plan and $4,552 for a family plan.
• The money you contribute to your HSA is exclusively meant for medical expenses, so if you take it out for another reason, you'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's no provider network, so patients can choose their own doctors and hospitals. The fees for 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 you if:

• You don't want to have to commit to one specific primary care physician or facility
• You want the most amount of flexibility possible when it comes to choosing which doctors and healthcare centers to visit
• You 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 costs ranging widely depending on where you live, your age, and what benefits you want to be included

Indemnity plans are considered supplemental coverage and don't qualify as minimum essential coverage under the Affordable Care Act.

Alternative health insurance options

As an employer, you aren't limited to offering your employees one of the above traditional group health insurance plans. There are alternative options for providing healthcare benefits, 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 tax-free, including individual health insurance premiums and out-of-pocket costs.

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 services and the type of care that works best for them. Your employees can purchase their own coverage from the Health Insurance Marketplace and choose the health carrier that works for their location and needs 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 differ eligibility and allowance amounts
• An ICHRA allows you to satisfy the ACA's employer mandate as long as your employees have individual coverage that meets minimum essential coverage (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 currently offer a healthcare benefit. With a stipend, you can offer your employees a taxable monthly allowance or reimbursement 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 a good option for your organization if you:

• Can't afford a group health plan
• Want greater control over which expenses are eligible for reimbursement
• Have fewer than 50 FTEs

Conclusion

No matter where you work, what you make, what type of organization you run, or what your health needs are, there's an option for everyone to get the coverage they need. Reviewing the various health insurance plans out there will help you make the most informed decision for you, your family, or your organization.

If you're an employer looking to provide personalized employee 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

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