Basic categories of health insurance

When considering health insurance options for your small business, you can choose from basic categories like indemnity, HMO, PPO, and EPO plans, each offering different levels of coverage and provider flexibility. Additionally, there are supplemental, catastrophic, and short-term plans available to tailor coverage to your employees’ specific needs and circumstances.

Plan Type	Description
Indemnity Plan	Offers maximum flexibility, allowing employees to choose any healthcare provider. No network restrictions.
HMO (Health Maintenance Organization)	Requires employees to choose a primary care physician and get referrals for specialists. Network-based coverage.
PPO (Preferred Provider Organization)	Provides a network of preferred providers and allows out-of-network coverage, though at a higher cost.
EPO (Exclusive Provider Organization)	Offers coverage only within the network of providers, but referrals are not required for specialists.
Other Options	Supplemental Plans: Enhance existing coverage. Catastrophic Plans: Covers major medical events. Short-Term Plans: Temporary coverage solutions.

1. Fee-for-service (indemnity) health insurance

Fee-for-service (indemnity) health insurance, also known as indemnity insurance, is a traditional type of health insurance plan that offers maximum flexibility when it comes to choosing healthcare providers. With this plan, policyholders have the freedom to visit any doctor, specialist, or hospital of their choice, without needing a referral. Indemnity insurance reimburses a portion of the medical costs incurred by the insured person, and the individual is responsible for paying the deductible and any coinsurance. While indemnity plans provide greater control over healthcare decisions, they may also involve higher out-of-pocket costs compared to other types of insurance plans.

Indemnity pros & cons

Pros:

• Freedom of Choice: Indemnity insurance allows you to choose any healthcare provider without needing referrals, giving you greater control over your medical decisions.
• Wide Network: You have access to a broad network of healthcare professionals and facilities, offering flexibility in seeking care.
• No Primary Care Physician Required: You are not required to choose a primary care physician (PCP), and you can see specialists directly.
• Comprehensive Coverage: Indemnity plans often cover a wide range of medical services and treatments.

Cons:

• Higher Costs: Indemnity plans may have higher out-of-pocket expenses, including deductibles and coinsurance.
• Paperwork: You may need to file claims and handle paperwork for reimbursement.
• Limited Cost Control: The plan may not include cost-containment measures common in managed care plans, potentially leading to higher overall expenses.
• No Preventive Care Focus: Some indemnity plans may not emphasize preventive care as much as other types of plans.

Is indemnity right for you?

Indemnity insurance is well-suited for individuals who prioritize flexibility in choosing their healthcare providers and want the freedom to access a wide network of doctors and specialists. It may be a good fit for those who prefer not to have a primary care physician and want to directly seek specialized care when needed. However, individuals considering indemnity insurance should be prepared for potentially higher out-of-pocket costs and more administrative tasks, such as filing claims. It’s important to assess your healthcare needs, budget, and preferences to determine if indemnity insurance aligns with your coverage requirements and priorities.

2. Health maintenance organization (HMO) plans

HMO plans are one of the most popular types of health insurance you can purchase. With this plan, an entire network of health care providers agrees to offer you its services. You have to select a primary care provider (PCP) who coordinates all of your health services and care.

HMO pros & cons

Pros:

• Broad Network: Health Maintenance Organization (HMO) plans often have a wide network of healthcare providers, ensuring access to medical services within the network.
• Lower Costs: HMOs generally have lower out-of-pocket costs compared to other plan types, making healthcare more affordable.
• Preventive Care Focus: HMOs emphasize preventive care, offering services like wellness programs and screenings at minimal or no cost.
• Coordinated Care: HMOs provide coordinated and managed care, ensuring that your healthcare needs are overseen by a primary care physician (PCP).

Cons:

• Specialist Referrals: You typically need a referral from your PCP to see a specialist, which may delay specialized care.
• Limited Out-of-Network Coverage: HMOs usually offer limited or no coverage for out-of-network care, which may restrict your options.
• Copayment Fees: While copayment fees for preventive services are usually low, you may have copayments for non-preventive medical visits.
• Network Restrictions: Your choice of healthcare providers is limited to the HMO network, reducing the flexibility to see providers outside the network.

HMOs usually offer coverage for most types of preventive care, including specialist visits, but specialist visits are only covered when your PCP makes a referral. Additionally, you will pay copayment fees for every non-preventive medical visit, and you may have an annual deductible.

