Health Insurance Buyer's Guide

Types of group medical insurance plans

In the last twenty-plus years, there has been a dramatic shift in employer-sponsored health care. Increased options and cost savings for employers have led the shift away from conventional plans towards HMO and PPO alternatives.

This graph demonstrates that shift in terms of the percentage of covered workers in the United States for each of the main types of plans from 1988 through 2011. (It is worth noting that this breakdown varies considerably in different parts of the country.)

Here is a rundown of how these plans work.

Conventional

The biggest advantage of conventional health insurance is the flexibility it provides employees. Also known as indemnity coverage, conventional health insurance allows individuals to visit any doctor or hospital they want and receive coverage for any treatment covered under the policy. Plan members can go to any specialist without a referral, and the insurance company has no say as to whether the visit is necessary. Unfortunately for people who prefer this flexibility, few employers offer conventional health insurance plans these days.

Cost is the main reason these plans are disappearing. Because there are few oversight or cost-saving measures, premiums for conventional insurance tend to be higher than other plans. Conventional insurance also carries more out-of-pocket expense, since most plans require costly deductibles before coverage kicks in, and co-insurance that leaves the insured responsible between 5% and 20% of each charge.

HMO

Health maintenance organizations (HMOs) were the first alternatives to conventional insurance. By creating a network of doctors and hospitals and implementing cost-saving measures, HMOs are able to control costs better than other plans.Overall, HMO premiums are the lowest of any of the three major plan types.

However, HMOs are also less flexible than other plans. They require members to choose a primary care physician (PCP) from within the plan’s network. This PCP will perform basic health checkups and approve any visits to specialists. HMOs generally only cover the expense of visits to doctors and hospitals that are part of the network. Visits to nonparticipating doctors must be paid directly by the employee.

Referred to as a gatekeeper system, this structure helps minimize costs for employers; though employees who currently use doctors outside the HMO network may be unhappy with having to switch physicians to receive coverage.

PPO

Preferred provider organizations, or PPOs, are now the most popular choice for employer-sponsored health care. A PPO is a collection of physicians and hospitals who agree to provide health care at a reduced cost to PPO members. With this setup, insurance plans can limit health care costs without the restrictions of an HMO.

Most PPOs are similar to conventional health insurance policies, except that PPOs have two different levels of coverage. For visits to doctors and hospitals that are affiliated with the PPO, patients generally pay a low deductible and little or no co-insurance. But visits to doctors and hospitals outside the network require higher payments from the patient.

This structure is designed to control costs by encouraging PPO members to use specific doctors and hospitals that have been designated by the organization as preferred providers.

POS

Also known as open-ended HMOs, point of service (POS) plans combine elements of both HMOs and PPOs. As with HMOs, members of POSs must choose a primary care physician who provides referrals to network specialists. However, POS members are free to visit out-of-network providers without a referral and still receive some coverage. Members who use services outside the network will pay more than they would for in-network services. This increased cost typically involves deductibles and coinsurance.

POS plans are popular with some employees because they provide much of the cost savings of HMOs, but still include some coverage if the member wants to choose a specific doctor.

Finally, a new type of health plan is rapidly gaining popularity: the consumer-driven health plan. Read on for more.