Group Coverage Options (Page 5 of 7)
At this point you may well be wondering what type of coverage might work for your business. Once you start exploring what kinds of health coverage plans are available, you'll quickly see it's a crazy your options are. Many plans can't be neatly characterized—as an HMO, a PPO, and so on—but offer a mix of features, and what they cover may change frequently.
The following review will help you understand the big picture for health coverage options. We'll also shed some light on the specific characteristics of the common types of managed care plans, including HMOs, PPOs, POSs and MSAs (don't worry, below we'll tell you what all these acronyms stand for). Finally, we'll point out the most crucial features to consider in any plan, and help you understand how to get the features that work best for your needs.
It's All about Managed Care
It's important to understand that today, just about all health coverage plans are some type of "managed care" plan. Gone are the days of traditional indemnity (also called "fee for service") insurance, where patients chose their own doctors, paid for their care, and were reimbursed by their insurance company for some or all of their doctor's bills. These days, managed care is the name of the game.
Under managed care plans such as HMOs and PPOs, the insurer or health plan pays doctors or hospitals directly for some or all of the cost of the medical services its members receive. Insurers and health plans look for ways to align providers' financial incentives with appropriate care management. For example, physicians may be paid a fixed annual per-member ("capitation") rate, regardless of how many times the covered individual visits the physician. Health plans may also impose rules aimed at managing the care that their members receive, such as requiring members to obtain prior authorization before elective hospitalizations or requiring referrals from primary care physicians before seeing certain specialists.
Understanding Plan Characteristics and Types
One reason insurance issues can get so confounding is that the market is constantly changing and the coverage plans offered by insurers are hard to categorize. In other words, the lines between HMOs, PPO's, POS's, and other types of coverage are blurry at best. Still, understanding what makes various plan types tick can be helpful in evaluating your options.
Here's a breakdown of what various plan types typically feature. As you read about each type, just remember that today's health coverage market often offers "blends" of these traditional types.
Health Maintenance Organizations (HMOs)
In a very general sense, HMOs offer predictable cost-sharing and administrative simplicity for patients, along with fairly restrictive rules on which providers patients may see. Participants are entitled to doctor visits, preventive care, and medical treatment from providers who are in the HMO's network. In addition to the monthly premium (which may be shared by the employer and employee), participants usually need to pay a small fee at the time of service, called a copay (often in the range of $10 to $20), and the HMO covers 100 percent of the services provided. Most HMOs use capitation arrangements to reimburse physicians.
HMOs typically require patients to select a "primary care physician" (PCP) who can refer patients to specialists, also within the HMO's network. HMOs often won't pay for medical care that wasn't referred by the primary care physician (some exceptions include emergency services or preventive gynecological exams). They may also require prior authorization for elective care or referrals.
Preferred Provider Organizations (PPOs) - most popular
Preferred provider organizations (PPOs) generally offer a wider choice of providers than HMOs. Premiums may be similar to or slightly higher than HMOs, and out-of-pocket costs are generally higher and more complicated than those for HMOs. PPOs allow participants to venture out of the provider network at their discretion and do not require a referral from a primary care physician. However, straying from the PPO network means that participants may pay a greater share of the costs.
Many PPOs available to California small businesses reimburse 60 percent of out-of-network costs and 80 percent of in-network costs (with the employee responsible for the remaining 40 percent or 20 percent). These percentages may be applied to full charges ("sticker" prices), discounted fees that the health plan has negotiated with providers ("negotiated fees"), or regional average fees ("allowable" or "usual and customary" amounts).
Point-of-Service Plans (POS)
A point-of-service plan (POS) is a type of managed care plan that is a hybrid of HMO and PPO plans. Like an HMO, participants designate an in-network physician to be their primary care provider. But like a PPO, patients may go outside of the provider network for health care services. When patients venture out of the network, they'll have to pay most of the cost, unless the primary care provider has made a referral to the out-of-network provider. Then the medical plan will pick up the tab.
Health Savings Accounts (HSAs) - usually associated with a PPO network
Federal legislation enacted in late 2003 authorized the creation of Health Savings Accounts (HSAs)These savings accounts are combined with a high-deductible health plan. Because high-deductible plans generally cost less than low-deductible plans, HSAs are a good option for employers who cannot afford a comprehensive (low-deductible) health plan.
