There are many different types of group health insurance plans, and each one has its own benefits and drawbacks. As you know, offering health benefits isn’t a one-size-fits-all solution. We’re here to help simplify the process so you can feel empowered to choose the best option for your business.
In this post, we’ll outline the most common types of group health insurance plans: Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), Point-of-Service (POS), Health Reimbursement Arrangement (HRA), Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA). We’ll also briefly go over the Small Business Health Options Program (SHOP) as well as some of the pros and cons of each type of plan along with average costs so that you can decide which is best for your business.
Health Maintenance Organization (HMO)
Health Maintenance Organization plans are typically lower in cost for employers and offer fixed premiums, low, or no, deductibles, and cheaper copays for plan members.
HMO plans require members to pay monthly premiums but healthcare services will be limited to a specific network of providers and locations and only those that fall under that network.
These plans also require the insured to select a primary care doctor, and only they can make referrals to specialists, which can be inconvenient for plan members.
Participating in an HMO health plan involves more than just copays—coinsurance, deductibles, and out-of-pocket maximums all have a role to play. Once the annual deductible has been met by the insured individual, coinsurance steps in to help cover costs.
In 2022, 9% of covered employees were in a HMO and their employers contributed an average of $6,769 for single coverage and $16,628 for families.
Preferred Provider Organization (PPO)
According to the Kaiser Family Foundation, a whopping 49% of covered workers in 2022 were enrolled in a PPO plan, making it the most commonly offered group health plan.
PPO plans are similar to HMO plans, but offer more flexibility. While they include a network of healthcare providers and facilities, group members have the option to go to out-of-network physicians or locations with just higher co-pays and additional service costs.
PPO plans are usually more expensive than HMO plans because of this added flexibility and the costs to administer the plan. Not only do participants have to pay copayments upfront at each provider visit, but there are also deductibles that must be met before the plan’s full coverage kicks in.
With a PPO, your employees have the freedom to choose their own healthcare provider—no primary care physician selection or referrals necessary.
Employers contributed an average of $6,812 for single coverage and $17,043 for family coverage with PPO plans in 2022.
A POS plan offers the best of both worlds: access to a primary care provider within the network, and an added level of flexibility in case you or your employees need out-of-network services.
POS plans usually offer lower costs than PPOs, but they can still cost as much as HMO premiums. They can also add complications since policyholders are responsible for filing all the paperwork when they visit an out-of-network provider.
An average of $6,432 for single coverage and $13,926 for family coverage was contributed in 2022 by employers. However, POS plans are still widely unused with only 9% of all covered employees in the US enrolled in one in 2022.
Health Reimbursement Arrangement (HRA)
HRA plans are funded by employers and allow them to reimburse their employees for medical expenses, however these plans must be offered alongside a group health insurance plan. Contributions to HRAs are tax-deductible for employers and tax-free for employees.
Employers can decide what they contribute to HRAs with no annual maximum and the best part is, any unused amount could carry over year after year – giving the employee more bang for their buck! HRAs ensure employers can provide a comprehensive health plan while maintaining control and ownership over it too!
Qualified Small Employer HRAs (QSEHRAs)
QSEHRA enables small businesses to provide employees with tax-free support in the form of reimbursements for healthcare expenses. These expenses can include premiums and coinsurance payments for employees that maintain minimum essential coverage.
To qualify for a QSEHRA, your business must:
- Have less than 50 full-time employees
- Provide the same arrangement to all full-time employees (reimbursement can only vary by the number of individuals covered and age of covered)
- Not offer a group health plan or a flexible spending account (FSA)
Small businesses can offer their employees the benefit of health care reimbursement with a QSEHRA. Employers decide how much to contribute up to an IRS-set cap, while employees submit payment receipts for reimbursement from the program.
The contribution maximum for 2022 was set to $5,450 for individuals and $11,050 for families and it increases each year for inflation.
Another added bonus is that employers can set up a QSEHRA at any time, you’re not restricted to a dedicated open enrollment period. You’ll simply need to give 90 days notice to your current employees, before the beginning of the plan year. New employees will also need written notice of the option once they’re eligible.
Health Savings Account (HSA)
Health savings accounts allow employees to save pre-tax money for future medical expenses. These contributions can go into regular interest-bearing accounts, or it can be invested.
In order to contribute, the person must have an HSA-qualified high deductible health plan (HDHP), but anyone can contribute, including employers. However, the combined contributions can’t exceed the IRS’s annual limits.
Consider pairing a high-deductible health plan (HDHP) with a HSA for 3x the tax benefits and maximize your healthcare savings because;
- Contributions to a health savings account are made pre-tax,
- Investment growth within the HSA is untaxed and
- There are no extra fees for withdrawals spent on qualified medical expenses
In 2022, 29% of all covered US employees were enrolled in a high-deductible plan with a savings option.
Enjoy the ease of managing costs while reaping the rewards. In 2023, you can contribute up to $3,850 for individual coverage and an impressive $7,750 when covering a family. Plus – the funds rollover from year-to-year so also you have long term savings potential!
Flexible Spending Account (FSA)
An FSA, also called a flexible spending arrangement or flexible spending account, gives your employees access to financial resources exclusively for healthcare expenses. As their employer, you can also contribute to their account, though you aren’t required to do so.
Employees will provide proof of medical expense and submit a claim through an approved channel. Then you’ll reimburse those costs back to them.
According to Healthcare.gov, employers maximum contributions for 2023 are $3,050 per year, spouses of the employees can also contribute a maximum of $3,050 per year. Employers will also avoid a 7.65% payroll tax on the amount their employees contribute to an FSA, meaning extra tax savings!
The funds in Flexible Spending Accounts can help cover essential medical and dental costs for both your staff. FSA dollars provide protection against key health expenses.
Small Business Health Options Program (SHOP)
SHOP coverage provides businesses and their employees with a flexible way to secure quality plans year-round. In order to qualify for SHOP coverage, a business must :
- Have 1-50 full-time employees; or at least 1 employee other than owners, spouses, and family members
- Offer the coverage to all full-time employees (those working 30 or more hours per week)
- Ensure at least 70% of employees offered insurance enroll (some states have slightly different requirements)
- Have a work-site or office in the state offering the SHOP plan
When determining the right plan, consider cost, benefits and features for all those enrolled. Affordability is dependent on how much an employee pays toward premiums of themselves and dependents. If the plan does not meet the “affordable” criteria, your staff may seek Marketplace alternatives instead. Additionally, dental insurance options are available alongside or separate in this program.
To check SHOP eligibility and availability you can use HealthCare.gov, but note some states use their own site for enrollment and plan management. Enrollment steps will vary by the actual insurance company and premiums will be paid to that insurance company, not HealthCare.gov.
There are a variety of group health insurance plans available, each with its own set of advantages and disadvantages. By familiarizing yourself with the most common types of plans you can make an informed decision. If you need help determining which plan is right for your business, our team of experts is here to assist.
Our mission is to make quality, affordable health insurance accessible and easy-to-understand for small business owners and decision makers. With our extensive network of over 100 insurers, we provide you with free access to a licensed agent who can help explain various healthcare plans. Compare options that are tailored for your needs and budget today.
To get help determining the best option for your small business, call (877) 658-2374 or enter your zip code in the bar above to get a quote online.