As a business owner, you’ll need to weigh up HMO vs. PPO against other health plans when considering health insurance for your employees. Providing health insurance is optional if your business has less than 50 full-time employees. However, you may choose to offer this perk to attract and retain the best employees. Selecting the right health plan for your business can be a minefield because there are so many available options. A key point to note is that health plans differ in relation to the following main features:
- Extent of coverage
- Premium cost
- Ease of use
- Affordable Care Act (ACA) compliant
Although there’s significant choice when deciding on the most suitable health plan, there are four main types that you should know about. The following are health plans that you need to be aware of to make an informed decision about the benefits to your business and your employees:
- A summary of HMO vs. PPO
- Point-of-Service (POS) Plans
- High Deductible Health Plan (HDHP)
- Summary of FSA vs. HSA
Health Maintenance Organizations (HMOs) vs. Preferred Provider Organizations (PPOs)
Two common types of health plans are HMOs and PPOs. Here are the key provisions and differences when deciding between HMOs vs. PPOs.
An HMO is a prepaid health plan that allows employees to access a network of care providers including hospital and doctors. Employees are also able to choose one primary care physician (PCP). This one doctor will attend to all of your employees’ health care needs. This means that, except for emergency cases, the PCP is responsible for referring your employees to see another healthcare professional. If your employees decide to visit a healthcare professional outside of their HMO network, they won’t be covered by your insurance. An exception to this condition is women who need to see a gynecologist or obstetrician for specific routine care services.
Your employees may need to make a nominal copayment when visiting the doctor ($5) or the hospital emergency room ($25) under an HMO health plan. HMOs provide an emphasis on preventative healthcare like immunizations, physicals, and mammograms in an attempt to stop serious health issues from occurring. This preventative approach could benefit your business because you’re likely to have a healthier workforce.
HMOs may be a popular choice for your employees because there’s no inconvenience of filling in forms at the time of care. HMO health plan members show a card when they visit the hospital or doctor’s office. But one of the downsides of HMOs is that your employees may need to wait longer for appointments compared to some other health plans.
Some additional features of HMO health plans include:
- Low premiums and annual deductibles in exchange for various restrictions, for example, one PCP.
- The PCP decides whether your employee needs to be referred to another health specialist. Issues can arise if your employee disagrees with the PCP’s decision.
- Less paperwork to access health services.
- Employees can receive emergency care from any hospital, even if the hospital is out of the HMO network.
- The number of health professionals in the HMO network can vary according to different states.
A PPO is a prepaid health plan that offers a preferred network of health professionals to your employees. With a PPO, your employees don’t need a PCP, so they can see any health professional they choose, whether in or out of network. If your employees decide to go out of network, they’ll need to pay a larger part of their health bill. But most of their medical bills are covered if they use preferred providers.
Similar to the HMO, employees with PPO health plans need to present a card without filling in forms when accessing health services.
PPOs also include the following elements:
- Generally, higher annual deductibles and premiums in comparison to HMOs, which provides more flexibility when choosing health care professionals.
- Employees can get care from a doctor of their choice, but they will be charged more if the doctor is out of the PPO network.
- If your employee believes they need to see a specialist, there’s no referral required.
- The size of the preferred provider network differs by city, states or PPOs.
With a PPO health plan, your employees can visit a doctor or specialist when they have a health problem. However, some specialists will need a referral from a PCP even though your employee has a PPO health plan. With an HMO, the decision about whether a specialist is required is made by the PCP.
The PPO network is generally much larger than the HMO network, so employees under a PPO health plan have more options. Because your employees with a PPO health plan are free to use health professionals outside of the network, both you and them could be liable for extra costs.
Another major difference to consider when weighing-up HMO vs. PPO is the cost. PPO health plans are more expensive than HMOs – this is especially the case if an employee chooses an out of network provider.
Other health plans you should know about:
Some HMOs provide a POS health care plan. A POS is regarded as a hybrid between an HMO and a PPO. The PCPs in a POS normally make a referral to other health care professionals within the health plan although employees are able to seek assistance from professionals outside of the plan and still remain covered. The POS health plan will cover most or the entire bill if the PCP makes a referral to a health professional outside of the network. But if your employees refer themselves out of the network, they will need to pay coinsurance.
Here’s some more information you should know about the POS health plan:
- Your employees will need a PCP.
- Your POS network size is dependent on factors like the state your business operates in.
- Your employees will incur fewer copayments if they remain in-network under the POS health plan.
- Employees under a POS health plan will have to pay some costs when going to out of network providers.
