7 types of health insurance plans

When shopping for health insurance, whether through the Marketplace, an individual carrier, or an employer, you’ll likely encounter several types of health insurance plans. Understanding each type can help you make an informed decision about which plan is best suited for your needs. This article outlines the seven most common types of health insurance plans to help you navigate your options.

Key Takeaways

Health Maintenance Organization (HMO) plans require members to use a network of doctors and hospitals for their healthcare services.
Preferred Provider Organization (PPO) plans offer more flexibility in choosing healthcare providers and do not require referrals for specialist visits.
Exclusive Provider Organization (EPO) plans to combine features of HMOs and PPOs but generally do not cover out-of-network care except in emergencies.
Point of Service (POS) plans require referrals from a primary care physician to see specialists but offer more flexibility than HMOs.
Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs) provide tax advantages and can be paired with high-deductible health plans.

1. Health Maintenance Organization (HMO)

A Health Maintenance Organization (HMO) plan is a managed care plan that uses only in-network doctors, providers, and hospitals for its policyholders. An HMO can offer a broader range of services at a lower cost to individuals, but it does restrict them in other ways.

How It Works

An HMO delivers all health services through a network of healthcare providers and facilities. With an HMO, you may have:

The least freedom to choose your health care providers
The least amount of paperwork compared to other plans
A primary care doctor to manage your care and refer you to specialists when you need one so the care is covered by the health plan; most HMOs will require a referral before you can see a specialist.

What You Pay

Co-pays for primary and specialist care, usually.
There may be no deductible or co-insurance for in-hospital care.

Pros

Coverage may be cheaper than other options.
Cost-effective care within a specific network of providers.

Cons

You may bear the full cost of out-of-network care unless it’s an emergency.
Limited freedom to choose providers.

HMOs can help to keep health care costs low and are a good choice if you don’t mind working within a set framework of providers.

2. Preferred Provider Organization (PPO)

A Preferred Provider Organization (PPO) allows its policyholders to use either in-network preferred providers and hospitals or out-of-network providers, but offers the lowest costs for the former. PPO plans account for 22% of all individual and family plans selected by consumers shopping with eHealth.

Key Features

Freedom of Choice: Employees generally aren’t required to select a primary care provider (PCP) and have the freedom to see any network doctor.
Specialist Access: You do not have to get a referral from a primary care doctor to see a specialist.
Cost Structure: In-network costs are often capped at your copay and deductible, while out-of-network visits are still covered but may have higher copays and coinsurance rates.
Paperwork: There are no claim forms to fill out if you stay within the network, but more paperwork is involved if you see out-of-network providers.

Financial Considerations

PPO plans have higher premiums than an HMO or POS. However, this plan lets you see specialists and out-of-network doctors without a referral. Copays and coinsurance for in-network doctors are low. If you know you’ll need more health care in the coming year and you can afford higher premiums, a PPO is a good choice.

PPO plans are a popular option for those who value flexibility and are willing to pay higher premiums for the ability to see out-of-network providers.

3. Exclusive Provider Organization (EPO)

An Exclusive Provider Organization (EPO) is a type of managed care plan that combines elements of HMOs and PPOs. You’re only covered when you see in-network providers, but you don’t need a referral to see a specialist. This plan offers a moderate amount of freedom to choose your healthcare providers compared to an HMO.

Key Features

In-Network Care Only: Coverage is provided only when you see in-network providers, except in emergencies.
No Referrals Needed: You do not need a referral from a primary care doctor to see a specialist.
Lower Premiums: EPOs generally have lower premiums than PPOs but higher than HMOs.

Advantages

Flexibility: More freedom to choose healthcare providers without needing referrals.
Cost-Effective: Lower premiums compared to PPOs.

Disadvantages

Limited Coverage: No coverage for out-of-network providers except in emergencies.
Potential Costs: You may have to pay the full cost if you see a provider outside the network.

EPO plans offer a balance between cost and flexibility, making them a viable option for many individuals and families.

4. Point of Service (POS)

A Point of Service (POS) plan is a hybrid of an HMO and PPO. You can choose a primary care provider from the plan’s network but also have the flexibility to go out of network for care. However, you will generally pay most out-of-network costs unless your primary care provider refers you to another doctor. Referrals are required to see a specialist.

5. Health Reimbursement Arrangements (HRAs)

Health Reimbursement Arrangements (HRAs) are IRS-approved, employer-funded health benefits that allow employers to reimburse their employees for qualifying medical expenses, including individual health insurance premiums and out-of-pocket costs, on a tax-free basis. HRAs provide employers with complete budget control by setting allowance amounts for their employees.

Key Features of HRAs

HRAs are exclusively employer-sponsored plans.
They can be offered as a standalone benefit or alongside a traditional health insurance plan.
HRAs provide qualified employees with a tax-free health benefit that can be used to pay for premiums, deductibles, or out-of-pocket healthcare expenses.
These plans are popular with small businesses that want to provide their employees with healthcare options but may not be financially able to offer full coverage through a group plan.

Benefits for Employers and Employees

Employers have the flexibility to set their budget by determining the allowance amounts for their employees.
Employees enjoy the freedom of choosing the health plans and services that work best for them.

