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Group / Employer Coverage - Health

  • PPO
  • HMO
  • Qualified High-Deductible Health Plan
  • Consumer Driven Health Plan
  • Health Reimbursement Arrangement
  • Health Savings Account
  • Flexible Spending Account
  • Fully Insured 
  • Self-Funded


PPO - A preferred provider organization (PPO) is a network of health care providers that have contracted with the network management organization and have agreed to provide services for certain price and delivery parameters. These negotiated rates are intended to give consumers the buying power of larger groups.  PPO’s can be offered by the insurance companies themselves or by unaffiliated organizations that lease their networks to self-funded plans.

HMO - A health maintenance organization (HMO) is a managed care organization that consists of a management organization and of medical providers that have agreed to provide care for members on pre-arranged financial terms. An HMO typically places great emphasis on well care and preventive care as a means to provide a healthier population with greater control over health care costs.  Many consumers confuse the concept of HMO’s to assume that referrals are required from primary care physicians in order to see specialists or other services, and that is no longer the norm.  Many insurance companies who offer HMO’s allow for “open access” or “no referral required” plans which may cost more than “gated” or “referral required” plans.

Qualified High-Deductible Health Plan - A qualified high deductible is one which meets the IRS requirements for plan design, minimum deductibles and maximum out of pocket requirements to enable the covered person to be eligible to establish and/or contribute to a Health Savings Account.

Consumer Driven Health Plan - A consumer driven health plan (CDHP) is a plan with specific design features intended to encourage or provide incentive to the covered person to better participate in the health care purchasing process. Encouraging more cost effective settings, generic prescriptions, or better lifestyles are all examples of the goals of certain features of a CDHP. This can either be handled as a company in Health Reimbursement Arrangements (HRA) or as an individual in a Health Savings Account (HSA) type of plan.

Health Reimbursement Arrangement - In June of 2002, the IRS established a ruling and terminology for what are now known as Health Reimbursement Arrangements (HRAs). An HRA is an extension of a qualified medical reimbursement plan, in which the employer agrees to provide reimbursement for certain employee medical expenses. This process has always enjoyed a tax favored status as employer payments for reimbursement of IRS qualified medical expenses are deductible to the employer and not considered taxable income to the employee. The 2002 ruling added clarification that an employer promise of reimbursement that goes unused in a given year, can in fact, be carried forward for future years' expenses without adverse tax consequences.

Additionally, this ruling led to the establishment of several rules and guidelines for HRA utilization. In essence, non-discrimination rules, and other various guidelines were provided.

Basically, the HRA plan is an arrangement where an employer allocates dollars for the reimbursement of employee (and dependent) qualified medical expenses not covered elsewhere. Funds for HRA reimbursements always come from the employer, NOT from the employee.

What are the benefits of an HRA? The benefits of an HRA plan vary widely from plan design to plan design, but most often the plan is designed to SAVE THE EMPLOYER MONEY WITHOUT SIGNIFICANT COMPROMISE TO THE EMPLOYEE BENEFIT PLAN. An HRA is most often coupled with a high-deductible health plan, which reduces the premium considerably. This high deductible however, frequently becomes an issue of contention with the employees receiving the benefit. Therefore, the employer utilizes some or all of the savings to establish authorized reimbursement of employee qualified medical expenses for a portion of that deductible amount. Those employees that actually incur medical expenses are subsidized by the HRA promise made by the employer. Often, the numbers show that the employer can provide benefits comparable to the previous benefit structure at an overall reduced cost. Additionally, if the employee population enjoys a favorable level of expenses, the employer retains the funds allocated for those expenses as well as the premium reduction for the high deductible health plan.

Finally, the advantages of an HRA include a higher level of consumer awareness as to the spending for health expenses. Employees would typically prefer keeping their expenses to within the employers' allotted amount, thereby having full coverage for their needed expenses. This is likely to change employee behavior somewhat, to reduce over utilization of the health care system.

