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ARTICLE

The difference between common health plan types

If weighing health plan options for your employees seems daunting, that’s understandable. It can be overwhelming to make sense of provider networks, deductibles, payment accounts, and a parade of acronyms.


But don’t worry. By getting more familiar with the basic plan types and what they offer, you’ll have a better idea of what makes the most sense for your company.
 

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HMO, DHMO, PPO, or POS?

While all health plans offer basic preventive care, it’s important to understand the key differences. Like how much your employees will pay out of pocket, whether they’ll need a referral to see a specialist, and whether they can choose doctors who are outside of the plan’s contracted network.


The type of plan you choose will have an impact on your cost as well as the costs your employees will face when they need care. The following information applies to most plans within each general category.
 

Plan Type HMO plan Deductible  HMO plan PPO plan POS plan
What is it? A plan that covers care provided by in-network physicians, with predictable copays and out-of-pocket maximums. An HMO plan that shares costs between the employer and employees, and offers lower premiums.  A plan that offers referral-free access with the benefits of single-carrier administration. A plan that offers point-of-service (POS) care, with the option of choosing physicians and services from an external provider network.
What’s the advantage for
employees?
  • Lower out-of-pocket costs
  • Care coordinated by a primary care physician
  • Lower premiums than regular HMO plans
  • Care coordinated by a primary care physician
  • Broader choice of primary care physicians
  • No referrals required for specialists
 Broader choice of primary care physicians
Is there out-of-network coverage? No (except for emergencies) No (except for emergencies) Yes, but at a higher cost Yes, but at a higher cost
Annual deductible?
 No Yes Usually
 No (for in-network
coverage)
Copays? Yes Yes No Yes (for in-network
coverage)
Is a primary care physician
required?		 Yes Yes No Yes
Is a referral required to
see a specialist?		 Usually Usually No Usually
Plan Type
: 
HMO plan
What is it?
A plan that covers care provided by in-network physicians, with predictable copays and out-of-pocket maximums.
What’s the advantage for
employees?
  • Lower out-of-pocket costs
  • Care coordinated by a primary care physician
Is there out-of-network coverage?
No (except for emergencies)
Annual deductible?
No
Copays?
Yes
Is a primary care physician
required?
Yes
Is a referral required to
see a specialist?
Usually
Plan Type
: 
Deductible  HMO plan
What is it?
An HMO plan that shares costs between the employer and employees, and offers lower premiums. 
What’s the advantage for
employees?
  • Lower premiums than regular HMO plans
  • Care coordinated by a primary care physician
Is there out-of-network coverage?
No (except for emergencies)
Annual deductible?
Yes
Copays?
Yes
Is a primary care physician
required?
Yes
Is a referral required to
see a specialist?
Usually
Plan Type
: 
PPO plan
What is it?
A plan that offers referral-free access with the benefits of single-carrier administration.
What’s the advantage for
employees?
  • Broader choice of primary care physicians
  • No referrals required for specialists
Is there out-of-network coverage?
Yes, but at a higher cost
Annual deductible?
Usually
Copays?
No
Is a primary care physician
required?
No
Is a referral required to
see a specialist?
No
Plan Type
: 
POS plan
What is it?
A plan that offers point-of-service (POS) care, with the option of choosing physicians and services from an external provider network.
What’s the advantage for
employees?
Broader choice of primary care physicians
Is there out-of-network coverage?
Yes, but at a higher cost

Annual deductible?
No (for in-network
coverage)
Copays?
Yes (for in-network
coverage)
Is a primary care physician
required?
Yes
Is a referral required to
see a specialist?
Usually

HSA, HRA, or FSA?

Consumer-directed health care plans help you manage costs and offer convenience and flexibility to your employees. They work by pairing health plans with health payment accounts — HSA, HRA, or FSA — which your employees can use to pay for certain medical expenses. Here’s a comparison of the accounts and what they offer.

 

Account type
 HSA: health savings account HRA: health reimbursement arrangement FSA: flexible spending account
What is it and who owns it? An employee-owned financial account used to pay for qualified medical expenses1 An employer-owned account used to help employees pay for qualified medical expenses not covered by their health plan2 An employer-owned financial account used by employees to pay for qualified expenses3
Who contributes? Employees, employers, or both Employers only Employees, employers, or both
What’s the advantage for employees?
  • Contributions are pretax; can be invested4
  • Unused money rolls over
  • Can use it to pay for dependent medical expenses
  • Keep the money even after job change or retirement
  • Employer contributions are not part of wages, so they are tax-free5
  • Unused money may roll over; employer decides how much
  • Contributions are pretax6
  • Can make incremental contributions, but still use the full annual amount right away7
What’s the advantage for employers? Can choose to contribute or not
  • Contributions are tax deductible8
  • Can choose which qualified medical expenses money can be used for
  • Can choose if money rolls over at year end
  • Can choose to contribute or not
  • Can choose to allow some unused money to roll over
Account type
: 
HSA: health savings account
What is it and who owns it?
An employee-owned financial account used to pay for qualified medical expenses1
Who contributes?
Employees, employers, or both
What’s the advantage for employees?
  • Contributions are pretax; can be invested4
  • Unused money rolls over
  • Can use it to pay for dependent medical expenses
  • Keep the money even after job change or retirement
What’s the advantage for employers?
Can choose to contribute or not
Account type
: 
HRA: health reimbursement arrangement
What is it and who owns it?
An employer-owned account used to help employees pay for qualified medical expenses not covered by their health plan2
Who contributes?
Employers only
What’s the advantage for employees?
  • Employer contributions are not part of wages, so they are tax-free5
  • Unused money may roll over; employer decides how much
What’s the advantage for employers?
  • Contributions are tax deductible8
  • Can choose which qualified medical expenses money can be used for
  • Can choose if money rolls over at year end
Account type
: 
FSA: flexible spending account
What is it and who owns it?
An employer-owned financial account used by employees to pay for qualified expenses3
Who contributes?
Employees, employers, or both
What’s the advantage for employees?
  • Contributions are pretax6
  • Can make incremental contributions, but still use the full annual amount right away7
What’s the advantage for employers?
  • Can choose to contribute or not
  • Can choose to allow some unused money to roll over

The more you learn about health plans, the easier it will be to choose the option that works best for your employees and your business.

 

Learn more about small business plans offered by Kaiser Permanente.

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Footnotes

  • 1Qualified medical expenses are described in IRS Publication 502, Medical and Dental Expenses, available at irs.gov/publications

  • 2See note 1.

  • 3See note 1.

  • 4Relates to federal income tax only. Consult with your financial or tax advisor for more information about state income tax laws.

  • 5See note 4.

  • 6See note 4.

  • 7See note 4.

  • 8See note 4.