HRAs can also be offered alongside an employer group plan as a supplemental benefit to help pay expenses, much like a Health Savings Account (HSA).

Types of HRAs

There are several types of HRAs that employers can offer, each with its own set of rules and benefits. Some common types include:

Qualified Small Employer HRA (QSEHRA): Designed for small businesses with fewer than 50 full-time employees.
Individual Coverage HRA (ICHRA): Allows employers of any size to reimburse employees for individual health insurance premiums and other medical expenses.
Excepted Benefit HRA (EBHRA): This can be offered alongside a traditional group health plan and used to reimburse certain limited benefits.

Conclusion:

HRAs are a versatile and flexible option for employers looking to provide health benefits to their employees without the financial burden of full coverage group plans. They offer significant tax advantages and allow both employers and employees to tailor their healthcare spending to their specific needs.

6. Health Savings Accounts (HSAs)

What is an HSA?

A Health Savings Account (HSA) is a tax-advantaged savings account used in conjunction with a High Deductible Health Plan (HDHP) to pay for qualifying medical expenses. HSAs allow you to save pre-tax money for healthcare costs, making it a smart choice for those with HDHPs.

How Does an HSA Work?

HSAs allow policyholders to set aside pre-tax money into a savings account that can only be used to pay for health care services. Any money not used within a year rolls over to the next, and yearly contributions are capped at a predetermined level. Employers may contribute to the accounts themselves or match contributions made by their employees.

Contribution Limits

For 2023, you can contribute up to $3,850 to your HSA if you have an individual health plan. The contribution limit for family plans is $7,750.

Tax Benefits

Tax-deductible contributions
Tax-deferred growth
Tax-free withdrawals when used for eligible medical expenses

HSAs are often offered by employers who may either contribute to the accounts themselves or match contributions made by their employees.

Portability

Though HSAs can be attached to group health insurance coverage, employers can contribute to an account whether they offer a group policy or not, as long as their employee has an HDHP. Once an employee leaves a company, the account goes with the employee.

7. Medical Indemnity Plan

Overview

A Medical Indemnity Plan, also known as a “fee-for-service” plan, offers the most flexibility among health insurance options. Patients can choose their doctors and hospitals without worrying about network restrictions. Members pay a monthly premium and a yearly deductible before the plan starts covering costs. After meeting the deductible, the plan typically pays around 80% of the “usual, customary, and reasonable” (UCR) rate for services provided.

Advantages

No limitations around provider network care
Flexibility to choose any medical provider
Ability to see specialists without referrals

Disadvantages

Generally the most expensive type of plan
Medical costs can vary widely depending on location, age, and included benefits
Does not qualify as minimum essential coverage (MEC) under the Affordable Care Act (ACA)

Best For

A Medical Indemnity Plan is best for individuals who:

Do not want to commit to one specific primary care physician or facility
Want the greatest amount of flexibility in choosing doctors and healthcare centers
Prefer to see specialists without needing referrals

Learn more about our medical indemnity health plans. Discover how indemnity plans can help lower healthcare cost and provide flexibility for employees.

Conclusion:

Understanding the different types of health insurance plans is crucial for making informed decisions about your healthcare coverage. Whether you are choosing a plan through the Marketplace, an individual carrier, or an employer, knowing the specifics of each plan type—from HMOs and PPOs to HSAs and medical indemnity plans—can help you select the best option for your needs. Each plan comes with its own set of benefits and limitations, so it’s essential to weigh these carefully against your healthcare requirements and financial situation. By familiarizing yourself with these options, you can ensure that you and your family are well-protected and receive the care you need without unnecessary financial strain.

Frequently Asked Questions

1. What is a Health Maintenance Organization (HMO)?

An HMO is a type of health insurance plan that requires members to receive healthcare services from a network of designated providers. It often requires a primary care physician referral to see a specialist.

2. How does a Preferred Provider Organization (PPO) work?

A PPO is a health insurance plan that offers more flexibility in choosing healthcare providers and does not require referrals to see specialists. Members can see any doctor but will pay less if they use doctors within the plan’s network.

3. What is an Exclusive Provider Organization (EPO)?

An EPO is a type of health insurance plan that requires members to use the plan’s network of doctors and hospitals except in an emergency. EPOs do not require referrals to see specialists.

4. What are Health Reimbursement Arrangements (HRAs)?

HRAs are employer-funded plans that reimburse employees for out-of-pocket medical expenses and, sometimes, insurance premiums. The employer funds and owns the account, and the reimbursements are tax-advantaged.

5. How do Health Savings Accounts (HSAs) work?

HSAs are tax-advantaged savings accounts designed to help individuals with high-deductible health plans save for medical expenses. Contributions to HSAs are made pre-tax, and withdrawals for qualified medical expenses are tax-free.

6. What is a Medical Indemnity Plan?

A Medical Indemnity Plan is a type of health insurance that pays a set amount per day for covered healthcare services, regardless of the actual cost of care. It offers more flexibility in choosing providers but may result in higher out-of-pocket costs.