Choosing health insurance options and providers
By Hillary Sizer
The legal landscape of employer-sponsored health coverage has been rapidly evolving. Choosing health insurance plan coverage options and insurance providers can be a daunting task. Below are three important factors to consider when reviewing your options for the upcoming plan year.
Funding. The two basic types of employer-sponsored health plans are self-funded and fully insured. Small businesses generally choose fully insured plans in which the employer pays a non-refundable premium
to a health insurance provider that assumes the risk of paying health claims. Larger businesses, typically with 200 or more employees, generally choose to self-fund. In a self-funded plan, the employer assumes the risk of paying employee health claims and pays an administration fee to a health insurance company to administer claims. Self-funded employers often purchase a stop-loss insurance policy to insure against large health claims above a set dollar amount.
By focusing on the funding, type of plan and provider
Employers with self-funded plans have more flexibility to design health coverage details, but also experience greater compliance risk and administrative complexity. Fully insured plans often limit or exclude coverage for certain high-cost treatments for conditions such as autism and gender dysphoria. However, they are required to comply with state insurance requirements such as mandatory autism treatments in children up to a certain age. While self-funded employer plans are not subject to state insurance mandates and therefore have more freedom to exclude high-cost treatments, these coverage design choices still carry compliance risks because they are subject to federal laws like the Mental Health Parity and Addiction Equity Act of 2008. The Department of Labor’s Employee Benefits Security Administration has been increasing its investigation efforts with respect to mental health parity this year and employers are ultimately liable for any compliance failures.
Type of plan and provider network. There are many basic types of plan design that employers can choose from. Most health insurance plans utilize provider network agreements with the health insurer or administrator. The common types of provider network arrangements are:
- Health Maintenance Organization (HMO): An HMO provides care within the provider network. Participants must select a primary care provider and specialist visits often require a referral. Out-of-network care is generally limited to emergency services.
- Preferred Provider Organization (PPO): A PPO offers a large provider network for a higher monthly premium. Covered employees can choose in-network or out-of-network care. Specialist referrals are generally not required.
- Exclusive Provider Organization (EPO): With an EPO, employees have access to a smaller, local provider network. Premiums are generally lower than PPO premiums, and specialist referrals may or may not be required.
- Point of Service (POS) Plans: POS plans are a hybrid between HMO and PPO plans. Out-of-network coverage is limited and often comes with higher patient cost-sharing. Specialist visits require a primary care referral.
Less common plan design offerings that are marketed with an emphasis on cost savings to employers can come with increased compliance risks. Two such designs are reference- or value-based plans and “skinny” plans designed to cover Affordable Care Act (ACA) essential health benefits.
Reference-based health plans do not utilize provider networks. They reimburse claims up to a certain allowed amount, which is often a percentage of the Medicare reimbursement amount. Some employers have a traditional network-based plan and limit the reference-based model to out-of-network emergency and laboratory claims. While these plans may lower employer costs without reducing the number of covered services, they carry a higher degree of administrative risk due to uncertainties regarding compliance with newer legislation such as the No Surprises Act, which prohibits balance billing in certain situations.
“Skinny” health plans are designed to cover emergency and preventive care as required to meet the “minimum essential coverage” requirement of the ACA, but often exclude most or all inpatient and outpatient care. Although these plans may be marketed as being ACA-compliant, they often fail to provide ACA “minimum value” by covering such a small selection of medical services. Employers with 50 or more full-time employees or full-time equivalent employees should not choose skinny health plans due to the risk of Employer Shared Responsibility Payment penalty assessments.
Premiums and cost-sharing. One of the most important considerations for all businesses in choosing health coverage is the cost to both the employees and the employer. Costs to employees are spread between premiums and cost-sharing features such as copayments, co-insurance, deductibles and out-of-pocket maximums. Employers must carefully compare all of these cost elements for each coverage tier (bronze, silver, etc.) and level (employee-only, family, etc.) when reviewing options to find a plan that strikes a balance between affordable for the employer and competitive within the business’s labor market.
Higher deductible plans typically have lower premiums and vice versa. Deductibles for family coverage can be embedded, in which an individual deductible applies to each family member in addition to the overall family deductible. With an aggregate or non-embedded deductible, only the family deductible amount applies before the plan begins paying claims. Deductibles for medical and prescription benefits may be combined or separate. Copayment designs also should be given close attention, especially with respect to prescription drug benefits. Copay maximizer, accumulator or optimizer programs seek out and apply drug manufacturer coupons for high-cost specialty drugs to a participant’s cost-sharing amounts. These programs can present compliance issues with federal guidance on ACA essential health benefits, high deductible health plans and Health Savings Accounts (HSAs), and mental health parity.
Selecting or renewing employer health coverage can be overwhelming, with many options and factors to consider. However, by focusing on the funding, type of plan and provider network, and premiums and cost-sharing, businesses can hone in on plans that will fit their needs and budgets. Furthermore, insurance brokers and other third-party advisors can assist employers with choosing a health plan that meets their criteria. Some states also offer helpful health insurance resources for small businesses.
Hillary Sizer is an attorney with Ogletree Deakins, Atlanta. The American Rental Association (ARA) has a partnership with Ogletree Deakins to provide human resources help and guidance to ARA members. Learn more at ARArental.org/manage-business/HR.