When HMO plans are recommended

HMOs are usually best suited for individuals and families that plan to see their primary care doctor on a regular basis for check-ups and other health concerns. Since 2014, the popularity of HMO plans has increased significantly.

3. Preferred provider organization (PPO) plans

Under a PPO plan, both you and your family can see any health care provider in the insurance company’s network, including specialists, without a referral.

PPO plans operate on a two-tiered system: in-network and out-of-network. In-network care offers the advantage of reduced out-of-pocket costs, negotiated rates, and simpler claim processing. Out-of-network care, while still covered, typically comes with higher deductibles, coinsurance, and copayments. However, the freedom to choose healthcare providers outside the network can be especially valuable when you require specialized or specific care not available within the network.

PPO plans are well-suited for individuals who value choice and flexibility in healthcare decisions. If you appreciate the ability to see specialists directly without referrals and prefer the option to receive care from out-of-network providers, a PPO plan might align with your healthcare needs. Just keep in mind that while PPO plans offer more freedom, they often come with higher premiums and potential out-of-network costs.

PPO pros & cons

Pros:

• Flexibility: PPO plans allow you to visit any healthcare provider within the plan’s network without the need for a primary care physician or referrals to see specialists.
• Broad Network: You have access to a wide network of healthcare providers, including specialists, giving you more options for your medical care.
• Out-of-Network Coverage: While you can save on costs by staying in-network, PPO plans provide coverage for out-of-network care, giving you the flexibility to seek care from providers of your choice.
• No Referrals: You can see specialists directly without obtaining referrals, giving you more control over your healthcare decisions.
• Copayments: PPO plans typically involve copayments for non-preventive medical services, making it easier to predict your out-of-pocket costs.
• Annual Deductible: You may have an annual deductible to meet before the plan starts covering a portion of your medical expenses.

Cons:

• Higher Premiums: PPO plans often come with higher monthly premiums compared to other plan types due to the flexibility and expanded network access they offer.
• Out-of-Network Costs: While PPO plans cover out-of-network care, the costs for such care can be significantly higher, including higher deductibles, coinsurance, and copayments.
• Cost Variation: Depending on the provider and service, the cost-sharing structure can vary, leading to potential unpredictability in your healthcare expenses.
• Network Restrictions: While PPO plans offer out-of-network coverage, staying in-network provides the best value, and some plans may require pre-authorization for certain services.
• Complexity: The freedom of choice and coverage options in PPO plans can lead to a more complex understanding of plan details, including the differences between in-network and out-of-network care.

In most cases, you are not required to choose a primary care physician or to get referrals to see specialists. You will typically have copayments for any non-preventive medical care you receive, and you may have an annual deductible.

Is a PPO plan right for you?

PPO plans are often favored by individuals who value flexibility in choosing their healthcare providers and specialists. If you find yourself needing to visit specialists regularly, a PPO plan can provide you with the convenience of direct access without requiring referrals. These plans are well-suited for those who prioritize having a broad network of healthcare providers and prefer to maintain the freedom to seek medical care both within and outside the network.

Over the years, the popularity of PPO plans has experienced a decline since 2014. However, if having the ability to see specialists without referrals and a more extensive network of providers aligns with your healthcare preferences, a PPO plan could still be a strong option for you. It’s essential to assess your healthcare needs, budget, and preferences before making a decision to ensure that the benefits and features of a PPO plan align with your specific situation.

4. Exclusive provider organization (EPO) plans

With an EPO plan, you have access to all of the health care providers within the EPO network, including specialists. Unlike other types of plans, EPOs generally do not cover medical services obtained outside the network, with some exceptions for emergency care and certain specific situations.

EPO plans provide individuals with the convenience of accessing a wide range of medical services within the established network. This can be beneficial for those who prefer the simplicity of having a designated network of providers and are comfortable receiving medical care within that network. EPO plans do not typically require individuals to choose a primary care physician or obtain referrals to see specialists, giving them direct access to the medical care they need. Before choosing an EPO plan, it’s important to ensure that the network includes the healthcare providers you prefer and that the plan aligns with your healthcare needs and preferences.

