According to recent Jellyvision research, 52% of employees say choosing their benefits is stressful. And when it comes to comparing health insurance plans, that stat comes as no surprise. Decoding the differences between premiums, copays, deductibles and coinsurance is enough to make the average employee’s head spin.
As an HR leader, you have the power to better educate your employees the differences between health insurance plans. But if you just hand them benefits materials filled with boring, hard-to-understand jargon, they’ll run for the hills (and 1 in 5 will regret their plan choice.)
While every healthcare plan is unique depending on how you’ve set things up with your vendors or brokers, there are a few common definitions that can be helpful to share with your employees. Here are some snooze-proof health insurance plan comparisons to include in your benefits materials this year.
What is an HMO plan?
“HMO” stands for Health Maintenance Organization. In an HMO plan, a network of hospitals, doctors, and specialists in a specific location agree to provide coordinated care and services.
HMO plans require you to choose a primary care physician (PCP) within the network. The PCP coordinates healthcare services, whether it’s an annual wellness exam or a referral for specialty care. HMOs require referrals for appointments with specialists as a way to keep costs down, since a referral shows the insurance company that the PCP believes specialty care is medically necessary. The upside is that you won’t have to file any claims for these visits, since they’re all within the network.
An HMO plan will cover preventive medical visits, but will charge a copay for all other services, such as an appointment to look at a sore throat or a swollen ankle. You’ll need to pay a separate copay for each visit, too.
One more thing: If you see a doctor outside the HMO network, you’ll have to pay 100% of the cost of care (unless it’s a medical emergency), as those doctors aren’t covered by this insurance policy.
Advantages of an HMO plan
- Lower out-of-pocket costs. HMO plans have lower monthly premiums and lower deductibles. They also tend to have lower prescription drug costs.
- Care coordination. Your PCP is a one-stop-shop whenever you have healthcare questions. They can also help you find any specialty care you may need.
Disadvantages of an HMO
- Smaller networks. You may have limited choices when it comes to seeing a specialist. Plus, if you need to see a doctor when you travel for work or go on vacation, you’ll have to pay the full cost of care.
- Less flexibility. Because referrals are required for specialty care, you’ll need to speak to or see your PCP first. This extra step could lead to delays.
What is a PPO plan?
PPO stands for Preferred Provider Organization. Like an HMO plan, a PPO plan also includes a network of hospitals and physicians.
There are three key differences between PPO and HMO plans. PPO plan networks are larger, and you don’t need a referral from a PCP to see a specialist, and you don’t have to pay 100% of the cost of out-of-network care. PPO plans also don’t require you to have a primary care physician. But this flexibility comes at a cost – premiums and deductibles are higher for PPO plans than HMO plans.
Some PPO plans charge a copay for non-preventive medical services. Other PPO plans include deductibles, which will require you to pay out-of-pocket for medical services until you reach the deductible.
Advantages of a PPO
- More flexibility. You have a larger network of providers to choose from, and you’re not on the hook to cover all of the costs for out-of-network care.
- Less hassle. You don’t need a dedicated PCP, and you don’t need referrals for specialty care.
Disadvantages of a PPO
- Higher out-of-pocket costs. PPO plans tend to have higher monthly premiums and deductibles than HMO plans.
- More personal responsibility. If you don’t have a PCP, then you have to do the legwork to find specialist providers and schedule appointments. You’ll also have to submit claims in order to be reimbursed for any out-of-network services.
What is an HDHP?
HDHP stands for High-Deductible Health Plan, and the name says it all. HDHPs have a deductible of $1,400 or more for an individual plan, or $2,800 or more for a family plan.
That sounds like a lot of money — so what’s the benefit? Premiums are usually lower, meaning less money will be taken from your paycheck each month. It’s a great option for young, healthy employees who don’t need a ton of coverage and don’t need to overspend on healthcare. The IRS also sets limits on out-of-pocket expenses for HDHPs – for 2021, it’s $7,000 for individual plans and $14,000 for family plans.