The HDHP has a higher deductible than other health plans and is also known as the ‘catastrophic’ care coverage. According to the IRS, a plan is considered to be an HDHP when it has a deductible of more the $1,300 per person. Deductibles can also increase to up to $6,000. HDHPs can be an attractive option for employers due to the low premiums. However, it appears that HDHPs are on the increase. Research by The Kaiser Family Foundation found that employer-sponsored HDHPs increased from 8% in 2009 to 29% in 2016.
The following information will help you to decide whether you want to offer your employees an HDHP:
- An advantage of the HDHP is that your employees are still likely to see their existing doctor.
- Employees should be encouraged to make financial provision in order to pay the high deductibles if they get sick.
- Employees should predict how often they’re likely to visit the doctor, based on past experience and decide whether your HDHP is suitable.
Flexible Spending Account (FSA) vs. Health Savings Account (HSA)
If your employees need a way to save for out-of-pocket expenses associated with their health plans, the FSAs and HSAs are options that help you and your employees to save for medical expenses with or without a conventional health plan.
An HSA is a savings account that can be used with an HDHP. If an employee isn’t enrolled in an HDHP, they will be ineligible for an HSA. The HSA includes tax advantages and the money saved is only for appropriate medical expenses. The HSA works similarly to a 401K plan. Employee contributions are deducted from their paycheck and you can also make a contribution. Most third-parties, like spouses and parents, can contribute to an employee’s HSA.
The key aspects of an HSA are as follows:
- Employees must have an HDHP as their main health plan.
- Employees are able to take their HSAs when they change jobs.
- There is a maximum contribution of $3,450 for an individual and $6,900 for a family annually.
- The HSA contributions are taken out pre-tax.
- Employees can arrange their own HSAs.
Flexible Spending Accounts – also known as Flexible Spending Arrangements – is where your employees can save part of their pre-tax pay for health expenses that insurance won’t cover including:
- Optometrist visits
- Approved over-the-counter medications
As an employer, you can also make a contribution to your employee’s FSA. Employees can use an FSA with any health plan you offer except for the HDHP. Employees can contribute $2,650 to their FSA in 2018. The money in the FSA has to be used before it expires at the end of the annual period. If employees don’t use the savings in the FSA by the specified time, the money is returned to you.
Both the FSA and HSA provide tax benefits and offer an extra incentive for potential employees to choose your business. Although there are many similarities between the FSA and the HSA, here are the three main differences that set them apart:
- Employees won’t lose their contributions if the money in their HSA isn’t spent in a given period. The savings in an HSA will remain in the account and be accumulated tax-free. In contrast, employees will lose the money in an FSA if not spent within the specified timeframe.
- Employees are only eligible for an HSA if they have an HDHP. An FSA can be used with all other health plans.
- Employees can move their HSA to a new job. Most employees will lose their FSA when they change jobs unless they’re entitled to FSA continuation through the Consolidated Omnibus Budget Reconciliation Act (COBRA).
- Withdrawals from the FSA and HSA must only be used for medical purposes. If it’s found that you or your employees have used money from the FSA or HSA accounts for non-health related costs, a tax will be applied. Additionally, if you or your employees are under 65 years old, you’ll be liable to pay a 10% penalty.
COBRA allows employees to continue to receive benefits coverage for a predetermined period after they have left a company. Under COBRA, employers are not required to cover the cost of the continued benefit (for example health insurance) after the employee has left. Therefore, your ex-employee will have to pay the full cost of their health insurance and a 2% administrative fee if they want their coverage to continue under COBRA.
The following three criteria must be met in order for an employee to be covered by COBRA:
- The health plan must be covered under COBRA.
- A qualifying event must have happened.
- The employee must be a qualifying beneficiary.
Employees’ spouses and dependents may also be covered under COBRA.
Employees may qualify for COBRA benefits after the following:
- Termination or reduction in hours (except for gross misconduct)
- Divorce or legal separation
- Death of the employee
- Medicare entitlement
- Child’s loss of dependent status
The length of the COBRA benefits depends on the qualifying event. The continued coverage can last from 18 months to 36 months.
When considering the pros and cons of HMO vs. PPO and other health plans, you need to consider factors such as your budget and the number of full-time employees. You also need to think about whether you offer a less attractive health plan, like the HDHP, but incentivize employees with a generous HSA allowance. There’s a great deal to work through before settling on a health plan that will work for your employees and your business. Using the services of a reputable broker could help you to choose the most suitable health plan.
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