Both employers and employees may contribute to HSAs. Total annual contributions to the savings account may be up to 100% of the annual health plan deductible amount and may be used to pay for any qualified medical expenses. The savings account is controlled by the covered employee and is intended to pay small and routine health care expenses.
Once the deductible amount is reached, additional health expenses are covered in accordance with the provisions of the health insurance policy. For example, an employee might then be responsible for 10 percent of the costs for care received from a PPO network provider.
Deposits made to an HSA are tax-free to the employer and employee, and money not spent at the end of the year may be rolled over to pay for future medical expenses. Money from the HSA may be withdrawn for any reason, but if it's not for qualified medical expenses as defined under §213(d) of the Internal Revenue Code, the withdrawal is subject to a 10 percent penalty and is included in gross income for income tax purposes. (The penalty is waived in a few cases: if the beneficiary dies, becomes disabled, or reaches age 65.)
New Tax Law Effective January 1, 2007 Health Savings Accounts, often referred to as an HSA, is a tax exempt account with a financial institution in which you accumulate savings to pay for qualified medical expenses. They work together with a high deductible health insurance plan.
Starting in 2007, eligible individuals can slash their federal income tax bills by making deductible HSA contributions. This will be like making deductible IRA contributions. Even better, you can qualify for the HSA break regardless of your income since there are no nasty phase-out rules for high earners like the ones that apply to deductible IRA.
The new HSA tax law made several significant changes to the HSA. The plans are now available to many more people than ever before.
You deposit money into your Health Savings Account as often as you need. Amounts that have accumulated are intended to be withdrawn and used to pay for actual medical expenses, such as doctor visits, prescriptions, etc. that your health insurance plan doesn't cover until you reach your deductible.
You get a tax deduction for money contributed to the account each year. Then you pay your medical expenses by withdrawing funds from the account. If expenses exceed your health insurance policy deductible, the policy pays the additional costs. If you spend less than the amount contributed, the difference stays in the account and earns interest. No use it or lose it provision!
The HSA account can have features of both a savings and a checking account, where you can have checks and debit cards, but is not a savings or checking account in the strict sense due to tax and legal regulations.
The contributions for individuals and families are expalined below:
The maximum annual amount permitted to be contributed in order to qualify for a tax deduction to an HSA for a year is 100% of the deductible for individual and/or family coverage (a family is more than one person).
Example 1: Individual
Individual has coverage with a high deductible health plan with an annual deductible of $1,000.00. The annual contribution limit this individual can make is 100% or $1,000.00, up to a maximum of $2,850.00.
Example 2: Family
Family has coverage with a high deductible health plan with an annual deductible of $4,000.00. The annual contribution limit is 100% or $4,000.00, up to a maximum of $5,650.00.
The contribution cannot exceed annual earnings.
Generally, HSA holders must pay 6% excise tax on contributions to an HSA that are greater than the limit. The owner may withdraw the excess without paying the excise tax if they withdraw by the due date of the tax return and withdraw any income earned on the excess. No minimum contributions are required except to cover an annual custodian fee.
Individuals and couples aged 55 or older may contribute more to the account per year.
For example, for married workers, an employer might provide a family policy that has a $5,000 deductible while depositing 60 percent of the deductible ($3,000) in each employee's HSA at the beginning of the year. (Employer contributions must be the same for all employees.) Workers would be responsible for the first $5,000 in medical costs, but they would each have $3,000 in their personal HSA to pay for medical expenses (and would have even more if they, too, contributed to the HSA). If workers or their families exhaust their $3,000 HSA allotment, they would pay the next $2,000 out of pocket, whereupon the insurance policy would begin to pay.
Any eligible person can establish an HSA with a qualified trustee or custodian. You do not need permission from your insurance carrier or from the IRS before establishing an HSA.
Who is a qualified HSA trustee or custodian? Any insurance company or bank can be a trustee or custodian if they offer that service. Also, individuals who are approved to create and maintain IRAs, such as a financial advisor, are automatically approved to be a custodian or trustee.
Contact an HSA administrator to sign up for an HSA. In most cases an application is filled out and submitted, possibly along with other eligibility forms.
Some custodians will send reports to the HSA owner. These may include quarterly or monthly statements and account summaries, which show a detail of all the activity in the account.
Receive Multiple Options for Employer Sponsored Benefits that will Save Money!