Aside from the high deductible, an HDHP can operate like an HMO plan or a PPO plan. You may (or may not) need a PCP, you may (or may not) need referrals for specialists, and you may (or may not) have a national network of providers. Bear in mind that your out-of-pocket limit does not apply to out-of-network services.You can typically offset the cost of healthcare with a health savings account (HSA). Money in an HSA can be applied to medical expenses, and can be rolled over from one year to another. HSAs also offer a triple tax savings, meaning you’ll save when money goes in, as it grows (if you invest your HSA), and when you take out money for medical expenses.
Advantages of an HDHP
- Lower premium. You’ll have lower paycheck deductions for health insurance.
- Long-term savings potential. An HDHP paired with an HSA enables you to build a tax-free savings account to cover medical expenses or save for retirement.
Disadvantages of an HDHP
- Higher deductible. You’re on the hook for more out-of-pocket healthcare costs before insurance kicks in.
- More risk. If you incur unforeseen medical expenses, you may face hefty medical bills.
HMO vs. PPO vs. HDHP: A quick comparison chart
10 questions to help employees choose a health insurance plan
Comparing health insurance plans is an important process for your employees. After all, they want to make sure they can get the best coverage for their families, see the best physicians for their healthcare needs, and avoid unforeseen costs as much as they can.
To help your employees choose the right health insurance plan, provide them with this set of ten questions about their care needs and their coverage needs.
Do you (or your family) see specialists frequently? If so, a PPO plan is the best option, since you won’t need referrals and you’ll have a large network to choose from. This is especially true if you have a chronic condition and see multiple specialists.
Do you want someone to coordinate all of your care? If so, an HMO plan probably makes sense, since you’ll need to talk to your PCP before you can see a specialist. Plus, office staff can help you make appointments and transfer medical records to new providers.
Are you generally young and healthy? If you don’t have a chronic condition and don’t go to the doctor very often, then a HDHP is a good option, as it allows you to save money on premiums and contribute to a health savings account.
Do you already have doctors or hospitals that you prefer? If so, take the time to make sure they are in your network. An HMO may have more limited options than a PPO – especially if you live in a rural area where there are not a lot of doctors.
Do you have a major life event planned? If you have elective surgery on the horizon, or you are planning to have children, then a PPO plan may be a better choice. Yes, premiums are higher—but more expenses are covered by the PPO plan, leaving you with fewer unexpected bills.
Do you travel frequently or have dependents far away? You may want to avoid HDHPs or HMO plans if you are often away from home for business or pleasure, as they tend to have smaller networks than PPO plans and won’t cover any of the cost of out-of-network services. The same is true if you have a child attending college and/or a partner working out of state – if these dependents need care, they will be out-of-network under an HMO plan and you’ll be paying the entire bill.
Do you take medications? As part of the trade-off for higher monthly premiums, a PPO plan will have lower copays – and that includes medications. In addition, an HMO plan may have a limited pharmacy network, just like it may have a limited provider network.
Do you have a large family? If there are several people covered under your insurance plan, look at an HMO or PPO plan. The out-of-pocket maximum for an HDHP is $14,000 – and with many people going to the doctor, you very well may have to pay all of it. But if you’re on your own, then an HDHP makes sense.
Do you want to avoid paperwork? If you enroll in an HMO plan, most (if not all) of your medical care will be in-network, which means you won’t have to file claims. With a PPO plan, you’ll have to file claims in order to be reimbursed for out-of-network care. And if you’re in a HDHP and using your HSA funds, you’ll need to keep your receipts, if not for direct reimbursement but just in case you are audited by the IRS.
What is your financial risk tolerance? An HMO plan is your best bet if you prefer lower monthly premium payments. On the other hand, if you’re willing to accept the risk of a high deductible, or you have an HSA or other funds to cover it, then a HDHP is right for you. If you’re okay with higher monthly premiums, then go with a PPO plan.
Support employees around the clock with ALEX
Even when you give employees all the information at your disposal, helping your employees compare health insurance plans can still be a challenge.
You don’t have time to have one-on-one conversations with each employee to decide which plan is the right fit, and employees need time to digest information and decide which option is the right fit for them.
To empower your employees to make the right decision, they need around-the-clock access to financial and benefits guidance. You can’t be available at all hours, but ALEX can.
- Boosts benefits engagement and understanding to empower better decision-making
- Drives better financial outcomes for employees – and your company
- Provides personalized guidance that saves your team time and lowers HR expenses
- Demonstrates the value of your benefits so companies attract and retain top talent