 EPO pros & cons

Exclusive Provider Organization (EPO) plans come with their own set of advantages and considerations for individuals seeking health insurance coverage. One of the primary advantages of EPO plans is the comprehensive access they provide to a network of healthcare providers, including specialists. EPOs are known for offering strong coverage within the network, ensuring that individuals can receive a wide range of medical services without the need for referrals or primary care physician selection. This can be particularly beneficial for those who prefer the convenience of a designated network and want to receive care from various specialists.

However, it’s important to note that EPO plans typically do not provide coverage for medical services obtained outside of the established network, except for emergency situations. Unlike Preferred Provider Organization (PPO) plans, which may offer some coverage for out-of-network care, EPO plans generally limit coverage to within-network providers. This means that individuals who choose EPO plans should carefully consider their healthcare preferences and ensure that the network includes the healthcare providers they prefer. Ultimately, the decision to opt for an EPO plan should be based on individual healthcare needs, network availability, and personal comfort with the restrictions on out-of-network care.

Who should consider an EPO plan?

EPO plans can be suited well to individuals who don’t mind limiting themselves to providers within a network and who don’t want to coordinate their care through a primary care doctor. Since 2014, the popularity of EPO plans has increased.

5. High-deductible health plans (HDHPs)

High-deductible plans cross categories. High-deductible health plans are a unique type of insurance that combines features from various categories such as fee-for-service, HMO, PPO, and EPO plans. These plans offer a blend of benefits and cost-sharing arrangements to strike a balance between flexibility and affordability. By incorporating elements from different plan types, high-deductible plans aim to cater to a diverse range of healthcare preferences and financial needs. Some are PPO plans while others may be EPO or HMO plans. This type of health insurance has a high deductible that you have to meet before your health insurance coverage takes effect.

HDHP pros & cons

High-deductible health plans (HDHPs) offer both advantages and drawbacks that individuals should consider:

Pros:

• Lower Premiums: HDHPs generally have lower monthly premiums compared to traditional plans, making them a cost-effective option for those seeking to save on premiums.
• Tax Advantages: HDHPs are often compatible with Health Savings Accounts (HSAs), which allow individuals to contribute pre-tax money for medical expenses, reducing their taxable income.
• Flexibility: HDHPs may come with the flexibility to choose healthcare providers from a broad network or choose any provider without referrals.
• Health Savings: While the deductible may be high, individuals can use their HSA funds to cover medical expenses before meeting the deductible.

Cons:

• Higher Deductibles: The high deductible of HDHPs means individuals must pay a significant amount out of pocket before insurance coverage kicks in.
• Limited Coverage Before Deductible: Many HDHPs offer limited coverage for medical services until the deductible is met, leading to higher initial costs.
• Financial Risk: With higher out-of-pocket expenses, individuals may face financial challenges if unexpected medical needs arise.
• Potential for Delayed Care: Some individuals may delay necessary medical care due to the high deductible, potentially leading to worsened health conditions.

Health savings accounts (HSAs) in HDHPs

HDHPs are often paired with Health Savings Accounts (HSAs) to offer individuals tax advantages and greater control over their healthcare expenses. With HSAs, contributions are made with pre-tax dollars, and interest or gains within the account are tax-free. The coupling provides a way to save for future medical costs, helps individuals manage deductibles and copayments, and offers a financial safety net for unexpected medical needs. This approach is particularly beneficial for those seeking cost-effective coverage while planning for potential healthcare expenses. If you already contribute money to an HSA, you can buy an HSA-compatible health plan. Money contributed to an HSA can be saved on a pre-tax or tax-deductible basis to pay for qualifying medical expenses, including annual deductibles.

Is an HDHP the right choice for you?

These plans can be right for people who want to save money with low monthly premiums and don’t plan to use their medical coverage extensively.

6. Point of service (POS) health insurance

POS plans are a hybrid of HMOs and PPOs. With a POS plan you will typically have to designate a primary care physician for regular check-ups and referrals. But you can also use out-of-network providers if you’re willing to pay more out of pocket; you’ll usually have a copayment and deductible as well. 

POS pros & cons

Pros:

• Flexibility: POS plans allow you to choose healthcare providers both within and outside the network. You can decide whether to use in-network or out-of-network providers each time you need care.
• Primary Care Physician (PCP): Similar to HMOs, POS plans often require you to select a primary care physician (PCP) who will coordinate your healthcare and provide referrals to specialists when needed.
• Lower Costs: Using in-network providers will typically result in lower out-of-pocket costs, such as copayments and coinsurance.
• Coverage: POS plans usually cover preventive care and wellness services, contributing to a comprehensive healthcare package.

