Health Insurance Plan Types and Definitions
Just over 200 million Americans have health insurance coverage from commercial or private market health insurance. Over the past 30 years, the financial and legal structure of such insurance has varied. No one "model" has dictated the market, although there are strong trends -- from the original "indemnity" or fee-for-service approach of 25 years ago, to HMOs (Health Maintenance Organizations) in the 1990's, to "Preferred Provider Organizations (PPOs) in the past ten years.
The specific terms and structures can be confusing, both to policymakers and to employers and enrollees. The summary definitions below were compiled and promulgated by the United States Department of Labor. NCSL has added notations in selected cases, with source footnotes.
The Federal Health Reform Law: The Affordable Care Act of 2010 (ACA) has numerous provisions that affect the structure and extent of health insurance coverage.
The Act states that “the Secretary [of Health and Human Services] shall define the essential health benefits” for certain health plans. The Act further instructs the Secretary to “ensure that the scope of the essential health benefits … is equal to the scope of benefits provided under a typical employer plan.” The Act requires the Secretary of Labor to “conduct a survey of employer-sponsored coverage to determine the benefits typically covered by employers,” and to report the results of the survey to the Secretary of Health and Human Services.1
Types of Commercial Health Insurance
Indemnity plan - A type of medical plan that reimburses the patient and/or provideras expenses are incurred.
Conventional indemnity plan - An indemnity that allows the participant the choice of any provider without effect on reimbursement. These plans reimburse the patient and/or provider as expenses are incurred.
Preferred provider organization (PPO) plan - An indemnity plan where coverage is provided to participants through a network of selected health care providers (such as hospitals and physicians). The enrollees may go outside the network, but would incur larger costs in the form of higher deductibles, higher coinsurance rates, or nondiscounted charges from the providers.
Exclusive provider organization (EPO) plan - A more restrictive type of preferred provider organization plan under which employees must use providers from the specified network of physicians and hospitals to receive coverage; there is no coverage for care received from a non-network provider except in an emergency situation.
Health maintenance organization (HMO) - A health care system that assumes both the financial risks associated with providing comprehensive medical services (insurance and service risk) and the responsibility for health care delivery in a particular geographic area to HMO members, usually in return for a fixed, prepaid fee. Financial risk may be shared with the providers participating in the HMO.
Group Model HMO - An HMO that contracts with a single multi-specialty medical group to provide care to the HMO’s membership. The group practice may work exclusively with the HMO, or it may provide services to non-HMO patients as well. The HMO pays the medical group a negotiated, per capita rate, which the group distributes among its physicians, usually on a salaried basis.
Staff Model HMO - A type of closed-panel HMO (where patients can receive services only through a limited number of providers) in which physicians are employees of the HMO. The physicians see patients in the HMO’s own facilities.
Network Model HMO - An HMO model that contracts with multiple physician groups to provide services to HMO members; may involve large single and multispecialty groups. The physician groups may provide services to both HMO and non-HMO plan participants.
Individual Practice Association (IPA) HMO- A type of health care provider organization composed of a group of independent practicing physicians who maintain their own offices and band together for the purpose of contracting their services to HMOs. An IPA may contract with and provide services to both HMO and non-HMO plan participants.
Point-of-service (POS) plan - A POS plan is an "HMO/PPO" hybrid; sometimes referred to as an "open-ended" HMO when offered by an HMO. POS plans resemble HMOs for in-network services. Services received outside of the network are usually reimbursed in a manner similar to conventional indemnity plans (e.g., provider reimbursement based on a fee schedule or usual, customary and reasonable charges).
Physician-hospital organization (PHO) - Alliances between physicians and hospitals to help providers attain market share, improve bargaining power and reduce administrative costs. These entities sell their services to managed care organizations or directly to employers.
Medigap Supplemental Plans - Roughly 10 million Medicare beneficiaries purchase Medigap policies from private insurance companies, at a cost that ranges from approximately $1,000 to $5,000 per year, depending on the options available in the plan and the state of purchase. Studies have shown that Medigap policy holders use more medical services than those enrolled in traditional Medicare alone, primarily because the most popular Medigap plans provide "first-dollar" coverage. This means that Medigap actually pays the Medicare deductibles, copayments, and other expenses that beneficiaries are typically required to pay as a means of spreading the cost burden and reining in unnecessary use of services. [Medigap from Health Affairs, 9/11]
Types of plans and overall plan limits
Of those employees covered by an employer health benefits plan,
79 percent received benefits under a fee-for-service arrangement in 2009, where payment wasn’t made until services were received.
Most of those in fee-for-service plans were in the sub-category of plans known as preferred provider organizations (PPOs), where enrollees are provided medical services at a higher level of reimbursement if they receive care from designated providers.
The remaining 21 percent were covered by a health maintenance organization (HMO), generally characterized by a fixed set of benefits provided for a prepaid fee, often with restrictions on available providers. 1
Deductibles: Fee-for-service plans, including PPOs, generally impose certain cost-sharing features referred to here as overall plan limits, which apply to many or all services received. For example, 93 percent of employees covered by a fee-for-service plan had services subject to a deductible, an amount that must be paid before the plan will begin to pay for services. The median annual deductible for all such plans was $500 per person in 2009, although many plans such as PPOs imposed varying deductibles. When plans specified varying deductibles, the median annual deductible was $1,000 per person for out-of-network care but only $500 per person for in-network care.
Coinsurance: Once the deductible is met, fee-for-service plans often pay a portion of additional charges. This portion, known as a coinsurance, is often 80 percent, but again can vary based on where services are received. The median in-network coinsurance was 80 percent while the median out-of-network coinsurance was 60 percent. To guard against unusually high health care costs, fee-for-service plans also frequently identify an out-of-pocket expense maximum. Once the employee’s share of services (for example, 20 percent) reaches the out-of-pocket expense maximum, future covered charges are paid at 100 percent. In 2009, the median out-of-pocket expense maximum was $1,900 per individual.
Notes and Sources
1 - " Selected Medical Benefits: http://www.bls.gov/ncs/ebs/sp/selmedbensreport.pdf
A Report from the Department of Labor to the Department of Health and Human Services