What Are the Different Types of Health Plans Offered by Employers?
The U.S. healthcare system is complex. Between deductibles, copays, and in-network providers, it can be difficult for employers and employees alike to make sense of how exactly their healthcare works. Read on to find out what you need to know about the different types of healthcare options available for organizations to offer team members.
Do Small Businesses Have to Offer Health Insurance to All Employees?
The Affordable Care Act (ACA) requires that any employer with 50 or more full-time employees working at least 30 hours per week must offer health insurance to its employees.
These applicable large employers (ALE) can determine their status by calculating their number of full-time equivalent (FTE) employees per month, calculating the number of hours worked by non-FTEs per month, adding the subtotals together, and dividing that number by 12.
- If the total is less than 50, the employer isn’t an ALE.
- If the total is at least 50, the employer is an FTE and is required to offer health insurance to all qualifying employees.
Another key provision in the ACA states that all ALEs must offer a health insurance plan that qualifies as minimum essential coverage (MEC), otherwise known as the employer mandate. When this first took effect in 2014, the penalties for organizations that failed to comply with MEC regulations were subject to charges of either:
- $2,000 per employee if no coverage was offered, minus the first 30 full-time employees; or
- $3,000 per employee if covered was offered to at least 95% of employees, but the option didn’t meet MEC requirements, under § 4980H(c)(1) and (b)(1) of the ACA.
These amounts have steadily increased each year since 2014. In 2021, the IRS announced the adjusted penalties are $2,700 and $4,060 per employee, respectively.
How Do Employers Choose Health Insurance?
Employers can work with benefits brokers to choose the right health insurance policy for their team.
In some cases, organizations may opt to offer plans that are affordable for both the employer and the employee. In other instances, employers may select plans that offer more robust features. It’s important to note, however, that healthcare benefits play a critical role in employee retention.
Which Type of Health Insurance is Best?
There isn’t any single “best” employer-sponsored health insurance because the effectiveness of a plan is measured by how well it matches with the employer’s workforce.
For example, a company with employees fresh out of college may choose to offer an HDHP with an HSA because generally speaking, younger people use their healthcare benefits less than their older counterparts. On the other hand, a workforce with more Baby Boomer employees may select a more traditional plan, such as a PPO.
According to Northwestern Mutual, the most common types of health insurance plans include HMOs, preferred provider organizations (PPO), and high-deductible health plans (HDHP) with health savings accounts (HSA).
What is a PPO?
If PPO members use providers that are considered in-network—including hospitals and doctors—the medical services are discounted to a pre-negotiated rate or covered entirely by the plan.
What is an HSA?
A health savings account (HSA) is a personal bank account with significant tax advantages that can be used by an individual to pay for medical expenses that aren’t covered by their medical insurance, which is typically a high-deductible health insurance plan (HDHP).
The IRS issues contribution limits for HSAs each year, which represent the total amount of tax-advantaged dollars that participants can deposit into their health savings accounts. Often these limits increase to account for cost-of-living adjustments.
Employers should note that there are some key differences between HSAs and PPOs. While not every PPO plan offers eligibility for HSAs, there are many PPO networks that offer comprehensive coverage and are compatible with HSAs, as long as the member uses in-network providers.
What is an HMO Plan?
A health maintenance organization (HMO) is a type of health insurance plan that provides people with all in-network care.
This means that employees or individuals covered by an HMO have one primary care physician (PCP) for appointments and are not permitted to receive covered care out-of-network. As a result, Investopedia points out that premiums are typically lower under HMO plans, deductibles are generally lower or nonexistent, and copays are often affordable.
What is a High-Deductible Health Insurance Plan (HDHP)?
A high-deductible health insurance plan (HDHP) is a type of healthcare coverage that requires participants to spend more on up-front costs before the insurance company begins to contribute to covering expenses. In many cases, people with HDHPs spend less per month on premiums.
Different types of healthcare coverages can be considered HDHPs. Additionally, HDHPs can be paired with HSAs to help users pay for qualified medical expenses using tax-advantaged dollars.
What is a POS Plan?
A point of service (POS) plan is a type of health insurance coverage where participants typically pay less in fees, copays, and other related expenses.
While costs may be lower than other types of plans, there are some limitations to POS plans, including that users must receive a referral from a PCP before they can see a medical specialist.
What is an EPO Plan?
An exclusive provider organization (EPO) plan is a type of health insurance coverage where a participant’s expenses are only covered if they visit doctors, hospitals, or specialists that are in the plan’s network. There are some exceptions in the case of emergencies.
The ACA—sometimes called “Obamacare”—was signed into law by President Obama in 2010. The law ushered in a major overhaul of the U.S. healthcare system with three primary goals:
- Make affordable health insurance available to more people. The law provides consumers with subsidies that lower costs for households with incomes between 100% and 400% of the federal poverty level.
- Expand the Medicaid program to cover all adults with income below 138% of the federal poverty level.
- Support innovative medical care delivery methods designed to lower the costs of health care generally.
Individuals and families can use the Obamacare system to enroll in federal healthcare marketplace plans as an alternative to purchasing coverage through their employer-sponsored plan—or if they don’t have access to insurance through their employer.
The costs and coverages of these ACA plans vary widely depending on the purchaser’s location, income, and family size. Depending on a policyholder’s annual household income, some individuals and families may also qualify for a premium tax credit (PTC) to help them cover monthly medical expenses.
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