In an effort to control costs, the types of medical plans offered have changed dramatically during recent years. The following table identifies the distribution of health plan enrollment over the period 1988 to 2007:

Source: Kaiser Family Foundation/Health Research and Educational Trust Employer Health Benefits 2007 Annual Survey.

Conventional Plans
These plans are also known as indemnity – the insurance company “indemnifies” the insured from loss. Employees pay for care and submit claims for reimbursement from the carrier. Conventional plans offer employees the greatest flexibility in choosing a licensed provider. The insurance carrier has no say in which provider the employee seeks for care (as long as the provider is licensed). However, with flexibility and lack of carrier oversight, increased costs have been the result – premiums and employee out-of-pocket expense tend to be higher under these plans.

Health Maintenance Organizations (HMO Plans)
Health Maintenance Organizations are “network” based plans.  In an effort to control costs, insurance companies negotiate contracts with networks of physicians to provide care to members. Generally, coverage is only available through network providers – the member selects a Primary Care Physician (PCP), or “gatekeeper” to manage their care. 

By controlling access to care and implementing cost saving guidelines, these plans tend to be less expensive than other plans while offering comprehensive benefits. Although successful in controlling costs, these plans have come under criticism for being inflexible to patient needs – insurers have recently modified their HMO plans offering greater flexibility and access to specialist care.

Preferred Provider Organizations (PPO Plans)
As you can see from the above chart, PPOs have grown substantially over the years and are now the most popular choice among employees – representing nearly 60% of all plans enrollment. PPOs control costs with flexible choices for members care.

Like HMOs they are network based plans – insurance companies negotiate discounts with providers of care. Unlike HMOs, these networks are typically larger in scale and offer members more flexibility in receiving care – such as self referring for specialist care. Members may also receive care from non-network providers, however in doing so the member incurs greater out-of-pocket expense. 

Point of Service (POS Plans)
POS plans are a “hybrid plan” combining features of HMOs and PPOs. Like HMOs, members select a PCP to manage their care – but they can also receive care without referral to non-network providers, however at higher out-of-pocket expense.  POS plans are popular with employers wanting to control costs while offering members flexibility.

Consumer Directed Health Plans (CDHPs)
Consumer Directed Health Plans (CDHPs) have recently come on the scene in an attempt to control the escalation of health care costs by involving the employee in the economic decisions of their own health care. 

Typically, a CDHP allows members to use personal tax free Health Savings Accounts (HSAs) to pay for care, coupled with a High Deductible Health Plan (HDHP) offering protection from catastrophic medical expenses. HSAs are funded on a pre-tax basis and are deposited to the employees account – funds are “owned” by the employee and can be used to accumulate wealth on a tax favored basis. Because the funds are owned by the employee they are portable – they “move” with the employee who changes or leaves employment. Because the HDHP does not provide for first dollar coverage, these plans are less expensive.

For CDHPs to be understood and accepted by employees, an effective education and communications strategy is essential.   

Additional Resources:
America’s Health Insurance Plans - Questions and Answers about Health Insurance
Department of the Treasury (IRS) – “All About HSA's”
Sterling HSA – “About HSA's”
Health Decisions.org – “Health Savings Accounts – Q&A”

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