Cons:

• Referrals: While you can visit specialists without a referral, obtaining one from your PCP may help manage costs and ensure proper coordination of care.
• Network Restrictions: The flexibility to see out-of-network providers comes with higher costs, potentially resulting in higher deductibles, copayments, and coinsurance.
• Complexity: The freedom to choose providers both within and outside the network can make plan details and costs more complex to navigate.

Who should consider a POS plan

A Point of Service (POS) plan is an appealing choice for individuals who prioritize both flexibility and a balance between costs and healthcare choices. If you are open to paying slightly higher costs in exchange for the freedom to choose between in-network and out-of-network providers, a POS plan could be a good fit. This plan type suits those who value the ability to seek care from specialists directly, without needing a referral from a primary care physician.

POS plans are especially advantageous for people who want the convenience of coordinated care through a primary care physician while maintaining the option to see specialists outside the network when necessary. The versatility of a POS plan makes it well-suited for those who appreciate having options and are willing to manage costs by making conscious choices about healthcare providers. If you value having control over your healthcare decisions and are prepared to invest a bit more for the added flexibility, a POS plan could align well with your preferences.

7. Short term health insurance

Short-term health insurance plans are a temporary limited policy that has fewer benefits and Federal protections than other types of health insurance options, like those on HealthCare.gov. However, if you missed the Obamacare open enrollment period, a short-term health policy can provide you with some level of coverage you in the meantime, however it would only be a temporary solution with limited coverage.

Short term health insurance pros & cons

Pros:

• Short-term insurance offers more limited benefits than major medical, but can help safeguard your finances in the case of a covered illness or accident.

Cons:

• The downside to this type of coverage is that it does not meet the minimum essential coverage required by the Affordable Care Act, so you may also be subject to the tax penalty.
• This policy might not cover you due to preexisting health conditions like diabetes, cancer, stroke, arthritis, health disease, mental health and substance use disorders.
• This might not cover things like prescription drugs, preventive screenings, maternity care, emergency services, hospitalization, pediatric care, physical therapy, and more.
• This policy might not limit on what you pay out-of-pocket for care.
• You won’t qualify for Federal financial help to pay premiums and out-of-pocket costs.
• This policy doesn’t have to meet Federal standards for comprehensive health coverage.

Who should consider short term health plans?

Short-term health insurance plans are a suitable option for individuals who are in need of temporary coverage for unforeseeable illness or accident due to specific life circumstances. If you find yourself in between jobs, waiting for employer benefits to kick in, or facing a coverage gap during a transitional period, short-term health plans can provide you with basic, limited medical coverage that excludes pre-existing or chronic conditions or other foreseeable issues. These plans are designed to offer affordable and temporary protection for unexpected medical expenses, ensuring you have some level of coverage while you navigate changes in your healthcare situation. It’s important to note that short-term health plans are not intended as a long-term solution and do not provide comprehensive coverage for all healthcare needs. In particular, short-term health insurance typically excludes pre-existing conditions, chronic conditions, pregnancy and maternity, mental health, and preventive care.

8. Catastrophic health insurance

Another type of health insurance that carries a modest premium cost is catastrophic coverage. Catastrophic health insurance is a type of coverage designed to protect you in the event of major medical emergencies or serious health issues. It generally comes with a lower premium cost compared to other health insurance plans, making it an appealing option for individuals who are relatively young and healthy but still want a safety net for severe medical situations. Catastrophic coverage typically has a high deductible, meaning you’ll need to pay a significant amount out of pocket before the plan starts covering costs. These plans are not designed to cover routine healthcare expenses or minor medical treatments, but rather to provide financial protection in case of unexpected, costly events such as accidents, severe illnesses, or hospitalizations. It’s important to consider your health and risk tolerance when deciding if catastrophic health insurance is the right choice for you.

 Eligibility and affordability

Catastrophic health insurance is an option for individuals under age 30 and those over 30 who qualify for a hardship/affordability exemption, offering lower premiums in exchange for coverage focused on major medical emergencies. (This means that due to unaffordability of coverage, economic hardship, or certain other hardships – such as the death of a family member – the person is not required to maintain health insurance coverage). Catastrophic health insurance is designed to provide an affordable option for individuals who are relatively young and healthy. The premiums for catastrophic plans are generally lower compared to other types of health insurance, making them a cost-effective choice for those who are looking to protect themselves from major medical expenses while keeping their monthly payments manageable. However, it’s important to note that catastrophic plans come with higher deductibles and out-of-pocket costs, so they are best suited for individuals who have fewer medical needs and are willing to take on more financial responsibility in the event of a medical emergency.