Health Savings Account - A Health Savings Account (HSA) is one of the best ways for many to set aside money for inevitable health care expenses. There are many advantages to HSAs. First, HSAs are tax-free deposits into a special bank account to be used for un-reimbursed medical expenses. HSAs earn tax-deferred growth and excess funds can be invested to maximize earnings. HSAs are also excellent ways to create supplemental retirement income.

The federal government created HSAs to be used in conjunction with a QUALIFIED high deductible health plan. Not all high deductible plans are qualified - special rules have been created to define exactly what type of coverage allows someone to open an HSA. First, an individual may not have any other type of health coverage besides a qualified high deductible health plan to be eligible to open an HSA. The plan designs including deductible and maximum out of pocket limits are mandated by federal regulations each year. In addition, preventive services such as annual exams, routine visits, and well child care may not be subject to the deductible. All other expenses, including prescriptions, must be subject to the deductible before coverage begins.*

The concept here is simple - use the same money in your healthcare budget to buy a reasonable amount of insurance for less money and put the difference in a specially treated fund that is there if you need it, and yours to keep if you don't use it! We have the knowledge and resources to determine and present your best options available.

*The preceding is meant to be a brief overview of the rules regarding what constitutes a Qualified High Deductible Health Plan by the IRS. Other rules apply.

Flexible Spending Accounts provide for employers to offer these tools to allow employees to contribute pre-tax funds through payroll withholdings to pay for qualifying medical and child care expenses.  These accounts are typically allowed when Health Savings Accounts are not. 

Flexible Spending accounts do require employers to “front” the funds that employees elect for the year when the funds are needed and the employee has not yet deposited.  For example, and employee elects to withhold $1200 annually and during the second month, the employee faces a $600 medical need (deductible, copays, medications or other).  The employee is allowed to withdraw up to $1200 in this example even though the employee may have only funded the account with $200.

The biggest drawback to these accounts is that the funds must be used by the end of the calendar year.  Any forfeiture of funds will be retained by the employer.

Fully Insured – The most commonly understood form of group health insurance is by nature fully insured.  This means that the insurance company receives your premiums and pays the full amount of claims incurred and takes on all risk for excessive claims. The group insurance company bundles the HMO or PPO network, described above, with the claims funding and administration paying the claims.  When talking about fully insured health plans, one is usually comparing to self-funded plans- see below.  Health insurers are different than stop loss insurers as described below. 

Health insurers (ie. companies offering fully insured plans) will often be regulated by state insurance laws.  Each state maintains similar but occasionally very different underwriting requirements and acceptable plan designs from state to state.  Group health insurers (fully insured) have to comply with the state mandates, including the hotly debated PPACA legislation (commonly known as the health care reform law).  This compliance can have both positive and negative consequences.  Positive effects include provisions that offer (1) expanded coverage to individuals (2) required disclosures to protect patients (3) minimum standards required by the whole healthcare delivery system.  Negative consequences include- inflexibility of plan designs, added cost, lengthy claims processing and appeals, more cost,  !  Regulations

Self-Funded - The defining difference between self-funded benefits and fully insured coverage is "Who makes the promise to pay for benefits?" In traditional group health insurance, the employer is the purchasing agent for insurance coverage for each participating employee. This insurance is evidenced by an insurance certificate which makes the promise to pay. In self-funded health benefits, the employer simply makes this promise in a document called a Summary Plan Description, which looks much like an insurance certificate - but maybe prettier. Of course, most employers would feel a little gun-shy about the financial obligations created by this promise to pay benefits, so they purchase stop loss insurance. This protects them from any undue excessive financial burden resulting from this promise. Additionally, they hire someone to handle all of the conventional operations of a health plan so that their employees see coverage much like what they may have been accustomed to all along. What's The Advantage? In self-funded benefit plans the employer has more control, more flexibility, and more potential to save! Each employer gets coverage which is rated specifically for his or her group of employees with specific demographic information. This way, the employer has the most specific rating for their own group with minimal subsidies of their neighbor groups. And while the claims that the employer pays have stop-loss protection to protect from excessive expenses; lower expenses yield savings to the employer's budget!

Some of the material above used with permission of GBS and Client First.

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