Choosing health insurance options and providers

The legal landscape of employer-sponsored health insurance is evolving rapidly. 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.

Financing. The two main types of employer-sponsored health plans are self-funded and fully insured. Small businesses typically choose fully insured plans where the employer pays a non-refundable premium
to a health insurance provider who assumes the risk of paying health claims. Larger businesses, usually with 200 or more employees, usually choose to be self-funded. In a self-funded plan, the employer assumes the risk of paying employee health claims and pays an administrative fee to a health insurance company to administer claims. Self-funded employers often purchase a loss insurance policy to insure against large health claims above a certain dollar amount.

By focusing on funding, plan type and provider
network, premiums and cost sharing, businesses can perfect plans that will fit their needs and budgets.

Employers with self-funded plans have more flexibility in designing the details of health coverage, but also experience greater compliance risk and administrative complexity. Fully insured plans often limit or exclude coverage for certain expensive treatments for conditions such as autism and gender dysphoria. However, they are required to comply with state insurance requirements, such as mandatory autism treatment for children up to a certain age. Although self-funded employer plans are not subject to state insurance mandates and therefore have more freedom to exclude costly treatments, these coverage design decisions still carry compliance risks because they are subject to federal laws such as the Equal Opportunity Act of Mental Health and Addiction Justice Act of 2008. The Department of Labor’s Employee Benefits Security Administration increased its investigative efforts regarding mental health parity this year, and employers are ultimately held accountable for any noncompliance.

Plan type and provider network. There are many basic types of plan designs that employers can choose from. Most health insurance plans use provider network agreements with the health insurer or administrator. Common types of provider network arrangements are:

  • Health Maintenance Organization (HMO): An HMO provides care within a network of providers. Participants must select a primary care provider, and specialist visits often require a referral. Out-of-network care is usually limited to emergency services.
  • Preferred Provider Organization (PPO): A PPO offers a large network of providers for a higher monthly premium. Covered employees can choose in-network or out-of-network care. Recommendations from a specialist are generally not required.
  • Exclusive Supplier Organization (EPO): With 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. Visits to a specialist require a referral to primary care.

Less common plan design offerings that are marketed with an emphasis on cost savings for employers may come with increased compliance risks. Two such designs are benchmark or value-based plans and “skinny” plans designed to cover the essential health benefits of the Affordable Care Act (ACA).

Referral-based health plans do not use provider networks. They reimburse claims up to a certain allowable amount, which is often a percentage of the Medicare reimbursement amount. Some employers have a traditional network plan and limit the referral model to out-of-network emergency and lab claims. While these plans can reduce employer costs without reducing the number of services covered, they carry a higher degree of administrative risk due to uncertainty 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 necessary to meet the ACA’s “minimum essential coverage” requirement, but often exclude most or all inpatient and outpatient care. Although these plans may be marketed as 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 or full-time equivalent employees should not choose weak health plans because of the risk of penalty assessments for paying the employer’s shared responsibility.

Premiums and cost sharing. One of the most important considerations for all businesses when choosing health coverage is cost to both employees and the employer. Employee costs are allocated between premiums and cost-sharing features such as copayments, coinsurance, deductibles, and out-of-pocket maximums. Employers should carefully compare all of these cost items for each coverage level (bronze, silver, etc.) and tier (employee only, family, etc.) when reviewing options to find a plan that achieves balance between affordable for the employer and competitive in the business labor market.

Plans with higher deductibles tend to have lower premiums and vice versa. Deductibles can be built in for family coverage, where an individual deductible applies to each family member in addition to the total family deductible. With a shared or non-built-in deductible, only the family deductible applies before the plan starts paying claims. Deductibles for medical benefits and prescription benefits can be combined or separate. Copayment design also needs to be carefully considered, especially with regard to prescription drug benefits. Copayment maximization, accumulation, or optimization programs look for and apply drug manufacturer coupons for expensive specialty drugs to participants’ cost-sharing amounts. These programs may present compliance issues with federal guidelines on the ACA’s essential health benefits, high-deductible health plans and health savings accounts (HSAs), and mental health parity.

Choosing or renewing employer health coverage can be overwhelming, with many options and factors to consider. However, by focusing on financing, plan type and provider network, as well as premiums and cost sharing, businesses can navigate plans that will fit their needs and budgets. In addition, insurance brokers and other third-party advisors can assist employers in selecting a health plan that meets their criteria. Some states also offer helpful health insurance resources for small businesses.

Hilary Sizer is an attorney at Ogletree Deakins in Atlanta. The American Rental Association (ARA) has a partnership with Ogletree Deakins to provide HR assistance and guidance to ARA members. Learn more at ARArental.org/manage-business/HR.

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