We have compiled a detailed explanation of insurance types and services. If you still have questions, feel free to contact us for more information.

Introduction

Employees usually rank health care coverage as the most important of all employee benefits. Yet it is also an attractive benefit for many employers. By pooling risk, businesses can purchase health coverage at a much lower cost than individuals. In addition, tax benefits ensure that health care is a very cost-effective way to compensate employees.

There are three popular programs that businesses generally provide for their employees: traditional, HMO, and PPO. Some businesses will offer just one or two of the three. Other businesses, particularly ones with a diverse group of employees, will opt to offer all three.

Programs

Traditional

The biggest advantage of traditional health insurance is the flexibility it provides employees. Individuals can visit any doctor or hospital they want and receive coverage for any treatment covered under the policy.

The major drawback to traditional insurance is its cost. Because there are few oversight or cost-saving measures, premiums for traditional insurance tend to be higher than for other kinds of plans. Traditional insurance is also expensive for employees, since most plans require costly deductibles and co-insurance with each visit.

HMO

A health maintenance organization, or HMO, signs up doctors and hospitals into a network. Employers pay a set fee per employee enrolled in the plan.

HMOs require its members to choose a primary care physician who performs basic health checkups and approves visits to other physicians. They generally only cover the expense of member visits to doctors and hospitals that are part of the network. Visits to nonparticipating doctors must be paid directly by the employee.

This gatekeeper system represents both the best and the worst of HMOs. While this structure helps minimize costs for employers, it can be unpopular with some employees who currently use doctors outside the HMO network, since they must switch physicians to receive coverage.

Recently, some HMOs have developed a more flexible type of coverage. A point-of-service plan allows members to visit non-network physicians without having to first see their primary physician. Members who use services outside the network must pay more for these services than they would for within-network services. This increased cost typically involves deductibles and coinsurance, much like traditional fee-for-service plans. While visits outside the network are more expensive, the HMO does provide some level of coverage.

PPO

A preferred provider organization, or PPO, is a collection of physicians and hospitals that agree to provide health care at a reduced cost to PPO members. These organizations have become very popular in recent years as a way to limit health care costs without the restrictions of using an HMO.

Most PPOs are quite similar to traditional health insurance policies, with the exception that there are two different levels of coverage depending on which providers you use. For visits to doctors and hospitals that are affiliated with the PPO, patients pay a low deductible and little or no co-insurance. Visits to doctors and hospitals outside the network are not as fully covered, requiring higher payments from the patient.

This structure is designed to encourage PPO members to use specific doctors and hospitals that have been designated by the organization as preferred providers. These doctors and hospitals agree to provide health care to PPO members at lower rates, which allows the PPO to reduce overall health care costs.

Price

Generally, traditional health insurance tends to be the most expensive kind of health insurance program, followed by PPOs then HMOs.

Traditional health insurance

This kind of insurance plan costs employers an average of $3,850 per employee per year, according to the Foster Higgins 1994 National Survey of Employer-Sponsored Health Plans.

In terms of out-of-pocket costs for your employees, traditional health insurance can vary depending on how you choose to structure the policy. Employees can end up paying deductibles that typically range from $200 to $1,000, and co-insurance is usually about 20 percent for the first $2,000 to $10,000.

HMO

HMOs cost an average of $3,165 per employee per year, according to the 1997 National Survey of Employee-Sponsored Health Plans by Mercer/Foster Higgins. HMO costs have been dropping steadily in the past few years and are now less expensive, on average, than traditional fee-for-service health insurance plans and PPOs.

Out of pocket costs for employees include a regular monthly fee and low co-payments for visits to physicians within the network and for prescriptions drugs. These co-payments generally range from $5 to $15.

PPO

PPOs cost employers an average of $3,321 per employee per year, according to the 1997 National Survey of Employer-Sponsored Health Plans by Mercer/Foster Higgins.

In terms of patient out-of-pocket costs, PPOs can vary tremendously. Some networks require members to pay only a small deductible with each visit, much like an HMO.

Many PPO plans are starting to allow members to seek care without a referral from the primary care physician, but this requires additional out-of-pocket expenses.

Under most plans, you would pay a deductible each calendar year (typically $250 per member or $500 for all family members covered under the same family membership) before benefits are provided. Then, you would also have pay around 20 percent (called co-insurance) of the remaining covered charges.