Situations where catastrophic plans make sense

Catastrophic health insurance plans are often suitable for individuals who are generally in good health and don’t require frequent medical care. They can be a reasonable choice for young adults under 30 who want to maintain basic coverage at a lower cost, as well as for those who are looking for coverage to protect against major medical expenses while accepting higher out-of-pocket costs for routine healthcare needs. Additionally, catastrophic plans can be considered by individuals who are ineligible for other types of health insurance or who face affordability challenges, allowing them to have some level of coverage in case of unexpected medical emergencies.

9. Supplemental health insurance

The insurance plans described so far don’t typically cover routine dental, vision or critical illness care. So, you may need to add separate plans for that kind of care.

Examples: Dental, vision, critical illness coverage

To get coverage for dental exams, x-rays, cleanings, and fillings, you’ll need to choose a dental plan. Dental plans may also cover more specialized services such as orthodontia, periodontal treatments, veneers, bonding, dentures, and others.

For coverage for vision exams, eyeglass frames and corrective lenses, contact lenses, and other eye-related care, you’ll need to consider adding a vision plan. Keep in mind that a vision plan can be more critical as you or your family member’s age, even if you’ve never needed vision correction previously.

Critical illness coverage is an option that can provide financial protection in the event of a serious medical condition. This coverage offers a lump-sum payment upon diagnosis of specific critical illnesses, which can help alleviate the financial burden associated with medical treatment and related expenses. It’s a valuable consideration to ensure that you’re prepared for unexpected health challenges that may arise.

Choosing the right health insurance plan

Factors to consider when selecting a plan

When selecting a health insurance plan, there are several important factors to consider to ensure that you choose the right plan for your needs:

1. Health Needs and Medical Conditions: Consider your current health status and any ongoing medical conditions. If you have specific healthcare needs or require regular medical treatments, you’ll want to choose a plan that covers those services.
2. Coverage Options: Evaluate the coverage options available within the plan. Different plans offer varying levels of coverage for doctor visits, prescription drugs, hospital stays, and other medical services.
3. Network of Providers: Check if your preferred doctors, specialists, hospitals, and healthcare facilities are included in the plan’s network. This ensures you have access to the healthcare professionals you trust.
4. Cost Considerations: Compare monthly premiums, deductibles, copayments, and coinsurance amounts across different plans. Consider your budget and how these costs may impact your finances.
5. Prescription Drug Coverage: If you take regular medications, assess whether the plan’s prescription drug coverage meets your needs. Make sure the drugs you require are covered and consider any associated costs.
6. Frequency of Healthcare Utilization: Consider how often you visit doctors, specialists, or other healthcare providers. If you frequently use medical services, a plan with lower copayments or coinsurance might be beneficial.
7. Out-of-Pocket Maximum: Determine the plan’s annual out-of-pocket maximum, which is the most you’ll have to pay for covered services in a year. This can help you gauge your potential costs.
8. Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs): If available, these accounts allow you to save pre-tax money for medical expenses. Check if the plan is compatible with such accounts.
9. Metallic Levels for ACA Plans: If you’re considering plans offered under the Affordable Care Act (ACA), also known as Obamacare, be aware of the metallic levels: Bronze, Silver, Gold, and Platinum. These levels indicate the amount the plan will cover on average for your healthcare expenses. Generally, Bronze plans have lower premiums and higher out-of-pocket costs, while Platinum plans have higher premiums and lower out-of-pocket costs. Choose a level that matches your expected healthcare usage and financial preferences.
10. Coverage for Specialized Services: If you need specific services like maternity care, mental health support, or preventive screenings, ensure the plan offers adequate coverage.
11. Future Life Changes: Consider any anticipated changes in your life, such as a change in family size or employment. Choose a plan that can adapt to your evolving healthcare needs.

By carefully considering these factors, you can make an informed decision when selecting a health insurance plan that aligns with your health requirements, budget, and lifestyle.

Comparing plans and making an informed decision

To learn more about how you can compare individual and family health insurance, use our online tools to compare plans.

This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.